Century Ply - Khushiyon Ka Rangmanch


(Abhishek Basumallick) #1

Century Ply is one of the most well-known brands in the Indian plywood & laminate industry. Along with Greenply, they share the market leadership in the organised ply business. The overall organised sector is growing 20-25% CAGR. Organised sector is 30% of the overall plywood sector.

Financials
Market Cap.: 3,884.85 Cr.
Current Price: 174.60
Book Value: 19.13
Stock P/E: 23.57
Dividend Yield: 1.14%
RoA: 22.67%
RoE: 44.32%
RoCE: 29.27%
Debt/equity: 1.30
Dividend Payout Ratio: 29.46%
Price/Book Value: 9.13
Sales growth 5 Years: 17.19%
Profit growth 5 Years: 13.08%
OPM: 18.37%
NPM: 9.64%
Promoter holding: 73.34%

Business Overview
Century ply is in the following businesses:

  • Plywood
  • Laminates
  • Furniture Retail
  • Container Freight Service

The company has 7 manufacturing units located in Joka (West Bengal), Guwahati (Assam), Kandla (Gujarat), Chennai (Tamil Nadu), Karnal (Haryana), Roorkee (Uttarakhand) and Myanmar. The Myanmar and Roorkee units operate through subsidiaries.

Its container freight stations in two locations near the Kolkata Port are spread across an area of 1 lac square metres (capacity to handle 160,000 TEUs)

Its marketing infrastructure comprises 35 marketing offices and depots, six regional distribution centres and more than 1500 dealers & retail outlets. The company spends 4% of revenues on promotional activities to build brand.

Laminates
• Avg realizations increased from 639 Rs/sheet to 679 Rs/sheet
• Running at full capacity across plants. Cannot cope up with demand.
• 3rd largest laminate producer in the country
• Production capacity of laminates - 4.8 mn sheets p.a.

Plywood
• 25% share of organised plywood market
• Established 32,000 CBM face veneer plant in Myanmar
• Exploring setting up face veneer facility in Laos (Cambodia)
• Ventured in MDF space
• Production capacity of plywood - 210,000 cbm p.a.

Furniture Retail
• Ventured in branded furniture retail

CFS (Container Freight Services)
• Looking at adding more stations in addition to the one at Kolkata Port.
• Expected to grow at 25% CAGR

Growth Levers
GST & its impact
• Remove inter-state tax anomalies
• Remove differential with unorganized sector hence a value migration from unorganized to organized players

Other growth levers
• Home renovation cycle is declining
• India’s per capita income rising along with disposable income
• Rising urbanisation and aspiration levels amongst people
• Govt focus on “Housing for All” – Rs 22,407 crores allocated by FinMin for 2015 to create 6 cr (2 cr urban + 4 cr rural) complete houses by 2022
• Focus by HFCs on Tier-2, Tier-3 locations

Disclosure - I do not hold the stock as of now. It is on my watchlist and I may decide to take a position at a later time.


(Sunil) #2

Thanks Abhishek,

Questions.
How do century ply compare with greenply? The operating cashflows for greenply are strong compared to century ply. The ROE, ROA, ROCE figures might look good for century ply but the actual underlying owner earnings is less compared to greenply.

Regarding debt levels company is continuously raising debt. Are they having aggressive expansion plans. Any info about it?


(IndyaInvestor) #3

Hello Abhishek,

Thanks for the post. I have a question on the promoter holding - 73.34% Isn’t it above the holding mandated by regulators?

How liquid is the stock in the markets?


(onsomani) #4

The mandated holding by regulators is 75%. Hence the same is in line with the regulatory requirements.

Disclosed:Not invested


(Abhishek Basumallick) #5

Both Greenply & Century are good companies. Century is investing in MDF and Particle Board manufacturing plants. Greenply had invested in capacity addition a couple of years back, I think, so last few years capex was low.

Greenply had moved to MDF a few years back and Century is following suit only now. Also, laminates Green is better placed. However, now they have 2 listed entities for the ply & laminates businesses. In Century one can get both the businesses under one roof.


(Kranthi Kiran Reddy Tamma) #6

Does Star Ferro & Cement Limited also belongs to same management ? How are they ?


(Abhishek Basumallick) #7

Yes. Same group. Don’t track the company, so no idea.


(Ashwini Damani) #8

From first hand experience. In Laminates, Century still has a long way to go. Its an also ran and doesnt have either variety or quality.

Plywood mein Century seems to be leading by a nice margin.

