CRISIL assigns valuation grade of 3/5 to Century Plyboards

Century Plyboards (India) Ltd is involved in the manufacturing of plywood / laminate and cement and has a presence in ferro alloys and logistics too. The company is expanding its cement business to bank upon opportunities in the north-eastern region (NER). We maintain a fundamental grade of 3/5, indicating that its fundamentals are ‘good’ relative to other listed securities in India.

Cement – in a sweet spot
Century has an 18% market share in the north eastern region (NER), India’s most attractive region for the cement business. With the demand growth of ~11%, NER is one of the fastest growing cement region in India. The company plans to add 1.6 MTPA grinding capacity in Assam during FY13 to take the total capacity to 2.7 MTPA. It is expected to benefit from higher realisations and profitability in the region on account of supply deficit and significant entry barriers for new entrants. The company enjoys one of the highest EBITDA/tonne and PAT/tonne for cement in India.

Centuryply – one of the strongest brands in India
Century Plyboards is India’s second largest wood-based panel manufacturer and owns one of the biggest brands - ‘Centuryply’ - in the plywood and laminates segment. The company is expected to benefit from the secular growth in the real estate segment, increasing urbanisation and satellite cities, and expanding market for organised players.

Both businesses are subject to industry cyclicality
The plywood business is subject to the cyclicality of the real estate sector – in FY09, the company registered 1.4% EBIT margin in the plywood segment on account of a fall in the realty sector. Although the company operates in one of the most attractive regions for the cement business, it is still subject to cyclicality in cement demand.

Expect three-year revenue CAGR of 23%
We expect revenues to register a three-year CAGR of 23% to Rs 26 bn in FY14 largely driven by 13% CAGR in the plywood and allied products segment and 35% CAGR in revenues of the cement business. PAT margins are expected at 8.8% in FY14 with RoE of 19.4%.

Valuations – the current price is aligned
CRISIL Research has used sum-of-the-parts method to value Century Plyboards and arrived at a fair value of Rs 64 per share. This fair value implies P/E multiples of 10.9x on FY12E and 6.9x on FY13E earnings. We initiate coverage with a valuation grade of 3/5.

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