Q3FY24 Review: Century Plyboards(I): Tough quarter; muted near term outlook

6 Feb 2024 , 02:22 PM

Century Plyboards (CPBI) reported earnings miss driven by margin weakness across segments. Demand remains sluggish with recovery now expected to be protracted as real estate project completions will drive demand for woodpanel products. While the mgmt scaled down its FY24 guidance, it is also undertaking various initiatives to continue outperforming the industry to gain market share, retain its leadership position especially in the premium end of product segment. Analysts of IIFL Capital Services cut EPS estimates by 5.5- 6.6% for FY24-25 on lower volume assumptions, but remain positive over the medium term. Retain BUY with TP of ₹850, implying a 14% upside. 

Q3FY24 misses estimates: 

CPBI reported in-line revenues (+6% YoY) although margins were lower than estimates (at 11.3%, >300bps lower YoY/QoQ). Plywood margins (-360bps QoQ) were lower due to dealer meet expenses (Rs70mn) and engagement of the management consultant to revive sales of premium plywood products. MDF/PB margins (-730bps/- 680bps QoQ) were impacted due increased imports lowering realisations and raw material cost inflation. Laminates margins were impacted due to investment in a new team for marketing of Sainik Laminates. 

BIS implementation could bring-in much needed demand tailwinds: 

Govt is expected to enforce the BIS standards (applicable from Mid-Feb) which is likely to restrict cheap MDF and Particleboard imports into India. However, mgmt expects the positive impact on CPBI sale volumes to come-in only from Q1FY25 onwards due to the presence of existing inventory in the system. Further, mgmt also expects moderation in timber prices over the next 12 months, which will ease margins pressures across Ply/MDF/Particle board segments. 

Remain constructive over medium term; BUY: 

Mgmt is now guiding for a single digit/ flat/ >20% growth in the Plywood and Laminate/ Particleboard and MDF segment respectively in Q4. Mgmt has largely retained its Plywood margin guidance, while Laminate, MDF and Particle Board margin guidance has been revised downwards. Mgmt expects Real estate project completions (launched post covid) to drive demand for Woodpanel 2025 onwards. Analysts of IIFL Capital Services cut their FY24-26 EPS estimates by 5-7%, build ~18% earnings Cagr over FY23-26, retain BUY.