The Midcap stock Grew 213% In 3 Years, Buy For Strong 39% Upside, Says HDFC Securities

HDFC Securities is bullish on Century Plyboards (India) Ltd. (Century Ply), suggests 'buy' the stock of the company with a target price of Rs 517.60 apiece. According to the brokerage's estimated target price, the stock is likely to give a return up to 39% in 12 months if you buy the stock at the current market price. It is a mid cap building material sector company with a market capitalization of Rs 11,499.67 Crore. The company has a diversified portfolio & manufactures plywood, laminates, veneer, medium-density fibre (MDF), particle board and allied products.

Performance of the stock over the years 

The stock on NSE last traded at Rs 517.60 apiece, gaining 1.55% as compared to its previous close. The 52-week low as on 12 May 2022 is Rs 484.45 apiece and the 52 week high as on 23 March 2022 is Rs 749 apiece, respectively.

The stock has fallen over the last 1 year. It fell 9.07% in 1 month, 17.84% in 3 months and 18.13% in 1 year, respectively. However, in the past 3 years, it has given a multibagger return of 213.03% and in the past 5 years, it has given 50.33% positive returns. 

Steady growth trajectory

Century Ply is the market leader in the wood panel business in India. In the past seven years, it has reported 10/11/11% revenue/EBITDA/APAT CAGRs. It also enjoys leadership positions in the segments of plywood (the largest seller), laminates (No 4), MDF (No 4) and particle board (the second largest). Over time, it has created a wide range of SKUs (18K+), a pan-India distribution that is aiding its healthy growth, and industry-leading margin and return ratios.

Century gears up for robust growth in all segments

During FY22-25E, Century's ply/laminate/MDF/particle board capacities are expected to grow at 10/11/47/80% CAGRs as it is undertaking greenfield and brownfield expansions and debottlenecking. It is deploying huge Capex in high-growth and high-margin MDF and particle board businesses to gain market leadership. We estimate Century would deliver revenue/EBITDA/APAT CAGRs of 15/15/14% from FY22-25E.

Expect a healthy balance sheet despite aggressive Capex

During FY23-25E, we estimate Century to incur INR 17bn in Capex (more than what it spent in the past 10 years). Despite this, we expect net debt/EBITDA to remain well below 1x as we factor in robust operating profits and a prudent working capital outlook.

 

Initiate coverage with a BUY rating

Century Ply is firing on all cylinders and is led by demand tailwinds. "We expect it to grow faster vs the past, owing to aggressive expansion, which will speed up its market share gain across most of the home decor segments. We believe its large expansions in MDF and particle board will further diversify its revenue mix. These measures will support a valuation rerating. We initiate coverage on the stock with a TP of INR 715/sh, valuing it at 20x Mar'25E consolidated EBITDA (25% premium to its 5-year mean). Our TP implies P/E of 34x on Mar'25E," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of HDFC 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.