Initiating Coverage | Plywood

November 28, 2017

Century Plyboards India

BUY

CMP

`317

Century Ply for enduring returns

Target Price

`400

Century Plyboards India Ltd (CPIL) is a plywood manufacturer dealing in plywood,

Investment Period

12 Months

laminates, MDF (Medium Density Fibreboard) and others with presence across India

and overseas. CPIL is also engaged in logistics business through management of a

Stock Info

container freight station.

Sector

Plywood

Market Cap (` cr)

7,115

Shift in trend towards organized plywood sector to propel growth: Indian plywood

Net Debt (` cr)

545

industry is estimated at `18,000cr and is largely unorganised (~75% share of

Beta

1.0

revenues). However, with the implementation of GST, the share of organized players is

52 Week High / Low

320/154

expected to improve, which would be beneficial for branded players like CPIL. Hence,

Avg. Daily Volume

50,190

we believe that CPIL is best placed to gain market share on the back of better product

Face Value (`)

quality, strong brands and wide distribution network. Currently, the company has

BSE Sensex

33,724

~25% market share in the organized plywood industry.

Nifty

10,400

Reuters Code

CNTP.BO

Capacity addition across segments to drive growth: CPIL has recently added new MDF

Bloomberg Code

CPBI.IN

plant (1,98,000 cubic metre, to generate ~`450-500cr revenue), laminates (4.8

million sheets by scaling ~50%, to generate ~`250-300cr revenue), particle boards

Shareholding Pattern (%)

(`100cr of revenue). Capacity addition across segments would boost company’s

Promoters

72.0

revenue and profitability going ahead.

MF / Banks / Indian Fls

3.7

Pradhan Mantri Awas Yojana - trigger for Plywood & MDF segment: The government’s

FII / NRIs / OCBs

12.8

Indian Public / Others

11.4

aim to build ~1.2cr houses by 2022 under Pradhan Mantri Awas Yojana (PMAY)

would increase demand for plywood industry (for making doors & furniture). Hence,

demand for Plywood & MDF would witness an uptick.

Abs.(%)

1yr

3yr

Sensex

6.2

28.0

18.6

Strong brand visibility with wide distribution network: CPIL has been continuously

CPIL

13.6

66.3

128.2

focusing on strong brand visibility, by spending 3-4% (% of sales) on ad spends to

increase brand visibility. CPIL’s products are available across the country through 31

marketing offices covering over 630 cities and towns addressing 1,800 dealers and

3-year price chart

~16,500 retailers.

350

Outlook & Valuation: We expect CPIL to report net revenue CAGR of ~17% to

300

~`2,896cr over FY2017-20E owing to healthy growth in plywood and lamination

250

business, foray into MDF and particle boards coupled with strong brand and

200

distribution network. On the bottom-line front, we expect CAGR of ~16% to `306cr

150

over the same period on the back of strong revenue and better margin in MDF

100

business. At the current market price of `317, the stock trades at a P/E of 23.3x its

FY2020E EPS of `13.7. We initiate coverage on the stock with a Buy recommendation

and Target Price of `400 based on 29x FY20E EPS, indicating an upside of ~26%

from the current levels.

Source: Company, Angel Research

Consolidated Key financials

Y/E March (` cr)

FY2017

FY2018E

FY2019E

FY2020E

Net sales

1,819

2,007

2,510

2,896

% chg

10.8

10.4

25.1

15.4

Net profit

193

188

248

306

% chg

14.0

(2.9)

31.9

23.4

EBITDA margin (%)

17.2

17.5

17.9

18.1

Amarjeet S Maurya

EPS (`)

8.7

8.4

11.1

13.7

022-39357800 Ext: 6831

P/E (x)

36.8

37.9

28.7

23.3

[email protected]

P/BV (x)

10.0

8.1

6.6

5.3

RoE (%)

27.1

21.3

22.9

RoCE (%)

18.9

17.1

20.2

21.3

EV/Sales (x)

4.2

3.9

3.1

2.7

EV/EBITDA (x)

24.6

22.4

17.4

14.9

Source: Company, Angel Research, Note: CMP as of November 27, 2016

Please refer to important disclosures at the end of this report

Century Plyboards India| Initiating Coverage

Key investment arguments

Shift in trend towards organized plywood sector to propel growth:

The Indian plywood industry is estimated at `18,000cr and is largely unorganised

in nature with informal players accounting for ~75% share of revenues. This

includes all categories like premium, mass market and low-end plywood.

