Reduce Century Plyboards Ltd For Target Rs. 710 By Emkay Global Financial Services Ltd
Plyboards (CPBI) saw weaker-than-expected profitability in Q1FY26, mainly due to higher ad and promotional expenses. Pricing pressures and higher timber cost for Particle Boards (PB) impacted profitability of the division. The company’s recent capacity additions in various segments, forthcoming enhancements, coupled with the entrenched channel network, would lead to better growth over the medium term. Timber costs in MDF and PB (which had earlier declined sequentially) have again rebounded and we remain watchful of the movement in coming quarters. Ability to hike prices in MDF and PB remains limited amid supply pressures. Hence, we expect a revival in profitability to be gradual. We maintain REDUCE and our TP of Rs710.
Better volume growth in plywood and MDF; others segment remains muted
CPBI’s plywood sales volume grew 10% YoY in Q1FY26, while the MDF segment clocked 19% YoY volume growth on the back of availability of incremental capacity. Nonetheless, sales volume in PB declined 12% YoY, whereas the laminates (ex-Exteria grade) segment grew 6.6% YoY. The management maintained its FY26 guidance for 10%/20%/20%/40% value growth in plywood/laminates/MDF/PB segments, respectively. Factoring in a marginally better volume performance, we largely maintain our revenue estimates for FY26/27 and introduce FY28E (16% revenue CAGR over FY25-28E to Rs70bn).
Timber prices rebounding; we remain watchful of future trends
Plywood EBITDA margin was higher at 14.1% in Q1, although 90bps lower QoQ, leading to the company’s standalone EBITDA margin contracting by 120bps QoQ to 11%. Owing to cost optimization and improvement in the operating leverage, EBITDA margin in the MDF division expanded by 300bps QoQ. In the Particle Boards segment, profitability was impacted due to pricing challenges and higher timber prices. The laminates division’s profitability was better QoQ and further improvement would be gradual.
Timber cost for MDF (which had earlier declined) rebounded and continues to be volatile. Further, the ability to hike prices remains limited amid supply pressures (current oversupply + new capacities by peers). Hence, we expect profitability to revive gradually. We trim our EBITDA margin by 20-70bps to 11.9%/12.9% in FY26E/27E.
Maintain REDUCE
Growth in the Plywood and MDF divisions was better during the quarter. While we build in a gradual recovery in profitability, we anticipate that a meaningful and sustainable recovery could take time, as the scope to hike prices is limited (supply pressures) and cost pressures remain elevated (rebounded after softening in Q1FY26; remain volatile). Hence, we retain REDUCE and our TP of Rs710 (valued at 32x on Jun-27E EPS).
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