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Century Plyboards' Q4FY19 results (Outperformer) - Lost FY19, but bottoming out..

Q4FY19 Standalone Highlights

• Revenue grew ~7% yoy to ~Rs5.8bn (5% miss – mainly due to weak plywood performance). Higher input costs (esp in laminates), negative operating leverage (due to Ply/MDF) and one-off costs (~Rs150m) led to EBITDA margins falling ~440 bps yoy to 10.9% (IDFCe: 14.0%) and EBITDA fell ~23% yoy to ~Rs637m (26% miss). Lower fin. costs and lower tax rate led to PAT fall of only ~4% yoy to Rs342m (20% miss).
• Plywood: Volumes fell ~7% yoy – commercial veneer fell ~34% yoy, continuing its quarterly decline through FY19 – while realisations improved ~8% yoy (product mix benefits). Ply revenue was flat yoy, but EBITDA fell ~39% yoy due to bulk of the Rs150m one-off costs (for the quarter but not the year) booked in this segment.
• Laminates (ex. Prelam): Volume/realisation was up ~7%/8% yoy respectively. Laminates revenue grew at a healthy ~17% yoy on capacity ramp-up. However, high input cost pressures led to EBITDA declining ~17% yoy.
• PB (incl. Prelam): Strong growth continues in PB, with revenue/EBITDA growing 27%/78% yoy respectively. Volumes grew 31% yoy, although realisations declined marginally by ~3% yoy. PB’s capacity utilisation has touched ~100% for FY19.
• MDF: Overcapacity led pricing pressures led to blended realisations falling ~10% yoy (~2.3% qoq). Volumes grew ~30% yoy on ramping capacities. MDF revenue/EBITDA grew ~22%/20% yoy respectively.

Key positives: Lower DSOs/Debt in FY19.

Key negatives: Miss across Ply/Laminate segment.

Impact on financials: Cut FY20E EPS by 15%; Introduce FY21E fins.

Valuation & view   

Q4 was marred by weaker than expected plywood & laminate performance, although other segments did reasonably well. However, we believe that organized plywood players, including market leaders like CPBI, should be on a stronger footing post the recently concluded general elections as the new government’s focus would be on (1) improving GST implementation, and (2) reviving economic growth (including real estate industry eventually). These twin tailwinds, and increasing on-the-ground surveillance of tax implementation should lead to the market tilting in favour of organized players over the longer run. CPBI’s capex cycle has largely concluded (barring proposed expansion of MDF and PB capacities at Rs2.5bn outlay), coupled with improving macro and disrupted base (EPS CADR of 12% over FY17-19) we expect earnings growth to revive (22% CAGR in FY19-21E). Maintain OP with a revised TP of Rs198 (20x FY21E EPS).​