Century Plyboards: Maintain ‘buy’, TP at Rs 220

Century Plyboards’ (CPBI) strong execution capabilities have been its key success mantra over the last decade. Besides being one of the top two players in the branded plywood space and one of the fastest growing laminate brands, the company is now setting its eyes on becoming one of the top two MDF players over the next 2-3 years.

Its recent foray and success in the MDF segment (despite facing over-supply headwinds in the industry) reaffirms its execution skills. With the growth in plywood segment expected to pick-up gradually and the company expanding aggressively in its boards (MDF and PB) segment, we expect CPBI’s growth momentum to sustain over the next 2-3 years. Driven by double digit revenue growth in laminates, MDF and PB segments and margin improvement in plywood, laminates and MDF segments, we expect CPBI to report revenue and PAT CAGRs of 7.6% and 28.5%, respectively, over FY19-FY21E. Maintain our ‘Buy’ rating on the stock with an unchanged target price of Rs 220, valuing it at 20x FY21E earnings.

Growth in plywood volume/revenue in the recent past has been under pressure due to sustained decline in volume/ realisation of commercial veneers (CV). With CV volume/ realisation now in the base and the core plywood segment expected to gradually pick-up from next fiscal, we expect CPBI’s plywood volumes/ revenues to report single-digit growth in FY21. Plywood margin, too, is likely to improve led by lower sourcing cost of CVs from Gabon.

Laminate segment, however, is likely to sustain double-digit growth aided by the recently launched new catalogue (in Q3CY20), focus on lower thicknesses and traction in exports.

Despite over-supply headwinds in the MDF industry, CPBI’s near-perfect execution has led to strong market share gains and uptick in its realisation – enabling it to report over 20% Ebitda margin in the current fiscal.