CENTURY PLYBOARDS CMP 1Y Target Rating

Rs.185 Rs.240 BUY

Rating: ◄► | Target price: ▲ | EPS: ▲

OUTLOOK REVIEW 2QFY21

ONE YEAR OUTLOOK THREE YEAR OUTLOOK
12 November 2020
BUSINESS & EARNINGS ▲ BUSINESS & EARNINGS ▲ BUILDING
Industry
MATERIAL
▪ We maintain our BUY rating on Century Plyboards (CPBI) given ▪ While COVID-19-led disruption has impacted building material
market leadership in all wood panel categories, strong balance sheet categories growth in the near-term, we expect recovery to be CMP Rs.185
and free cash flow despite tough times & cheap valuations. swifter led by steady demand from semi-urban/rural pocket and Target Price Rs.240
▪ Demand for wood panel products started recovering gradually from increased completion rate in urban areas. We remain positive on the
Q2FY21 as CPBI posted a moderate revenue decline of 12% y-o-y. Key Stock Data
long-term prospects of the organized players in the wood panel
Going forward, we expect robust demand from rural/semi-urban industry given the gradual structural shift to organized players led by Bloomberg CPBI in EQUITY
pocket and very low channel inventory to aid in growth for all wood (1) better product quality,(2) increasing brand awareness and (3)
Shares o/s 222mn
panel sub-categories. Hence, we factor in growth of 13% y-o-y in superior distribution set-up.
2HFY21E and 20% in FY22E (on a low base). Expect Laminates & ▪ CPBI not only offers the entire gamut of wood panel products but Market Cap Rs. 41bn
Medium-density fiberboard (MDF) to post swifter recovery given also is among the top three market leaders in each of the sub- 52-wk High-Low Rs. 197-95
improving exports and market share gains from imported MDF. category. It has gradually diversified out of low-growth plywood
▪ We expect EBITDA margins of 13% in FY21E and improving to 15% in business into high-growth MDF and particle board segments. 3m ADV Rs. 86mn
FY22E led by (1) Cost savings in Plywood owing to sourcing of face ▪ We expect revenues & profits to grow at 7% and 12% respectively Index BSE 500
veneer from Gabon plant; (2) Operating leverage owing to high over FY20-24E led by continuing market share gains in plywood,
utilisations in Laminates; and (3) Pricing discipline among North MDF ramp-up from expanded capacities in non-plywood segments & Q4 Q1 Q2
players on the back of higher utilisations. demand recovery in real estate from low base by FY22E.
73.1 73.1 73.1
▪ CPBI managed the working capital quite well in FY20 and 1HFY21 ▪ While capex intensity would be lower in the medium-term, CPBI Promoters
resulting in strong cash flow generation. This would lead to would embark on MDF and particle board expansion from FY22E Institutions 15.1 15.4 16.5
negligible net debt by FY21E (Rs.5bn in FY19). Going ahead, we due to high utilisation at existing plants. Nonetheless, we expect
Public 11.8 11.5 10.4
expect CPBI to generate Rs.3bn operating cash flow annually which internal accrual to take care of further expansion.
would be more than enough for upcoming MDF capex. RoEs to VALUATION MULTIPLES ◄► Pledge 0.0 0.0 0.0
expand to 18-19% by FY22-23E after falling to 13% in FY21E. ▪ We attribute an exit multiple of 20x given market leadership,
VALUATION MULTIPLES ◄► improving margin/return metrics profile and strong free cash flows. RESEARCH ANALYSTS
▪ CPBI trades at 18x FY22E EPS (bottom quartile valuations) versus
historical five-year average multiple of 22x. We attribute an exit GIRISH CHOUDHARY
KEY ESTIMATE FY21E FY22E [email protected]
multiple of 20x to Sept-22E EPS given market leadership, steady
REVISION Old New Chg Old New Chg +91 44 4344 0021
margins & improving return metric profile and arrive at a TP of
Rs.240/share. Revenues (Rs.mn) 18,917 19,818 5% 21,922 23,706 8% GAURAV NAGORI
FINANCIAL SUMMARY [email protected]
EBITDA (Rs.mn) 2,005 2,569 28% 3,255 3,537 9%
Revenues EBITDA PAT EPS P/E RoE +91 44 4344 0072
Year
(Rs. mn) (Rs. mn) (Rs. mn) (Rs.) (x) (%) PAT (Rs.mn) 957 1,466 53% 1,955 2,311 18%
FY20 22,827 3,497 2,038 9.2 20.2 20% EPS (Rs.) 4.3 6.6 53% 8.8 10.4 18%
FY21E 19,818 2,569 1,466 6.6 28.1 13%
FY22E 23,706 3,537 2,311 10.4 17.8 18% Target P/E (x) Before Result : 20.0x After Result : 20.0x
find SPARK RESEARCH on Bloomberg [RESP SPAK <go>] | FACTSET | REFINITIV EIKON Page 25
Century Plyboards Outlook Review 2QFY21 | BUY | Target Price of Rs.240

