Reduce Century Plyboards Ltd for the Target Rs.780 By Emkay Global Financial Services Ltd
Better volume growth, though recovery in profitability to be gradual
Century Plyboards (CPBI) delivered better-than-expected sales volume growth in Plywood and MDF divisions; the management has upgraded its growth guidance. Accordingly, we raise our revenue estimates by 2-4% for FY26/27/28 which translates to 16.5% revenue CAGR over FY25-28E. On the profitability front, our estimates in the Plywood segment are already at the higher end, while in the other key segment – MDF, the ability to hike prices is limited (oversupply in the industry). Hence, EBITDA margin improvement in MDF would be gradual and largely driven by better operating leverage. Considering the improved EBTIDA margin (consolidated) in Q2FY26, we marginally increase our estimates by 10-20bps for FY26/27, while keeping our FY28E unchanged at 13.6%. We retain REDUCE, while raising our TP by 10% to Rs780 (Rs710 earlier) due to rollover to Sep-27E and tweaks in our estimates.
Better-than-expected volume growth in Plywood and MDF; guidance upgraded
Sales volume grew 16% YoY in Plywood in Q2FY26, while clocking 21% YoY growth in the MDF segment, ahead of our expectations. Sales volume in the Particle Boards (PB) segment declined 4.8% YoY, while seeing muted 1.6% YoY growth in the Laminates segment. The management has increased its FY26 value growth guidance for Plywood/MDF segments to 13%/25%, respectively. The growth guidance for PB has been retained at 40%, though lowered for Laminates to 15-17% for FY26. Factoring in better Q2FY26 performance and increase in the growth guidance, we raise our revenue estimates by 2-4% for FY26/27/28 which translates to 16.5% revenue CAGR over FY25-28E to Rs71.6bn.
Recovery in profitability to be gradual in MDF; limited ability to hike prices
Consolidated EBITDA margin expanded by 160bps QoQ to 12.6%. Plywood’s standalone EBITDA margin contracted 40bps QoQ to 13.7%, yet remained ahead of expectations. Profitability in the MDF division (consolidated) contracted by 150bps QoQ to 13.6%, mainly due to weak realizations (adverse product mix). Also, the Particle Boards segment reported EBITDA loss of Rs13mn in Q2FY26 (weak operating leverage; adverse product mix).
RM prices for MDF (timber and chemicals) were higher in Q2FY26 amid extensive monsoon; however, they are likely to cool off ahead. Further, we expect manufacturers to have limited ability to hike MDF prices (oversupply in the industry + ongoing expansions + likelihood of further expansions). Hence, improvement in profitability would be gradual, driven by better operating leverage. We marginally increase EBITDA margin by 10-20bps to 12.1%/13.0% in FY26E/27E, respectively, and retain 13.6% for FY28E.
Maintain REDUCE
We have increased our revenue estimates to factor in better growth in Plywood and MDF divisions in Q2FY26. However, we continue to bake in a gradual recovery in profitability amid limited scope to hike prices in the MDF segment. We remain watchful of pricing dynamics as players focus on volume push to gain market share. Though our TP has increased by ~10% to Rs780 (roll over to Sep-27E EPS; valued at 32x), we retain REDUCE on the stock
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