Khambatta Securities has released its 1Q FY25 update on Century Plyboards (India) Limited (CPIL), maintaining a HOLD recommendation with a target price of Rs 938. The company posted revenue growth of 12.8% y-o-y, primarily driven by the MDF and Plywood segments. However, EBITDA contracted by 16.5%, and PAT declined significantly by 45.5%. Increased costs from the new Andhra Pradesh unit and rising raw material prices have pressured margins. Despite the headwinds, CPIL has a strong growth outlook for its key segments and has planned a capital expenditure of Rs 5.65 billion over FY25/26.

Revenue Growth Driven by MDF and Plywood

Healthy topline performance:
CPIL reported a consolidated operating revenue of Rs 1,005.4 crore in 1Q FY25, reflecting a robust growth of 12.8% year-on-year. This growth was primarily driven by a strong performance in the Medium-Density Fibreboard (MDF) and Plywood segments, which saw volume growth of 29.0% and 13.4%, respectively.

Weak performance in Laminates and Particle Board:
The Laminates segment experienced a 6.7% y-o-y volume decline, while Particle Board volumes contracted by 2.8%. Despite this, management has retained a positive EBITDA margin outlook for these segments.

Profit Margins Decline Amid Rising Costs

Significant EBITDA contraction:
EBITDA declined by 16.5% y-o-y, falling to Rs 111.2 crore. The EBITDA margin contracted by 390 basis points to 11.1%, largely due to increased depreciation and interest costs from the commencement of a new greenfield laminate and MDF unit in Andhra Pradesh.

PAT drops sharply:
Profit After Tax (PAT) for the quarter stood at Rs 47.4 crore, a significant decline of 45.5% y-o-y. The PAT margin also contracted by 500 basis points to 4.7%, driven by the higher depreciation and interest expenses.

Future Outlook and Guidance

Management’s guidance for FY25:
The company has maintained its sales and margin guidance for key segments for FY25:

Plywood: Sales growth of 10%, EBITDA margin between 12% and 14%.
Laminates: Sales growth of 20%, EBITDA margin between 10% and 12%.
MDF: Sales growth of 40%, EBITDA margin around 15%.
However, the company revised its sales forecast for the Particle Board segment to flat growth for FY25, down from the previous estimate of a 25% increase.

Impact of Rising Timber Prices

Timber price inflation:
Timber prices, especially for MDF, have been rising steadily. However, the company has managed to procure timber for Plywood at lower rates due to strong relationships with its suppliers. Management anticipates timber prices to continue rising in the coming quarters before stabilising with new plantation supplies.

Capex Plans and Expansion Strategy

Planned capital expenditure:
CPIL has outlined a capital expenditure plan of Rs 5.65 billion for FY25 and FY26. The company has put its Hoshiarpur Plywood expansion project on hold due to elevated timber prices and instead plans to increase capacity through debottlenecking.

Greenfield Particle Board plant in Chennai:
The upcoming greenfield Particle Board plant in Chennai, with a capacity of ~800 cubic meters per day, is expected to commence operations by 4Q FY25.

Stock Valuation and Target Price

Valuation methodology:
Based on a target Price-to-Earnings (P/E) multiple of 40x FY26E EPS, Khambatta Securities values CPIL at Rs 938, indicating a moderate upside of 5% from its last closing price of Rs 897. Consequently, the research house maintains a HOLD rating on the stock.