Quarterly Financial Statement

Rs. mn \ Period Sep-20 Sep-19 Y-o-Y % Jun-20 Q-o-Q % 1HFY20 1HFY21 Y-o-Y %

Revenues 5,198 5,894 -12% 2,007 159% 11,631 7,205 -38%

Revenues from plywood
segment (52% of total Raw material 2,105 2,043 3% 757 178% 4,363 2,510 -42%
revenues this quarter)
Purchased goods 504 915 -45% 188 168% 1,509 693 -54%
declined 15% y-o-y,
Laminates segment (20% Stock Adjustment 283 1 NM 70 306% 6 353
of total revenues this
quarter) declined 25% y- Employee costs 764 884 -14% 566 35% 1,729 1,330 -23%
o-y. MDF segment (18% of
total revenue this Other expenditure 966 1,124 -14% 487 98% 2,169 1,453 -33%
quarter) revenues grew
20% y-o-y. EBITDA 859 928 -7% 8 NM 1,854 867 -53%

Plywood EBIT margins fell Margins% 17% 16% 0% 16% 12%

from 14.2% last year to
Other income 12 86 -86% 46 -73% 97 58 -40%
12.8% this quarter.
Laminates margin
Interest 18 108 -83% 50 -65% 198 68 -65%
declined to 11.2% from
13.2% last year while Depreciation 162 170 -5% 143 14% 340 305 -10%
MDF margins increased to
22.8% from 18.0% last PBT 691 735 -6% -139 NM 1,414 552 -61%
year.
PBT margins % 13% 12% -7% 12% 8%
Company generated OCF
of Rs.1.3bn in 1HFY21 Tax 176 213 (54) 411 123 -70%
versus Rs.1.8bn same
time last year. Effective tax rate 26% 29% 39% 29% 22%

