PL Stock Report: Century Plyboard (I) (CPBI IN) - Q1FY24 Result Update - Result below est. maintain higher margin guidance - BUY

Century Plyboard (I) (CPBI IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs629 | TP: Rs800

Q1FY24 Result Update - Result below est. maintain higher margin guidance

Century Plyboards (CPBI) has upgraded its annual guidance related EBITDA margin across its segments Plywood/Laminates/MDF to 14%/13-15%/~25% from 12-14%/12-14%/20-25%. However, company has reduced its vol. growth guidance for Plywood/Laminates/MDF to 7%/12-15%/20% from 13%/25%/30%, respectively. Plywood segment (56%rev.) continued its vol. growth and higher realization trajectory in quarter with healthy guidance, even after increased timber prices, which shows CPBI leadership in segment. Timber prices increased sharply in July-23, which will compensated with premium product mix improvement for CPBI in Plywood/MDF. MDF segment maintained its higher realisation of Rs 34,752/CBM, while margin down to 26%. Consolidated EBITDA margin contracted to 14.9% with oneoff expenses in laminates (~Rs 40mn) and lower MDF margin due to increase in raw-material prices, which expected to improve in coming quarters.

We are maintaining our positive view considering 6.5%/13.4%/20.3% volume growth and 16.3% consolidated EBITDA margin in FY24. We estimate FY23-25E Revenue/EBITDA/PAT CAGR of 13.3%/19.9%/15.1%, with Plywood /Laminates/MDF volume CAGR of 9.1%/14.2%/34.4%. We have tweaked our FY24/FY25 earnings to adjust oneoff expenses in Q1FY24 and change in vol./margins guidance by CPBI across segments. We value the stock at 35x FY25 EPS and arrive at TP of Rs800. Maintain ‘BUY’ rating.

Revenues flat YoY, PAT decline 5.9% YoY: Rev. flat YoY to Rs8.9bn (PLe: Rs9.6bn). Plywood/Laminate/MDF/Particle boards (contributed ~56% / 17% / 19% / 4%) revenue at Rs 5.0bn/1.6bn/1.7bn/0.4bn (+3.1%/-4.7%/+7.2%/-22.7 YoY), was ahead of our estimate of Rs5.2bn/1.9bn/1.9bn/0.4bn, respectively. GM expanded 20bps YoY to 48.4%, (PLe:45.8%) despite sustained input cost pressure in most of the wood panel segments. EBITDA was Rs1.3bn (PLe: Rs1.5bn) down 7.0% YoY. EBITDA margin stood at 14.9% contracting 120bps YoY (PLe: 15.6%). EBITDA margin of Plywood/Laminate/MDF was 13.9%/10.1%/26.2% (+490bps/-350bps/-880bps YoY). Laminates’ margin impacted due to aforesaid new products launching expenses, while margin expected to normalize from coming quarters and MDF margins are reduced mainly due to increase in raw-material prices, which could not be passed on. PBT decline by 7.7% YoY to Rs1.16bn (PLe: Rs 1.3bn) due to higher interest & depreciation expenses apart from lower operating margin. PAT stood at Rs871mn (down 5.9% YoY, PLe: Rs 975mn). Net debt stood at Rs 0.4bn (excl. buyer credit) and debt to equity ratio stood at 0.09x in Q1FY24. The cash conversion cycle increased to 69 days in Q1FY24, against 58 days in Q1FY23.

Concall highlights: 1) Mgmt observed softening in real estate demand due to rise in interest rate, impacted CPBI performance. 2) Plywood segment expected 6-7% volume and approx. 2.5% planned price hike, we expect 8 to 10% growth with sustained EBIDTA margin of 14% approx, after taking care of increase in raw-material price. 3) Timber prices rose by 5% in July-23, due to shortage in market, Timber accounts ~50% RM for CPBI. 4) Laminate division's performance is expected to improve in the upcoming quarters with the introduction of new SKUs targeting specific new market segments. 5) Mgmt expects 20% MDF volume growth, ~25% EBITDA margin, with expected increase in share of premium products. 6) The volume of premium MDF is planned to increase to 40% from currently 34%. 7) Planned capex of Rs 10.75bn, with delay in commissioning of Laminate & MDF units. 8) The hiving off of the logistic (CFS) division to the SPV is pending for NCLT approval. The scheme's effects will be implemented after approval.

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