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MOSL: CENTURY PLYBOARDS (Neutral)-Well poised to benefit from GST, but positives largely priced in

​Century Plyboards: Well poised to benefit from GST, but positives largely priced in

(CPBI IN, Mkt Cap USD0.8b, CMP INR299, TP INR323, 8% Upside, Neutral)

Organized plywood names to benefit from likely market consolidation

• ​Organized plywood players are expected to witness increased demand post the implementation of the goods and services tax (GST), in our view. Currently, the small scale industries (SSI) sector comprises ~3,300 units, of which 2,500 enjoy 100% duty exemption and ~700 are partially exempted. However, SSIs will be stripped of all exemptions as part of the government’s effort to create a level playing field, potentially shifting demand toward the organized sector. Also, post GST implementation, unorganized players are likely to find it difficult to manufacture and market their products directly, likely forcing them to tie up with organized players.
  
• Century Plyboards (CPBI) has set up a plywood factory in Guwahati along with the existing plant there to leverage on the expected increase in demand. With the factory enjoying north-east tax benefits for another 10 years, the company has guided for a sustainable plywood EBITDA margin of ~17%.
  

GST to drive strong growth in laminates

• ​CPBI’s laminates and allied products business grew 8.6% YoY in 4QFY17. According to the GST Council, laminates will fall under the 18% tax bracket, as against the earlier average effective indirect tax rate of ~29%. This would trigger a major shift away from the unorganized segment, and CPBI would have ~10% price room to leverage the opportunity.