Q4FY23 Review: Century Plyboards(I): Plywood drives beat; sanguine outlook

17 May 2023 , 12:05 PM

Century Plyboards (CPBI) reported a strong beat in Q4FY23, driven by its core Plywood segment. Management reiterated a sanguine outlook across key segments of Plywood, Laminates and MDF; despite headwinds like timber price hike and rising supply from imports/domestic competition. CPBI’s capex projects remain broadly on track. However, it has been scaling down its near-term growth and margins guidance over the last 2 quarters.

Q4FY23 earnings surprise driven by Plywood: 

CPBI reported a beat across revenue/Ebitda /PAT, led by surprise in Plywood segment which registered 12% volume growth and healthy margins of 15.9%. Plywood demand came in from both the Premium and Sainik segments, and the effect of 2% price hike taken in Jan 2023. In the MDF segment, realizations were flat QoQ, despite increase in imports and start of new capacities; though volumes declined marginally YoY/QoQ. Particle Board prices were cut by ~10% in Jan, regardless of which margins and volumes were negatively impacted on a QoQ/YoY basis.

Demand robust, but supply-side issues to weigh: 

Timber shortage (in Ply/MDF segment) is likely to persist over the next couple of years. Higher imports and upcoming capacities in the MDF segment will keep realizations and margins under pressure; although mgmt remains confident over the medium term given strong continuing demand. In the Ply segment, CPBI continues to gain market share from unorganised market (through ‘Sainik’ brand). In Laminates, despite increasing competition CPBI is confident of strong volume growth, due to initiatives like introducing ‘Sainik’ Laminates and focus on exports.

Marginal cut to FY24/25 estimates; retain BUY: 

Over the last few quarters, CPBI has revised near-term guidance downwards, largely for margins in the MDF/PB and Laminates segments. While key capex projects remain on track, there have been a downward revision to Particle Board Capacity as well. Analysts of IIFL Capital Services now build ~16% earnings growth over FY23-25, driven largely by volume growth. The stock trades at 25x FY25 EPS, broadly in line with its 5yr average multiple.

Analysts of IIFL Capital Services maintain buy with target price price of Rs 630.