Sharekhan Research maintains a BUY recommendation on Century Plyboards Limited with a price target of Rs 840, reflecting a significant upside from the current market price of Rs 749. The company’s strong fundamentals, supported by growth in the plywood and MDF segments and ongoing capacity expansions, are expected to drive robust performance over the next 2–3 years. While laminates and particle boards face short-term challenges, demand revival in the housing sector and strategic deleveraging post-FY2025 strengthen Century Plyboards' long-term outlook.

Sharekhan Recommends BUY on Century Plyboards

Recommendation Overview
Sharekhan emphasizes Century Plyboards’ robust growth trajectory, backed by strong demand in the real estate sector and strategic expansion plans. The target price of Rs 840 reflects confidence in the company’s ability to capitalize on evolving market dynamics and deliver shareholder value.

Q2FY2025 Performance: Strong Plywood Growth

Revenue Highlights

Standalone revenues grew 7.6% YoY to Rs 1,063 crore, led by strong plywood performance.
Plywood revenues increased 21.1% YoY, supported by 19.3% volume growth and favorable product mix.
Profitability Metrics

Operating profit margins (OPM) stood at 11.6%, slightly below expectations due to weak performance in laminates and particle boards.
Net profit declined by 12.6% YoY to Rs 78 crore, impacted by higher marketing spends and forex losses.

Growth Drivers and Segment-wise Outlook

Plywood

Plywood continues to outperform with an expected 12% YoY revenue growth in H2FY2025.
OPM is projected to remain strong at 12–14%, bolstered by a 2% price hike implemented in August 2024.
MDF (Medium-Density Fibreboard)

MDF demand is expected to grow 40% YoY in H2FY2025, with OPM targeted at 15%.
The company’s new MDF plant is operating at 55–60% capacity utilization, with plans for further ramp-up.
Laminates

Laminates faced a 6.4% YoY revenue decline due to competitive pressures and weak demand.
Efforts to regain market share include increasing supply chain efficiency, launching new product catalogs, and controlling marketing costs.
Particle Boards

Revenue growth is expected to remain flat, while operational efficiencies from the upcoming plant will stabilize OPM at 12–14%.
The current plant will be phased out upon commissioning of the new facility in Q4FY2024.

Deleveraging and Capacity Expansion Plans

Strategic Deleveraging

The company plans to reduce leverage incrementally from Q1FY2026, following the completion of its particle board plant.
Deleveraging is expected to be completed within 12–18 months, enhancing financial stability.
Capacity Expansion

Century Plyboards has invested in new capacities for MDF, laminates, and PVC products under its subsidiary, Century Panel.
These expansions position the company to capture incremental demand from the anticipated real estate revival.

Sectoral Tailwinds: Real Estate Recovery

Realty Upcycle to Drive Demand

The ongoing delivery of housing projects launched post-COVID-19 is expected to significantly boost demand for building materials.
Structural triggers, including urbanization and government initiatives, create a favorable long-term demand environment.
Market Leadership

Century Plyboards commands a 25% market share in the organized plywood market, with plans to expand its dominance across segments.

Valuation and Risks

Valuation Metrics

The stock trades at a P/E of 31x FY2026E EPS, reflecting optimism about future earnings growth.
The price target of Rs 840 is based on capacity expansion benefits and improved profitability.
Key Risks

Prolonged weakness in laminates and particle boards could impact near-term earnings.
High timber prices, especially in South India, remain a concern for raw material costs.
Increased imports and competitive pressures in the MDF segment could weigh on margins.

Investment Rationale

Long-Term Growth Potential
Century Plyboards is well-positioned to benefit from its dominant market position, ongoing capacity expansions, and demand revival in the real estate sector. The company's strategic initiatives, including deleveraging and operational optimization, further reinforce its growth potential.

Conclusion
Sharekhan recommends BUY on Century Plyboards, given its promising long-term outlook and ability to navigate short-term challenges. Investors can expect substantial gains as the company capitalizes on favorable industry trends and enhances operational efficiencies.