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Century Plyboards' Q3FY20 results (Outperformer) - Good overall performance in an inclement climate…

Q3FY20 Result Highlights

• Revenue grew 2.9% yoy to ~Rs5.9bn (in-line). EBITDA growth of 24.1% yoy to ~Rs943m beat expectations by 6% due to healthy margin improvement in MDF, PB and Laminates. PAT (adj. for impairment of Laos Subsidiary) grew 56.3% yoy to ~Rs647m (44% beat).
• Plywood: Adj. for commercial veneer (down ~40%), core volume growth stood at 7.6% yoy. Revenue/EBITDA grew 2.7%/5.6% yoy (margins +30 bps yoy at 12.4%).
• Laminates: Volume growth was just 5.8% yoy as it came on a very strong base, while rev. growth was flat yoy (due to higher sales of lower priced/high margin 0.8mm sheets). However, EBITDA jumped 56.2% yoy due to benign input costs (esp. Phenol).
• Particle Board: Volume was flat yoy while revenue fell 5.7% yoy due to technical issues in its higher margin prelam PB segment. EBITDA grew 22.7% yoy due to better gross margins yoy and capacity utilization.
• MDF: Volume grew 3.5% yoy, while revenue grew 9.5% yoy. Better pricing (hikes taken in mid-June) and operating leverage led to EBITDA growth of 72.5%. CU is almost at peak levels as of Q3 end.
• FY20E Revenue Expectations: Plywood – flat yoy (13% EBITDA margin); Laminates – 13% yoy (13% margin); PB – 4% yoy (28% margin); MDF – 24% yoy (28% margin).

Key positives: Core Plywood, MDF growth.

Key negatives: Laminates/PB growth weaker than est.

Impact on financials: 6%/5% cut in FY20E/21E EPS. Introduce FY22E.

Valuation & view   

CPBI’s Q3 performance was decent, especially its core plywood volume growth, given the current weakness in the market. MDF performance is chugging along well with price wars now firmly in the past, although with capacity utilization almost touching peak levels, future growth would depend on capacity debottlenecking and Sitarpur plant commissioning (FY23E story at the earliest; our est. do not factor the Rs4.5-5bn capex for this). While we remain concerned on the long-term prospects of Plywood (given higher competition from PB/MDF – used for readymade furniture which we believe is where the market would move towards the longer run), we like CPBI’s one-stop shop business model for all things wood panels and is not dependent on any one segment. Maintain Outperformer (TP Rs186 / 18x FY21E EPS).