Q1 earnings are up 96% YoY, buy this multibagger small cap stock for robust returns of 29%
Outlook and stock returns
On Friday, July 22, shares of the company closed at Rs 572.80 each, registering a decline of 1.32% from its previous close. It was opened at Rs 583.35 each. The stock hit a 52-week low at 341.80 each on August 30, 2021. It hit a 52-week high at Rs 749 each on March 23, 2022.
Last week, its stock price gained 8.73%, while in the past month, it gained 14.57%, respectively. Over the past year, the stock has given a positive return of 34.02%. Over 3 years of investments, it gave a multibagger return of 327.94%. In 5 years, it gave a positive return of 99.73%.
Strong demand and a favorable base drive growth
Despite weak seasonality, Century Plyboards reported standalone Q1FY23 revenue growth of 96% YoY to Rs 8.8 billion, helped by a weak base due to Covid. Additionally, although the fourth quarter was the strongest quarter, the company only saw a marginal sequential decline in revenue of 1.5% QoQ, indicating the inherent strength of demand. Plywood/particleboard segment volumes were up 0.8%/5% QoQ, while MDF/laminates were down 5.9%/6.1%. Achievements were up 1.5% QoQ in MDF, 4% in Particleboard and 1.4% in Laminates, while Plywood was down around 1%.
MDF continues to perform well
MDF’s EBITDA margin increased 215 basis points year-on-year to 35%, driven by higher capacity utilization and the benefits of higher pricing. Management expects stronger demand traction due to (a) greater acceptance of MDF in the domestic market and (b) lower imports due to improved demand in respective geographies and rising shipping costs. According to management, expansion works of 350 m3/day of MDF at the existing Hoshiarpur unit are in full swing and commissioning is likely by the end of October. The MDF project in Andhra Pradesh is on track to go online at H2FY24 with a capacity of 950 m3/day at a capex of Rs 6 billion.
Well positioned to benefit from sustainable demand
The brokerage said: “We expect Century Plyboards’ growth momentum to continue in the short to medium term, supported by (a) double-digit growth in plywood and laminates given the recovery of the housing sector alongside a gradual shift in demand from unorganized to organized players, and (b) double-digit growth and sustainable margins in MDF and particle board amid sustained demand for ready-to-use furniture. employment and exports. Overall, we believe the business EBITDA margin will increase thanks to a higher contribution from MDFs, a superior product mix, leverage and streamlining costs.”
The brokerage suggests buying for a target price of Rs 735 each
Century Plyboards is trading at 27.6x FY24E EPS compared to its 5-year median of 34.1x. “We find valuations attractive and maintain our buy rating with a target price at Rs 735, set at an unchanged multiple of 35x FY24E P/E. In our view, ICRA’s long-term growth story remains intact given its strong fundamentals, impressive yield ratios and healthy balance sheet,” the brokerage said.
About – Century Plyboards (India) Limited
Century Plyboards (India) Ltd is principally engaged in the manufacture and sale of plywood laminates, fibreboards, decorative veneers, pre-laminated boards, medium density, particleboard and flush doors and provides container freight station. The company has its manufacturing facilities near Kolkata Karnal Guwahati Hoshiarpur Kandla and Chennai. The company’s container freight station is located near the port of Kolkata. The company was incorporated on 05 January 1982. In 1997, the company was the first to introduce borer resistant plywood in India. In 2002 they introduced Flexoply, the only flexible plywood variety.