Need to check a few facts. Where do organised sellers of ready made furniture buy their plywood from. Going ahead a lot of furniture buying will be done through ready made shops.


(hrfacebuk) #9

I don’t have much of a view on this sector as I don’t track it. But it would be interesting to see which company has a head start in the MDF business and how much would it contribute to sales going forward. I think Greenply might have a head start. Not sure but maybe MDF business has better margins and hence company with better and increasing contribution towards MDF business might have an additional plus point. Also, I think that Greenply is looking to outource Plywood manufacturing, which again might have a positive impact and make the business a bit asset light and reduce working capital cycle and enhance return ratios further.

Note: I am an amateur investor and I am stating the above as only one of the few factors that should be considered. As I don’t track this sector and hence one should verify the above statements in detail.


(Amit Aggarwal) #10

Thanks Abhishek.

I am going through the latest annual report (link below) and I must say it is one of the best reports I have read recently. Suggest fellow investors who are interested in this business to go through it.
http://www.centuryply.com/files/download/bee982e94e6d9ea


(Abhishek Basumallick) #11

Greenply is the pioneer of MDF in India. Century is just starting off. The product is a commodity so both will do well. And I think both these companies will follow the ceramics industry model of partnering / buying out smaller players once GST rolls out and they (the smaller players) become nonviable.


(Vishnu Ch) #12

CONFERENCE CALL - from Capital Markets

Expects revenue growth of 4-5% in FY16

The company has conducted a conference call on 29January 2016 to discuss the financial performance for the third quarter ended December 2015 and way forward. Mr Sajjan Bhajanka, CHAIRMAN of Century Plyboards and Mr Arun Julasaria, CHIEF FINANCIAL OFFICER of Century Plyboards addressed the conference call.
Key highlights

The Company posted a net profit of 1% to Rs 41.60 crore on 1% jump in sales revenue to Rs 3790.61 crore in Q3FY16. The growth of the company has been impacted mainly on account of slowdownin growth for plywood.
The Company Operating Margin (OPM) reduced 110 bps to 17.8%, due to jump in raw material cost. As a result, the operating profit (OP) declined 5% to Rs 69.57 crore. Lower utilization rate andcontinued increase in proportion of low margin SAINIK brand has led to decline in margins. Onthe other hand, laminates division of the company has reported significant margin expansion.
On segment financial results –The Plywood & Allied product segment revenue, contributing 71% of total revenue, dropped 2% to Rs 275.29 crore, due to sluggish demand environment particularly from housing industry. The laminate and Allied products segment revenue, contributing 20% of total revenue, rose 8% to Rs 77.38 crore and Container freight station services revenue, contributing 6% of total revenue, rose 51% to Rs 23.52 crore.
Plywood segment has been adversely affected by demand slowdown, delays in projectcompletion and overall slowdown in real estate in recent past. The Company guides demand scenario in Plywoodsegment continues to remain challenging.
The companyis likely to add two more revenue stream bysetting up greenfield capacity for particle board and MDF, which are likely to getcommissioned by March 2016 and December 2016 respectively.These plants havepotential to generate revenues of Rs.60-65 crore and Rs.550-600crore respectively at full capacity.
The company expects this year end with muted revenue growth of 4-5%in FY16.
The Company expects to sustain EBITDA margin at around 16-18% as the company has put-up raw material plants in Myanmar and in Laos and is able tosecure raw material at 50-60% of the earlier cost.


(sandybansal) #13

Results of Century havent been so good. Is there any specific reason why this is so?


(Dhinakaran) #14

If I remember correctly, management told that this year growth will be muted due to sluggish real estate sector.


(Nelson) #15

The reason Century seems to be doing well of late is that GST bill brings it on par if not gives it an advantage over the unbranded ply makers. This may be the reason for going up.


(kaustubhkale) #16

that’s correct. close to 70-75% of the market is unorganized. Century Ply may be key beneficiary of shift from unorganized to organized.


(Abhishek Basumallick) #17

NOTES FROM AR2016

Centuryply is among India’s largest interior infrastructure product manufacturers. The Company offers plywood, laminates, veneers, MDF, blockboards, doors, fibre cement boards and particle boards. It is also engaged in the logistics business through the management of a container freight station (India’s first privately owned CFS at the Kolkata Port).

Another unit in Laos is being commissioned. 5000 retail outlets added in 2015-16.