PAT 514 521 -1% (85) NM 1,003 429 -57%

Margins 10% 9% -4% 9% 6%

EPS (Rs.) 2.3 2.3 -1% -0.4 NM 4.5 1.9 -57%

Page 26
 Century Plyboards Outlook Review 2QFY21 | BUY | Target Price of Rs.240

Standalone Financial Summary

Abridged Financial Statements
Rs. mn FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Profit & Loss
Revenue 15,228 16,357 17,825 19,672 22,638 22,827 19,818 23,706 27,375
EBITDA 2,078 2,835 2,920 3,060 3,004 3,497 2,569 3,537 4,294
Depreciation 448 437 524 810 500 676 630 640 708
EBIT 1,630 2,398 2,397 2,250 2,504 2,822 1,939 2,897 3,586
Other Income 196 65 227 64 61 111 178 284 329
Interest expense 433 465 286 327 446 372 158 93 73
Exceptional items - - - - - 456 - - -
PBT 1,393 1,998 2,337 1,987 2,119 2,104 1,959 3,088 3,842
Reported PAT (after minority interest) 1,103 1,698 1,856 1,563 1,588 1,582 1,466 2,311 2,875
Adj PAT 1,103 1,698 1,856 1,563 1,588 2,038 1,466 2,311 2,875
EPS (Rs.) 5.0 7.6 8.3 7.0 7.1 9.2 6.6 10.4 12.9
Balance Sheet - - 0 - - - - -
0
Net Worth 3,876 5,251 7,086 8,379 9,691 10,734 11,979 14,085 16,636
Deferred Tax (70) (655) (689) (690) (615) (578) (578) (578) (578)
Total debt 5,019 4,552 6,022 5,430 5,189 2,531 1,412 912 912
Other liabilities and provisions 924 774 1,028 1,019 1,097 1,308 1,096 1,312 1,515
Total Net worth and liabilities 9,748 9,921 13,448 14,138 15,362 13,994 13,909 15,730 18,485
Gross Fixed assets 4,092 2,384 3,418 7,153 9,441 10,017 10,317 10,667 12,917
Net fixed assets 2,089 1,975 2,494 5,417 7,286 7,211 6,881 6,591 8,133
Capital work-in-progress 227 930 2,842 1,285 218 141 141 1,541 2,041
Goodwill
Investments 451 497 960 960 978 1,137 1,137 1,137 1,137
Cash and Bank Balances 170 190 538 165 226 212 1,352 1,176 1,143
Loans & advances and other assets 1,572 1,553 2,033 1,548 1,397 885 831 900 966
Net working capital 5,239 4,776 4,580 4,762 5,257 4,409 3,567 4,386 5,064
Total assets 9,748 9,921 13,448 14,138 15,362 13,994 13,909 15,730 18,485
Capital Employed 8,894 9,803 13,108 13,810 14,880 13,265 13,391 14,997 17,548
Invested Capital (CE - cash - CWIP) 8,497 8,682 9,728 12,360 14,436 12,912 11,897 12,280 14,364
Net Debt 4,848 4,362 5,484 5,265 4,963 2,319 60 (263) (231)
Cash Flows
Cash flows from Operations (Pre-tax) 1,668 3,195 2,711 3,258 2,790 4,782 3,431 3,149 4,081
Cash flows from Operations (post-tax) 1,378 2,895 2,230 2,834 2,259 4,260 2,938 2,371 3,114
Capex (546) (1,266) (2,897) (1,923) (1,364) (533) (300) (1,750) (2,750)
Free cash flows 832 1,629 (667) 911 896 3,726 2,638 621 364
Free cash flows (post interest costs) 595 1,229 (727) 648 511 3,465 2,659 813 620
Cash flows from Investing (624) (1,287) (3,208) (1,974) (1,279) (583) (300) (1,750) (2,750)
Cash flows from Financing (764) (1,588) 1,326 (1,233) (942) (3,687) (1,498) (798) (396)
Total cash & liquid investments 170 190 538 165 226 212 1,352 1,176 1,143
Source: Spark Capital

