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Century Plyboards' Q4FY18 results (Outperformer) - Adverse product mix led result shock…

Q4FY18 Standalone Highlights

• Rev. at ~Rs5.4bn was up only 11.4% yoy (11% miss) and was largely powered by MDF unit (+36% qoq; although ramp up was below expectation as MDF rev. missed by ~20%) and Laminates expansion (+20% yoy, 4% beat vs exp.). Plywood revenue surprisingly fell by 7% yoy (vs. exp. of 5% growth). Particle Board revenue was flat yoy.
• Plywood segment volume grew 2.1% yoy (vs. exp. of 5% growth); however, blended realisation fell by 10% yoy (vs. flat exp.) due to poor product mix (higher sale of low cost plywood). Volume growth was supported by strong growth in Branded Plywood (+8% yoy), Deco Ply was flat yoy while Commercial Veneer volume declined 27% yoy.
• Laminates volume grew 30.4% yoy. Blended realisation (including exports) declined 8% yoy, again due to product mix issues.
• MDF volume/revenue grew 32%/36% qoq as its new Punjab plant increased output during the quarter. For H2FY18, utilization at this plant stood at ~55%.
• EBITDA was flat yoy at Rs832m (20% miss) while margin came in at 15.3% (~180 bps yoy decline led by poor product mix and –ve operating leverage). However, adjusting for forex loss of ~Rs70m booked during the quarter (vs gain in base), margin would have stood at ~16% (IDFCe: 17.0%).
• PAT declined 36.1% yoy to Rs357m (31% miss) due to weak top-line/margin performance, lower other income and higher interest.

Key positives: Laminates ramp-up on track.

Key negatives: Weak Plywood/Laminate realisation.

Impact on financials: Cut FY19E/20E EPS by 14%/10%.

Valuation & view   

FY18 has turned out to be a very challenging year for CPBI with almost flat plywood revenue yoy and sharp margin decline in this segment led by poor product mix and inability to take price hikes in a rising cost scenario. However, CPBI’s peak investments are behind it and we expect strong growth going forward led by capacity expansion in laminates and its new MDF plant even as plywood segment improves gradually over FY19E. With GST/eWay Bill issues expected to get sorted out in the next few months, we expect earnings growth to bounce back strongly from FY19E onwards (79% CAGR over FY18-20E) as MDF, Laminates capacity utilisation ramps ups and plywood growth revives. This coupled with industry-leading return ratios (25.9% RoE in FY20E) deserves premium multiples, in our view. Maintain OP with a revised PT of Rs328 (25x FY20E EPS).