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Century Plyboards' Q3FY18 results (Outperformer) - Strong start for MDF; Plywood to pick-up gradually…

Q3FY18 Standalone Highlights

• Rev. at Rs5.1bn was up 19.9% yoy (in-line on a net of excise basis) led by operationalization of MDF plant (LTL rev. growth at 9% yoy). Amongst segments, Plywood performed well (7.1% yoy growth, in line) while Laminates grew 12.0% yoy, lower than our 20% est.
• Plywood segment volume grew 6.5% yoy, largely supported by strong growth in Commercial Veneer (21.7% yoy). Branded plywood volume grew 4.8% while Deco Ply volume fell 22.1% yoy. Overall blended realisation was flat yoy, as commercial veneer realisation fell 34.8% yoy while Ply realisation was up 9.1% yoy (mix led, lower ‘Sainik’ sales).
• Laminates volume grew 8.0% yoy. Blended realisation (including exports) was 3.8% yoy higher, due to a lower contribution from exports to the Laminates mix.
• CPBI’s Hoshiarpur (Punjab) MDF plant went into commercial operations during the quarter. MDF revenue came in at ~Rs480mn with a healthy ~20.3% EBITDA margin. Current utilization of the new plant stands at ~67%.
• EBITDA was up 30.2% yoy at Rs878mn (2.2% beat) led by MDF segment addition, LTL EBITDA grew by 13% yoy. Gross margins at 48.9% improved 60 bps yoy while EBITDA margin improved 140 bps yoy to 17.2% due to MDF (better gross/EBITDA margin) contributing 12.2% to rev. vs nil in the base.
• PAT grew 25.1% yoy to Rs467mn (in-line) led by strong operating performance. However, this was partially weighed down by higher depreciation/interest expenses since MDF plant was comm. in Q3.

Key positives: Improved realisation for Laminates/Plywood segments.

Key negatives: Lower than est. Laminates volume.

Impact on financials: Cut FY18E/19E/20E EPS by 5%/10%/7%.

Valuation & view   

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 outlook improves gradually over FY19E. With GST/eWay Bill issues getting sorted out in the next few months, we expect earnings growth to bounce back strongly from FY19E (39.0% CAGR over FY18E-20E) onwards as MDF capacity utilisation ramps ups and plywood growth revives. This coupled with industry-leading return ratios (28.5% RoE in FY20E) deserves premium multiples, in our view. Maintain OP with a revised price target of Rs364 (25x FY20E EPS).