Century Plyboards will benefit from continued demand for wood panels; cost inflation key

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Demand trends in the wood panel market have been flat so far in Q2FY23 (July-Sept). According to ICICI Securities Ltd., recent interactions with dealers and companies in the sector indicate that the continued dynamics of the residential market and the increase in home improvement spending, post-pandemic, are keeping demand robust. This bodes well for Century Plyboards (India) Ltd.

“The plywood market continued to see higher demand for mass market brands like Sainik due to the inflationary environment which may continue in the near term,” the ICICI report dated September 9 said.

The report adds that demand in the MDF segment has also remained stable due to increased acceptance of ready-made furniture.

“We believe demand should improve for the wood panel market after the festival period as underlying drivers continue to remain supportive,” he said. Thus, the brokerage predicts that the company will see a revenue CAGR of 19.5% in FY22-24 thanks to the expansion of the MDF segment. CAGR is the compound annual growth rate.

Meanwhile, the company took no price increases this quarter, but will fully benefit from price increases of around 2-7% for plywood and around 3-4% for laminate taken in Q1FY23. , according to the report. “Plywood margins may come under some pressure in the short term (but still better than the low base in the first quarter of FY23) due to higher demand for mass products (which have lower margins ) while MDF margins will decline approximately 120 basis points year-over-year to 30.5% in FY23 due to higher raw material costs,” the report added. One basis point equals 0.01%.

So far this calendar year, the stock is up around 14%, beating the Nifty500 sector index, which is up 3% over the same span. The stock has seen a strong rally of almost 22% over the past three months, notes ICICI Securities.

The brokerage believes Century Plyboards has solid growth prospects, high rates of return and a healthy balance sheet. He believes that the company will be one of the main beneficiaries of the rising demand for housing and increased spending on home renovations after the pandemic. That said, there are some risks that investors should be aware of. These are: a slowdown in housing demand and a continued rise in input prices, which could have a negative effect on demand/profitability, he warned.

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