Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Update on the Indian Equity Market:

Nifty 50 index settled above 15,800 for the first time ever, at 15,812 on Monday. Benchmark indices recovered from the intraday lows and ended marginally higher in the volatile session. Among the sectoral indices, PSU BANK (+0.6%), IT (+0.3%), and FMCG (+0.04%) were the top gainers while REALTY (-1.5%), METAL (-0.7%), and MEDIA (-0.6%) were top losers. Among the stocks, DIVISLAB (+1.5%), TATAMOTORS (+1.5%), and RELIANCE (+1.4%) were the top gainers while ADANIPORTS (-9.3%), COALINDIA (-2.1%), and KOTAKBANK (-1.5%) were the top losers.

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Edited excerpts of an interview with Mr Keshav Bhajanka, Executive Director at Century Plyboards with CNBC TV18 dated 11^th June 2021:

• Demand wise first 10 days of April had shown some revival but the second half of April was difficult and May was weak. It is too early to comment on future demand but it is expected to bounce like last year and 2QFY21E to be back to normal.
• The raw material pressure has been passed on to the market successfully and is not going to have any meaningful impact but operating leverage will have its effect in 1QFY21. Going forward he doesn’t expect any problem.
• Margins are expected to be back to earlier levels from the next quarter, provided volumes are back on track.
• 95 per cent of the sales go through the distribution network. Small and large projects are routed through the distribution channel i.e., distributors, dealers which are located in pan India. It also manages the credit risk as large projects normally have a far higher credit period as compared to retail. ~ 70 per cent in retail and less than 30 per cent in projects.
• The company supplies materials to Ikea, Godrej, and other companies. They are customers, not competitors, and going forward, will be very valued customers.
• The company is in expansion mode. Gabon unit was difficult to commission in the past few months but it started commercial operations on February 21. Expansion of Hoshiarpur might be late by a month or two because of the covid second wave which made it difficult to mobilize resources in Punjab. So, Hoshiarpur is expected to commission by 1QFY22E rather than 4QFY21E.
• Expansion in Andhra Pradesh is delayed due to covid cases. The government is putting a lot of efforts to fight covid and the movement is slower than it was three months ago when everything was moving at a rapid pace. The target was to establish this unit prior to H2FY23E but now it might slightly be delayed.
• Looking for capex of ~Rs 7,000 mn over the course of next two years and a majority of the expansion to come from internal accruals and rest from borrowings.
• More than 70-75% of the demand comes from new buildings but not from the builders and the rest of the demand comes from a renovation. As the builder’s hand over unfinished houses to the house owners, demand primarily comes from end customers. Most of the material goes to new homes as opposed to renovation.

 Asset Multiplier Comments

• Looking at the strong set of annual numbers and robust growth across segments, aided by demand recovery we believe that Century Plyboards has good potential going forward. Strong demand is arising in the MDF segment due to higher acceptance, lower imports with improved demand in respective geographies and higher shipping costs.
• The medium-term growth outlook remains positive with capacity expansion in place to capitalise on the opportunity.

Consensus Estimate (Source: tikr. com and market screener websites)

 The closing price of Century Plyboards was ₹ 414/- as of 14-Jun-21. It traded at 30x/26x the consensus EPS estimate of ₹ 13.6/15.7 for FY22E/ FY23E respectively. The consensus target price of ₹ 366/- implies a PE multiple of 23x on FY23E EPS of ₹ 15.7/-.

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