Century Plyboards - Balance sheet strengthens; encouraging outlook - ICICI Securities

CPBI delivered an impressive Q2FY21 beat on all counts: a) sustained volume growth recovery in MDF/PB segment; b) sharp improvement in MDF margins driving 80bps YoY improvement in its overall EBITDA margins; c) strong balance sheet strengthening led by strict working capital discipline and consequent sharp reduction in debt QoQ by ~Rs1.6bn. Management outlook too remains optimistic with Oct'20 witnessing record overall revenues and both the core segments - plywood and laminates - delivering double-digit YoY growth. EBITDA margins too are likely to improve in H2FY21 driven by operating leverage, benign input costs and sustained cost optimisation. Maintain BUY.

- Valuation and outlook: Factoring in-line Q2 numbers, we revise our revenue and earnings estimates by 3%/-0.6% and 14.2%/7.5% for FY21E/FY22E, respectively. We now expect CPBI to report revenue and adjusted PAT CAGRs of 0.6% and 12.6% respectively over FY20-FY22E. We maintain our BUY rating with a revised target price of Rs234 (earlier: Rs218) valuing the stock at 22x FY21E earnings.

- Core product segment (plywood and laminates) revenue declined 18.4% YoY. Better than expected volume recovery in the core plywood and laminate segments (which declined 15.5%/25.5% YoY respectively for the quarter) led to a mere 12% YoY decline in the company's overall revenues to Rs5.2bn (I-Sec: Rs5bn). Both plywood and laminate realisations declined 2.7% and 4.2% YoY respectively led by adverse product mix. Sustained decline in commercial veneer sales and DV revenue led to a sharper decline in plywood segment revenues. Segmental margins declined 90bps for both plywood and laminate segments largely due to operating deleverage and adverse mix. Management expects both the segments to recover impressively (Oct'20 already registered a YoY growth) in H2FY21 driven by expected recovery in metros and tier-1 cities and increased traction from its recently launched virus-free range of plywood and laminate products.

- MDF segment delivers 20% YoY growth with all time-high margins. MDF reported 19% YoY volume growth for the quarter. With realisations higher by 1% YoY, MDF revenues grew sharply by 20% YoY. Segmental EBITDA margin too improved sharply by 580bps to 28.1%% largely due to operating leverage and improved pricing. The impressive MDF recovery was largely driven by higher OEM demand, which is likely to sustain in the medium term. Management is likely to take a call on the location (Sitapur, Uttar Pradesh or South India) of its greenfield project by Dec'20 and expects commissioning in subsequent 15-18 months.

- Gross debt reduces sharply QoQ. Impressive profitability, strict working capital management and muted capex is expected to drive strong FCF in FY21E, which in turn would be utilised to further pare down its debt (currently at Rs850mn) - the company thus is likely to be debt-free by the end of current fiscal.

Shares of CENTURY PLYBOARDS (I) LTD. was last trading in BSE at Rs.202.05 as compared to the previous close of Rs. 194.5. The total number of shares traded during the day was 57665 in over 1585 trades.

The stock hit an intraday high of Rs. 210 and intraday low of 194. The net turnover during the day was Rs. 11580500.

Source : Equity Bulls

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