Going forward, we believe that the share of the organised sector would increase at

a fast pace owing to the shift in market trend from the unorganized to the

organized sector. With the implementation of GST, the pricing gap between the

organized and unorganized players is expected to reduce, which would make the

pricing of organized players equally attractive, and hence the consumer sentiment

would favour the products from organised sector. The share of organized players

is expected to improve from current levels, which in turn would be beneficial for

branded players like CPIL.

Exhibit 1: Break-up of Plywood market in India

Total Plywood Market

Premium Plywood Mass plywood

Low-end Plywood

Total

18,000

3,600

9,000

5,400

Organized

4,500

2,520

1,350

Unorganized

13,500

1,080

7,650

5,400

Last 5 years CAGR

12%

5-7%

Flat/de-growth

Started tapping through MDF

(Segment has not grown in the

Century Market

Presence

past five years due to shift

from low-cost ply to MDF)

Source: Company, Angel Research

Hence, we believe that CPIL is best placed to gain market share on the back of

better product quality, strong brands and wide distribution network. Currently, the

company has ~25% market share in the organized plywood industry.

Strong brand visibility with wide distribution network

CPIL has been continuously focusing on strong brand visibility of its products. The

company offers plywood, laminates, veneers, MDF, block boards, doors, fibre

cement boards and particle boards. Historically, the company has been spending

around 3-4% (percentage of sales) on ad spends to increase its brand visibility.

Currently, CPIL’s products are available across the country through 31 marketing

offices covering over 630 cities and towns addressing 1,800 dealers and nearly

16,500 retailers. The products are available across Tier-I, Tier-II and Tier-III

locations. The dealers and retailers are serviced through

40 depots and

warehouses.

November 28, 2017

Century Plyboards India| Initiating Coverage

Exhibit 2: CPIL Brands

Exhibit 3: Significant increase in ad spends

4.1

4.2

4.5

3.8

4.0

3.5

2.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

FY14

FY15

FY16

FY17

% to sales

Source: Company, Angel Research

Capacity addition in MDF, Particle boards & Laminates segments

MDF: CPIL has recently added new plant of MDF plant in Punjab with a capacity of

1,98,000 cubic metre (which will be able to generate `450-500cr revenue and

operating margin in the range of

20-25%). The plant has been already

operational in November 2017. The company plans to manufacture value-added

products such as laminated MDFs, flooring and doors, among others from this

plant. Consequently, management is hopeful of generating revenues in the range

of 150-200cr in the current financial year.

Exhibit 4: Current capacity of various players

Exhibit 5: MDF demographic break-up

17,000

12,000

1,98,000

Mangalam Timber

30%

Shirdi Industries

Domestic

Action Group

90,000

Greenply Industries

Import

5,11,000

Rushil Decor

Century Ply

70%

1,80,000

Source: Company, Angel Research

Particle boards: CPIL commissioned a

54,000 cubic metre particle board

manufacturing facility at a capex of

`60cr in FY2017. The location was

strategically chosen to be Chennai, as ~50% of the raw material requirement was

accessed from a captive unit in the vicinity of the plant and the rest from third party

units located in the hinterland. The plant can potentially generate `100cr of

revenues while operating at peak capacity.

November 28, 2017

Century Plyboards India| Initiating Coverage

Laminates: In this segment, the company has reported revenue CAGR of ~18% in

the last 5 years and expects strong revenue growth going ahead on the back of

strong brand and distribution network. The company has doubled its laminate

production capacity to 4.8 million sheets by scaling up to 50% in September 2017

in order to capture incremental demand. CPIL also has 650 SKUs, adding 100

odd designs a year. By doing so, CPIL is not only addressing the largest segment

(1.0 millimetre thickness laminates) but also value added segments (textured and

exterior laminates).

Exhibit 6: Historical strong growth performance of laminate segment

450

412

400

362

350

294

300

237

250

211

182

200

150

100

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

Source: Company, Angel Research

Healthy revenue growth and higher margin in container freight station to boost

profitability

The company entered the container freight station (CFS) business by acquiring

0.1m sq mt of Kolkata Port Trust land, which has a total capacity of 160,000 TEUs

spread across its two CFS at Sonai (40,000 TEUs) and Jingira Pool (120,000

TEUs). In this segment, the company has reported revenue CAGR of ~10% in last

4 years. On EBITDA margin front, the company has reported more than 24%

margins in the last 4 years. Considering the company’s historical track records, we

expect the same growth trajectory to continue going ahead.

