Structural shift… new thrust to growth… --Century Plyboard (India) :: ICICI Securities

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Structural shift… new thrust to growth…
We met the management of Century Plyboard (India) (CPIL) to understand
CPIL’s business model and its plans, going ahead. CPIL is India’s leading
plywood player with largest plywood capacity and enjoys ~25% share of
India’s organised plywood market (~30% of total plywood market). In the
last five years, CPIL’s plywood revenues grew at 17% CAGR in FY09-14
outpacing industry growth of 5-7% during the same period. With the shift
toward branded products, GST rollout and raw material security by
setting up the manufacturing plant in Myanmar, we believe CPIL will see
better than historical growth rate. Also, considering the structural shift in
the industry, its strong brand recall and wide distribution network, we
expect CPIL earnings to grow at a faster pace, going ahead.
One of the leading players in plywood industry…
CPIL, with seven manufacturing plants having aggregating capacity of
209,420 cubic metre (CBM) in FY14 (grew 2x from 100,820 CBM in FY09),
is the leading player in the plywood industry. It enjoys ~25% organised
market share with strong distribution network of 1424 dealers/distributors
and more than 13,000 retail points. It countered progressive
commoditisation with higher average realisations for its premium brands.
Hence, where plywood industry grew at 5-7% CAGR in the last five years,
CPIL’s plywood division grew at 17% CAGR to | 1049 crore led by market
share gains from the unorganised segment. Furthermore, CPIL’s capacity
expansion in laminate division from 2.4 million sheets in FY09 to 4.8
million sheets in FY14 would also provide a fillip to the EBITDA margin to
14-15% from 11.5% in FY14 with the better utilisation.
Myanmar ban – structurally positive for organised players…
On April 1, 2014 Myanmar banned the export of raw timber logs leading
to a huge disadvantage for Indian plywood players as they were heavily
dependent on Myanmar for raw timber. However, CPIL had proactively
set up plants to process raw timber in Myanmar providing security over
the face veneer (key component for plywood). This has helped CPIL to
gain a first mover advantage over others.
GST development – key trigger for future growth…
With the roll out of GST, the pricing difference between organised and
unorganised players due to tax inequalities is likely to significantly narrow
down, which will provide a level playing field to organised players. This
coupled with a shift towards branded products indicates that the
organised plywood market (currently ~| 3500-4500 crore) is expected to
grow at a healthy pace of 15-25%, going ahead. With strong brand recall,
robust distribution network, security over raw material & expansion in
margin on account of operating leverage, we expect CPIL’s earnings to
grow at a faster pace, going ahead.

LINK
http://content.icicidirect.com/mailimages/IDirect_CenturyPly_MgmtNote.pdf