Buy Century Plyboards with a Target of Rs 205/-

Century Plyboards is India’s premier wood-panel company and the first ISO 9002 company for veneers and plywood. It has manufacturing plants in north (61,000m3), 72,000m3 in the eastern region and 39,420m3 in the southern region.  With an asset-light model and a ~25% market share in the organised market, it has positioned itself among the leading plywood manufacturers. It manufactures the entire range of commercial, marine, concrete, shuttering and decorative plywoods. It has an all-India presence and operates mainly in two segments: plywood and laminates. Plywood brings in ~76% of its revenues, laminates about 18%. The rest arises from its logistics division. The company has six plywood manufacturing plants across India and one in Myanmar.

Besides its operations in India, it exports a wide range of premium products to more than 20 countries. The laminate range, Century Mica, is widely acclaimed by global customers as a product of quality. The range of products meets stringent international standards.

The company is a good fit for the discretionary spending theme that I continue to like and is also a good proxy for the real estate sector as the demand-supply dynamics in this segment greatly depend on real- estate-sector growth/churn and changing lifestyle preferences.  Changing lifestyles are now greatly influencing our decisions in home decoration.  Thus, not only is real estate sector expected to return to better days, but housing derivatives such as sanitaryware, plumbing, electricals, woodwork, etc.,  could outpace growth in real estate.  Additionally commercial spaces are also expected to register robust growth.

The size of the plywood sector is estimated at ~`160bn, with laminates at `42bn, and has registered a 6% CAGR in the past five years. Within this, the organised sector accounts for a mere 30% and going ahead could outstrip sector growth at 25-30% as brand equity, quality, amongst others, make their impact felt on the dynamics of demand. GST implementation could further erode the share of the unorganised sector.

Century Plyboard reported better than expected earnings for the quarter ended September 2014. It reported net profit at Rs 35.8 crore versus Rs 22 crore year on year. Net sales for the company came in at Rs 404.8 crore versus Rs 34.9 crore Y-o-Y.

The company is confident of sustaining margins around 16%  for the full year on back of new operational  facilities.  The EBIT margins for the laminate business came around 10 percent for the second quarter versus 6 percent in the previous quarter due to 90% the doubled expanded capacity becoming operational. Moreover, the company is optimistic of clocking 25% revenue growth for the full year.

The companies greenfield expansions with its recently-comissioned plant in Gujarat (31,000m3) will fuel revenue growth. In pursuance of its strategy to be close to its markets, the company now has a competitive edge in tapping western markets aggressively. This would be ably aided by the increase in its laminate capacity (2x) and widening of its product offerings (~100 SKUs a year).

GST implementation is expected to help organised players and enable them to capitalise their brand equity, also its 100% subsidiary in Myanmar has helped the company counter the ban on timber imports.

Going forward its strong balance sheet and the healthy returns will help the company get a 25% revenue CAGR over FY15-16E, this coupled with a lower currency fluctuation risk and possibly lower interest rates would further help.  I would BUY this stock with a target of Rs 205/-  assigning a ~24X PE to is FY16E EPS of Rs 8.5.

 

Comments

  • your report is very good. your insight will benefit the investors.

    durlabhNovember 5, 2014
    • thanks for the kind words!

      Sharmila

      Sharmila JoshiNovember 7, 2014
  • Which is the correct price for buying ?

    Sunil JoshiNovember 13, 2014
    • My target is achieved, keep reading my blog and buy as and when I recommend a stock, thanks for writing in.

      Sharmila JoshiApril 8, 2015
  • Madam,

    Century Plywood share price is not able to keep the gain achieved during the day. It goes up well during the good day but at the same time comes back down at the end of the day. Therefore, the price is where it was some weeks back.

    prasad madhavNovember 25, 2014
    • My target is achieved, but you can stay invested

      Sharmila JoshiApril 8, 2015
  • Do you think its a good idea to stay invested in this stock now ?

    SathyanApril 29, 2015
    • yes, the story is not over

      Sharmila JoshiJuly 29, 2015

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