First of all, the question is why should we listen to Saurabh Mukherjea and pay attention to his stock picks? The answer is that Saurabh has a proven track record of picking winning stocks. TVS Motors is a shining example of this. Even after the stock gave a 334% YOY return, Saurabh goaded investors to keep buying with the promise that there was “plenty of headroom” and “lot of upside” left in the stock, which has come true. IPCA Labs is another example. When the stock was in the doldrums, Saurabh came out strongly in support of the stock. Motilal Oswal, a stock that was in the dog-house, is yet another example. Also, his “10-bagger stocks portfolio” is a hot favourite amongst savvy investors. His piece on “How Long Will The Stock Market Rally Last? What Stocks To Buy?” also reflects his analytical ability and give us important insights on what we should do.
Saurabh Mukherjea has now given crisp advice about Century Plyboards. He has recommended a buy on the logic that the company will deliver 52% EPS CAGR over FY 2014-16 backed by volume traction and margin expansion.
The best way to understand Century Ply is to see read the inspiring “Investors’ Presentation” prepared by Emkay. What the presentation tells you is that the Indian plywood and panel industry is worth a mammoth Rs. 15k crore and that 30% of this is serviced by the organized sector. Of this, 50% is controlled by two players, Century Ply and Green Ply. The overall industry is expected to grow at 10% while the organized sector is expected to grow by 25% to 30%.
Coming to the specifics of Century Ply, it is an established company with industry veterans as its management. The company boasts of well-known brands and is promoted by leading celebrities. Over the past 10 years, the company has reported a 25% CAGR in income and profits, which is quite commendable. Also, the promoters hold nearly 75% of the equity. The company has richly rewarded investors with a 7000% return since the IPO in 1997, apart from uninterrupted dividends.
There is a lot of information in the presentation about Century Ply’s future plans. The Company is targeting a “minimum” YOY growth of 25% and plans to reach sales of Rs. 5000 crore and EBIDTA of Rs. 500 crore by 2010.
Next you have to listen to the interview of Mr. Sajjan Bhajanka, MD. He said that the capacity expansion at two units was complete and that there would be a “big jump” in volumes. He added that while the growth rate has been around 20-25% since the last 20 years, this year it is likely to be much more because of the added capacity.
You should also read up the research reports by Anand Rathi and Emkay which explains everything that is there to know about Century Ply. Emkay calls Century Ply a “compelling value proposition” (when the stock was at Rs. 58 & then at Rs. 90) and that GST will be a potemtial “game changer“.
The other thing that we must keep in mind is that stock wizards Ashish Dhawan and Prashant Jain are betting big on GreenPly on the basis that such stocks will benefit handsomely from NAMO’s 100-Cities plan.
In this background, Saurabh Mukherjea’s advice to buy Century Plyboards on the basis of expected 52% EPS CAGR over FY 2014-16 backed by volume traction and margin expansion makes a lot of sense.