Launched new age products– Zykron and Starke (Wood Polymer Composite and Cement Fibre Boards). CPL expects to carve a 10% market share of the country’s B1,000 cr fibre cement boards market by 2020

Set up a particle board unit at Chennai, commissioning in June 2016, to capitalise on the fact that there are no similar units in the city

Commenced the construction of MDF unit at Hoshiarpur (Punjab). Following the commissioning of this unit, prlanned for July 2017, CPL will possess a capacity to manufacture 198,000 cubic metres per annum, graduating it to one of the largest in the country.

Grew the laminates business by around 15% on the back of a strong catalogue and distribution network.

Plywood capacity continues at 210,000 cubic meters

Laminate capacity continues at 4.8 million sheets p.a. Conventionally, new laminates would be introduced every second year; Centuryply revolutionised the space with the introduction of four catalogues a year.

The co did not reduce prices even though the competition did amidst sluggish demand. CPL maintained EBIDTA margins at 17%.

Raw material costs as a proportion of revenues declined from 53% to 38% in the three years ending 2015-16.

Working capital cycle reduced from 88 days to 70 days.

Container Freight Station at the Kolkata Port contributed only 5% to revenues in 2015-16, the corresponding EBIDTA margin was 46%.

Industry structure and developments
Wood panel products - The Indian wood panel market is valued at 28,500 crore. Plywood has a share of 63% (18,000 crore).
Plywood - India’s plywood industry is likely to reach a market value of 479.7 billion by 2019. This growth in the plywood market is expected to be led by a surge in the growth of commercial and domestic developments.

The MDF market is estimated to be worth ~35 billion in India and has grown at a CAGR of ~5-8% over the last five years. The Central Government’s decision to withhold fresh licenses for the manufacture of plywood has widened the gap between demand and supply. This is a positive development for the MDF industry and will increase the use of engineered panel products.

Segment-wise performance
Plywood: Revenues from plywood business reported a growth of 2.94% from 1,243.06 crore in 2014-15 to 1,279.59 crore in 2015-16.
Laminates: Laminates reported a growth of 14.20% from 321.27 crore in 2014-15 to 366.89 crore in 2015-16.
Logistics: Revenues from the logistics sector reported a 12.50% growth from 75.42 crore in 2014-15 to 84.85 crore


(nil_71) #20

I have gone through ARs of Century and Green. I felt in Century overall transparency level is higher. Remuneration of Key Members are also far less in Century. I may be wrong but that is my perception

Also Century inducted couple of good Professionals in the management team. Need to observe

Current price of CP does not provide any Margin of Safety

Not invested


(Abhishek Basumallick) #21

Q2 Standalone Results: Flat results from Century.


(Abhishek Basumallick) #22

Q2 concall summary:

The Company net turnover grew 5.5% to Rs 459.3 crore on the back of 11% growth in laminate & allied division revenues to Rs 97.9 crore.
OPM margins reduced to 16.6% as from 17% in corresponding previous quarter, due to rise in OPM of laminate business offset decline in OPM of plyboard business.
Net profit grew 5.1% to Rs 49.3 crore due to higher-than-expected depreciation expense (Rs 12.6 crore in Q2FY17).

The Company Plywood & allied division revenues grew slight 1.6% to Rs 325.1 crore due to volume de-growth. Plywood & allied division volumes de-grew 0.8% to 66075 CBM. Laminates and allied division revenues grew 10.7% to Rs 97.9 crore. While domestic revenues grew 14.7% to Rs 67.7 crore, export revenues grew 14.2% to Rs 22.4 crore. Revenue growth was led by volume growth of 28.5% to 1 million (mn) sheets in domestic market & 32% growth in export volumes to 0.4 mn sheets.

The Company expects its 600 CBM/day capacity MDF plant to come on stream by Q4FY17. It entails an investment
of Rs 380 crore with Rs 158 crore spent till September, 2016. The company would also use the MDF produce to make doors, pre-laminated boards and wooden flooring.

The Company plans to ramp-up its laminates capacity by 50% to 7.2 mn sheets. By August 2017, 1.2 mn sheets would be added while the remainder would be added by January 2018.

The Company has commenced operations of its 180 CBM/day capacity particle board plant in existing facility at Chennai in July, 2016. The company incurred a capex of ~Rs 66.5 crore for the plant. It is expected to operate at ~70% capacity utilisation in Q3FY17 and ~80% in Q4FY17.

The Company expects a GST rate of either 18% or 28%. Post GST implementation, a level playing field would be established and organised players are set to benefit

The Company guides revenue growth of ~10% for FY17E with margins in the range of ~16-16.5%