Buy This Multibagger Building Material Sector Stock, Likely To Give 44% Returns: ICICI Securities

ICICI Securities in its recent report has placed a buy call on Century Plyboards (India) Limited (Century Plyboards) with a market capitalisation of Rs 775/share. If we consider the brokerage's given target price and the current market price of the stock, it could fetch a return of 44%. Century Plyboards leading Midcap Building material sector company operating in India. The company has a diversified portfolio & manufactures plywood, laminates, veneer, medium-density fibre (MDF), particle board and allied products. It has a market capitalisation of Rs 11,970.68 crore.

Stock Outlook & Returns

The stock of Century Plyboards on NSE last traded at Rs 538.80/share, down 4.65% from its previous close of Rs 565.10/share. In March 2022, the stock recorded its 52 week high level at Rs 749, and in May 2022, it recorded its 52-week low level at Rs 484.45, respectively.

In the past 1 year, the stock has witnessed a continuous fall. In has fallen 5.94% in 1 last week, 7.19% in the last 1 month, 21.64% in the last 3 months and 11.77% in the last 1 year, respectively. However, in the last 3 years, it has given 230.86% multibagger returns, whereas, in the last 5 years, it has given 60% positive returns to shareholders. 

Tepid demand

Demand for wood panel products has been tepid during the ongoing Q3- TD (seasonally a dull quarter due to festivities, marriage season, etc.) with Dec'22 likely to be the decisive month for Q3. Our interaction with dealers suggests that demand is likely to pick pace in Q4 as the real estate market remains healthy and the trend of higher spend on home improvement is likely to continue post festive and marriage season. 

MDF seeing near-term headwinds

MDF demand has remained stable in Q3-TD though imports have started to pick up as international prices have corrected by ~20% QoQ to US$205-210/CBM (due to significant slowdown in demand from the US and Europe). This will likely result in lower growth for domestic players. MDF imports of 13,425 MT (+99.4% YoY / +3.5% MoM) during Oct'22 is closer to pre-covid levels and will likely remain high in the near term. MDF prices have not yet been cut by major domestic players in North India (a land-locked region not much affected by imports). However, in South India some players like Rushil Décor have taken price cuts of ~4-5% to compete with imports (which now have a price difference of ~20-25% vs earlier ~8%- 10%), but this has not been followed by other major players like Greenpanel Industries, Action Tesa and Century Plyboard. We have factored 7%/3% lower realisations in MDF for FY24E/FY25E due to increased domestic supply and rise in imports. 

Margins to remain at ~17%

Raw material price pressures have largely abated except for wood used in MDF, which will likely enable the company to maintain its margins similar to Q2 levels (~17%) in the near term. CPBI has not taken any material price increase during the quarter and has ruled out further increases unless raw material pressures resurface. 

MDF brownfield expansion to be commissioned in end-Dec'22

CPBI's ongoing MDF brownfield expansion of 400 CBM/day in Hoshiarpur, Punjab (vs current capacity of 600CBM/day) is expected to be commissioned by Dec'22 (earlier: Nov,22) and the greenfield expansion in Andhra Pradesh in H2FY24. Company is hopeful of ramping up its MDF brownfield expansion from mid-Q4, thus enabling it to meet demand as its current capacities are running at optimum utilisation. 

Near-term demand headwinds, Buy for a target price of Rs 775/share

ICICI Securities said, "We recently interacted with the management of Century Plyboard (CPBI) who indicated that demand has been tepid Q3-TD with Dec'22 likely to be the decisive month for the quarter. MDF brownfield expansion at Hoshiarpur (Punjab) is likely to be commissioned by end-Dec'22 (earlier guidance was Nov'22) and management expects to start its ramp-up from mid-Q4. Company has taken no material price increases across segments in Q3-TD as raw material pressures (except for wood used in MDF) have abated. Management indicated that the Q2 blended margins (~17%) are sustainable in the near term. Company had guided for >20% YoY revenue growth in FY23 (implying H2FY23 growth of ~5% YoY), which we believe is achievable. We tweak our estimates for FY23E-FY25E by 2%-3% respectively. Maintain BUY with an unchanged rolled-over Dec'23 target price of Rs775, set at 35x P/E 1-year forward." 

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.