Diwali portfolio change: Replacing Century Plywood with Bodal chemicals

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26 Aug, 2025 12:21

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Moneycontrol Research

Taking account of strong tailwinds in the dyes and dye intermediate industry, we are including Bodal Chemicals in our Diwali portfolio, replacing Century Plywood. While our positive stance on Bodal Chemicals is driven by the robust prospects in its core business of dyes and dye intermediates, we are putting aside Century Plywood on account of pricing headwinds and competitive pressure.

Pls read: Bodal Chemicals Q4: China factor favours vertically-integrated dye makers

In a sweet spot to seize China opportunity

Bodal Chemicals’ dyes business appears well positioned to gain from higher volumes from the capacity expansion, strong pricing trend and the demand-supply imbalance in China. The recent completion of 12,000 tonnes dyestuff capacity expansion (~50 percent utilisation expected in FY19), expected operationalisation of 6,000 tonnes capacity for the dye intermediate (Vinyl Sulphone ) in Q2 FY19 and the backward integration project of Thionyl Chloride (Input material for the Vinyl Sulphone) augur well for volume and margin expansion.

There has also recently been a sharp increase in prices of dye intermediates (H-acid, Vinyl sulphone) due to strict the environmental compliance in China, resulting in various plant shutdowns.

While it is difficult to predict the sustenance of such pricing trend, frequent purchase order enquiries from China and the news flow that Chinese manufacturers are looking for Joint Venture in India indicate a structural change favoring vertically integrated manufacturer like Bodal Chemicals.

Post recent consolidation, the stock is currently trading at 11.3x 2019e and offers a decent opportunity to participate in the growth story of leading dyestuff manufacturer, in our view.

Century Plywood: Pricing headwinds to sustain

Century Plywood reported a weak performance in the fourth quarter of FY18. The company is facing challenges across all its business segments at the same time. The realisations on the plywood division dipped during the quarter due to a change in product mix. This was primarily due to higher contribution from low margin Sainik brand. The high margin premium plywood segment is witnessing a period of dull demand and this will result in lower realisations going forward. In the laminations division, the margins will remain under pressure on account of higher raw material prices, mainly phenol. With a large number of industry players setting up MDF capacity, we expect Century will face some pricing pressure in this segment as well.

Although the management has guided for a 20 percent growth in the top line (around Rs. 2,500 crores), we maintain a cautious stance on the business as the headwinds will continue to impact the financial performance in near term.

Hence, we are closing our portfolio position in Century Plywood and allocating 50 percent of that position for Bodal Chemicals keeping the rest in cash for the time being.

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