Page 27
Century Plyboards Outlook Review 2QFY21 | BUY | Target Price of Rs.240

Standalone Financial Summary

Growth and Ratios
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Key variables (sector-specific)
Plywood revenues 11,471 11,735 12,609 12,633 12,781 12,307 10,283 12,333 14,105
Laminates revenues 2,515 2,982 3,369 3,700 4,322 4,546 3,928 4,727 5,304
MDF revenues 1,128 2,951 3,504 3,359 4,045 5,096
Growth ratios
Revenue 23.3% 7.4% 9.0% 10.4% 15.1% 0.8% -13.2% 19.6% 15.5%
EBITDA 109.0% 36.4% 3.0% 4.8% -1.9% 16.4% -26.5% 37.7% 21.4%
Adj PAT 413.1% 53.9% 9.3% -15.7% 1.5% 28.4% -28.1% 57.6% 24.4%
Margin ratios
EBITDA 13.6% 17.3% 16.4% 15.6% 13.3% 15.3% 13.0% 14.9% 15.7%
Adj PAT 7.2% 10.4% 10.4% 7.9% 7.0% 8.9% 7.4% 9.7% 10.5%
Performance ratios
Pre-tax OCF/EBITDA 80.3% 112.7% 92.8% 106.4% 92.9% 136.7% 133.6% 89.0% 95.0%
OCF/IC (%) 16% 33% 23% 23% 16% 33% 25% 19% 22%
RoE (%) 32% 37% 30% 20% 18% 20% 13% 18% 19%
RoCE (%) 17% 22% 18% 14% 13% 16% 12% 17% 18%
RoCE (Pre-tax) 22% 26% 23% 17% 18% 21% 16% 22% 24%
RoIC (Pre-tax) 20% 28% 26% 20% 19% 21% 16% 24% 27%
Fixed asset turnover (x) 7.2 8.1 8.0 5.0 3.6 3.1 2.8 3.5 3.7
Total asset turnover (x) 1.7 1.7 1.5 1.4 1.5 1.6 1.4 1.6 1.6
Financial stability ratios
Net Debt to Equity (x) 1.3 0.8 0.8 0.6 0.5 0.2 0.0 (0.0) (0.0)
Net Debt to EBITDA (x) 2.3 1.5 1.9 1.7 1.7 0.7 0.0 (0.1) (0.1)
Interest cover (x) 3.2 6.2 7.8 8.7 5.1 11.4 18.6 25.5 42.7
Cash conversion days 126 107 94 88 85 70 66 68 68
Working capital days 141 124 114 98 90 64 61 61 60
Valuation metrics
Fully Diluted Shares (mn) 223 223 223 223 223 223 223 223 223
Market cap (Rs.mn) 41,167 41,167 41,167 41,167 41,167 41,167 41,167 41,167 41,167
P/E (x) 37.3 24.2 22.2 26.3 25.9 20.2 28.1 17.8 14.3
P/OCF(x) 29.9 14.2 18.5 14.5 18.2 9.7 14.0 17.4 13.2
EV (Rs.mn) (ex-CWIP) 45,789 44,599 43,809 45,148 45,912 43,345 41,086 39,363 38,895
EV/ EBITDA (x) 22.0 15.7 15.0 14.8 15.3 12.4 16.0 11.1 9.1
EV/ OCF(x) 33.2 15.4 19.6 15.9 20.3 10.2 14.0 16.6 12.5
FCF Yield 1% 3% -2% 1% 1% 8% 6% 2% 2%
Price to BV (x) 10.6 7.8 5.8 4.9 4.2 3.8 3.4 2.9 2.5
Dividend pay-out (%) 40% 16% 12% 14% 14% 14% 14% 14% 14%
Dividend yield (%) 1.1% 0.7% 0.5% 0.5% 0.5% 0.4% 0.4% 0.6% 0.8%
Source: Spark Capital

Page 28
Century Plyboards Outlook Review 2QFY21 | BUY | Target Price of Rs.240

Crystal Ball Gazing

CPBI not only offers the entire gamut of wood panel products but also is among the top three market leaders on each of the
sub-category. It has gradually diversified out of low-growth plywood business into high-growth MDF and particle board
segments. We expect revenues & profits to grow at 7% and 12% respectively over FY20-24E led by continuing market share gains
in plywood, ramp-up from expanded capacities in non-plywood segments & demand recovery in
real estate from low base by FY22E.

Revenue CAGR of 7% over FY20-FY24E led by ramp- Balance sheet would remain net cash by FY22E.
up in MDF, increased laminates exports and market Return metrics would improve from lows seen in Multiples to sustain
share gains in plywood. FY21E to 18-19% over FY22E-23E.

FY11-FY14 FY14-FY18 FY19-FY23E FY11-FY14 FY14-FY18 FY19-FY23E PE multiple FY24E EPS Price target
Revenues CAGR 11% 12% 5% RoE (%) 23% 33% 17% 18x 14.4 260
EBITDA CAGR 15% 18% 9% RoCE (%) 16% 19% 15% 20x 14.4 288
EBITDA margin 11% 16% 14% RoIC (%) 19% 26% 21%
EPS CAGR -4% 25% 16% Average 1 yr fwd
Total Asset Turnover (x) 1.66 1.58 1.54 PE (x) 13.5 20.7
Total WC days 127.6 121.3 67.1 EV/EBITDA (x) 8.5 13.6
Pre-tax OCF/EBITDA (%) 29% 91% 109% Peak 1 yr fwd
Post Tax OCF as a % of IC 6% 23% 23% PE (x) 18.3 28.3
Debt/EBITDA 2.98 1.86 0.44 EV/EBITDA (x) 10.2 19.1

TOTAL
EPS CAGR of ~12%, exit RETURN OF
Entry = Rs. 185@ 18x Cumulative Dividends of
multiple of 20x on FY24E
FY22E EPS Rs.5/share
EPS ~62%

Page 29