November 28, 2017

Century Plyboards India| Initiating Coverage

Outlook and Valuation

We expect CPIL to report net revenue CAGR of ~17% to ~`2,896cr over FY2017-

20E owing to healthy growth in plywood and lamination business, foray into MDF

and particle boards coupled with strong brand and distribution network. On the

bottom-line front, we expect CAGR of ~16% to `306cr over the same period on

the back of strong revenue and better margin in MDF business. At the current

market price of `317, the stock trades at a P/E of 23.3x its FY2020E EPS of `13.7.

We initiate coverage on the stock with a Buy recommendation and Target Price of

`400 based on 29x FY20E EPS, indicating an upside of ~26% from the current

levels.

Exhibit 7: One year forward PE Chart

350

300

250

200

150

100

Share price

10.0 X

15.0 X

20.0 X

25.0 X

30.0 X

Source: Company, Angel Research

Downside risks to our estimates

 Most of the company’s raw materials are imported from other counties and

also the company has ECB loan, any unfavorable change in currency may

pose forex risks, which could significantly impact margins.

 Recently the company has added new MDF Plant with capex of `380cr, any

slowdown in MDF market can impact the company’s earnings due higher fixed

cost overheads.

November 28, 2017

Century Plyboards India| Initiating Coverage

Company Background

Century Plyboards (India) Ltd (CPIL) is a plywood manufacturer. The company's

segments include plywood, laminate, CFS services and others. The company's

geographical segments are India and overseas. The plywood segment includes

plywood, block-board, veneer and timber. The laminate segment includes

decorative laminates and pre-laminated boards. The CFS services segment

includes container freight station services. The others segment includes mainly

trading of chemicals, minerals, readymade furniture and equipments. The

company's product portfolio includes doors, decorative veneer, new age products

(NAP), fiber cement boards, particle boards, look book, slimline, mono core,

magnetic laminates and prelaminated boards. CPIL is also engaged in the logistics

business through the management of a container freight station. The Company's

units are spread across India in Joka (West Bengal), Guwahati (Assam), Kandla

(Gujarat), Chennai (Tamil Nadu) and Karnal (Haryana).

Exhibit 8: Revenue break-up for FY2017

Timber and Allied Product

Lamination and Allied

Product

21%

MDF

Particle Board

Logistic

71%

Others

Source: Company, Angel Research

November 28, 2017

Century Plyboards India| Initiating Coverage

Consolidated Profit & Loss Statement

Y/E March (` cr)

FY2015

FY2016

FY2017

FY2018E FY2019E FY2020E

Total operating income

1,588

1,641

1,819

2,007

2,510

2,896

% chg

17.9

3.3

10.8

10.4

25.1

15.4

Total Expenditure

1,318

1,351

1,507

1,656

2,061

2,372

Raw Material

843

819

895

987

1,235

1,425

Personnel

201

236

273

307

389

455

Others Expenses

275

296

339

361

437

492

EBITDA

270

289

312

351

449

524

% chg

70.8

7.1

7.8

12.6

27.9

16.6

(% of Net Sales)

17.0

17.6

17.2

17.5

17.9

18.1

Depreciation& Amortisation

EBIT

222

242

253

284

374

447

% chg

85.6

9.1

4.4

12.6

31.6

19.5

(% of Net Sales)

14.0

14.7

13.9

14.2

14.9

15.4

Interest & other Charges

Other Income

(% of PBT)

1.8

3.0

9.2

3.4

2.9

2.6

Share in profit of Associates

Recurring PBT

180

200

245

238

314

387

% chg

185.6

11.5

22.4

(2.9)

31.9

23.4

Tax

(% of PBT)

16.5

15.2

21.0

PAT (reported)

150

170

193

188

248

306

Minority Interest (after tax)

Profit/Loss of Associate Company

(0)

ADJ. PAT

149

170

193

188

248

306

% chg

147.2

13.9

14.0

(2.9)

31.9

23.4

(% of Net Sales)

9.4

10.3

10.6

9.4

9.9

10.6

Basic EPS (`)

6.7

7.6

8.7

8.4

11.1

13.7

Fully Diluted EPS (`)

