Buy Century Plyboards For Target Price Of Rs. 747 (46% Gain): ICICI Securities

Demand trends remain favourable

We re-iterate BUY on Century Plyboards (CPBI) as demand continues to remain healthy for wood panel products. Our recent interaction with dealers and the management of Century Plyboards (CPBI) indicates that in the currently ongoing Q1FY23, demand trends are steady across segments like plywood, laminates and MDF on continued pick-up in residential market and higher spend on home improvement post the pandemic. CPBI has taken price increase of ~2-4% in plywood segment and ~3-4% in laminates during Q1FY23, which should enable it to mitigate the raw material price pressures and thus, enable margin to remain steady going ahead. CPBI management had earlier guided for 15-25% revenue growth across segments in FY23. We maintain estimates and our BUY rating on the stock with an unchanged Mar’23E target price of Rs747.

► Demand trend remains steady: The demand for wood panel products remains steady in Q1FY23 driven by continued uptick in residential housing market in India and higher spend on home improvement post the pandemic, as per our interaction with dealers and company management. MDF demand continues to remain healthy as ready-made furniture market continues to do well due to its increased acceptance. Plywood demand, too, has been steady with housing market continuing to revive post the pandemic. CPBI management has guided for ~20% revenue growth in plywood, 25% in MDF and ~15% in laminates segment for FY23. We model revenue CAGR of 18% during FY22-24E aided by growth in MDF segment.

► Price increase in plywood and laminates to aid margin sustenance: CPBI has taken price increase of ~2-4% in plywood and ~3-4% in laminates during the ongoing quarter (Q1FY23). This price increase will help negate the increased prices of wood and other materials and enable the company to maintain margins going ahead. CBPI management believes margins will be in their guided range of 13-15% for plywood, 14-16% for laminates and 25%+ for MDF in FY23. We model 30bps improvement in margins over FY22-24E due to increased contribution of high margin MDF segment on account of commissioning of new capacities.

► Capacity addition on schedule: CPBI’s ongoing MDF brownfield expansion in Hoshiarpur, Punjab is expected to commission by Oct’22 and its greenfield expansion in Andhra Pradesh is likely to commission in H2FY24. Greenfield laminates capacity first phase of expansion in Andhra Pradesh will commence production in Q2FY24. All the announced capex is on schedule and the management plans to fund them primarily from internal accruals.

► Maintain BUY: We continue to like CPBI for its strong growth prospects, high return ratios and healthy balance sheet and believe it will be a major beneficiary of the uptick in housing demand and higher spend on home improvement post the pandemic. Maintain estimates and Mar’23E target price of Rs747, set at unchanged 35x PER FY24E. Key risks to our call: 1) Slowdown in housing demand, 2) continuing higher input prices, which may adversely affect demand / profitability.