6.7

7.6

8.7

8.4

11.1

13.7

% chg

147.2

13.9

14.0

(2.9)

31.9

23.4

November 28, 2017

Century Plyboards India| Initiating Coverage

Consolidated Balance Sheet

Y/E March (` cr)

FY2015

FY2016

FY2017 FY2018E FY2019E FY2020E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

367

507

693

858

1,062

1,312

Shareholders Funds

389

529

715

881

1,084

1,334

Minority Interest

Total Loans

514

474

619

780

770

Deferred Tax Liability

Total Liabilities

909

1,013

1,347

1,674

1,867

2,118

APPLICATION OF FUNDS

Gross Block

461

298

412

924

948

973

Less: Acc. Depreciation

215

106

173

248

325

Net Block

246

250

306

751

700

648

Capital Work-in-Progress

102

299

Investments

Current Assets

782

751

905

836

1,139

1,480

Inventories

332

298

301

330

426

500

Sundry Debtors

268

284

342

379

488

571

Cash

Loans & Advances

160

138

261

Other Assets

Current liabilities

158

162

238

286

345

385

Net Current Assets

624

588

667

549

793

1,095

Deferred Tax Asset

Mis. Exp. not written off

Total Assets

909

1,013

1,347

1,674

1,867

2,118

November 28, 2017

Century Plyboards India| Initiating Coverage

Consolidated Cashflow Statement

Y/E March (` cr)

FY2015 FY2016 FY2017 FY2018E FY2019E FY2020E

Profit before tax

180

200

245

238

314

387

Depreciation

Change in Working Capital

(88)

(54)

(232)

(251)

Interest / Dividend (Net)

Direct taxes paid

(34)

(47)

(43)

(50)

(66)

(81)

Others

(2)

(17)

Cash Flow from Operations

149

293

221

394

160

202

(Inc.)/ Dec. in Fixed Assets

(150)

(305)

(512)

(24)

(25)

(Inc.)/ Dec. in Investments

Cash Flow from Investing

(139)

(304)

(512)

(24)

(25)

Issue of Equity

Inc./(Dec.) in loans

(65)

(44)

142

162

(10)

Dividend Paid (Incl. Tax)

(39)

(50)

(0)

(22)

(45)

(56)

Interest / Dividend (Net)

(54)

(59)

(30)

(55)

(70)

Cash Flow from Financing

(158)

(153)

112

(124)

(126)

Inc./(Dec.) in Cash

(33)

Opening Cash balances

Closing Cash balances

November 28, 2017

Century Plyboards India| Initiating Coverage

Key ratios

Y/E March

FY2015 FY2016 FY2017FY2018EFY2019EFY2020E

Valuation Ratio (x)

P/E (on FDEPS)

47.3

41.5

36.4

37.5

28.4

23.0

P/CEPS

35.5

32.4

27.9

27.6

21.8

18.4

P/BV

18.1

13.3

9.9

8.0

6.5

5.3

Dividend yield (%)

0.6

0.7

0.8

0.3

0.6

0.8

EV/Sales

4.7

4.6

4.2

3.9

3.1

2.7

EV/EBITDA

27.8

25.8

24.3

22.2

17.3

14.7

EV / Total Assets

8.3

7.4

5.6

4.6

4.2

3.6

Per Share Data (Rs)

EPS (Basic)

6.7

7.6

8.7

8.4

11.1

13.7

EPS (fully diluted)

6.7

7.6

8.7

8.4

11.1

13.7

Cash EPS

8.9

9.8

11.4

14.5

17.2

DPS

2.0

2.2

2.5

1.0

2.0

2.5

Book Value

17.5

23.8

32.1

39.6

48.7

60.0

Returns (%)

ROCE

24.6

24.1

18.9

17.1

20.2

21.3

Angel ROIC (Pre-tax)

25.6

25.3

20.0

17.6

20.8

22.3

ROE

38.3

32.1

27.1

21.3

22.9

Turnover ratios (x)

Asset Turnover (Gross Block)

3.4

5.5

4.4

2.2

2.6

3.0

Inventory / Sales (days)

Receivables (days)

Payables (days)

Working capital cycle (ex-cash) (days)

124

110

101

102

104

November 28, 2017

Century Plyboards India| Initiating Coverage

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Disclosure of Interest Statement

Century Plyboards India

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

November 28, 2017