Wood and Panel Products Sector

Transcription

1 Initiating Report Wood and Panel Products Sector (Century Plyboards (India) Ltd., Greenply Industries Ltd.) Diverse product offering provides ample growth levers Plywood Laminate Veneer Particle board MDF Pre laminated board

2 Wood and Panel Product Sector (Century Plyboards India Ltd, Greenply Industries Ltd) Institutional Research Diverse product offering provides ample growth levers Wood and Panel Product products industry in India is at the cusp of major growth push over the coming years. Interestingly though, the pace of growth across competing products plywood, MDF, laminates and veneers is highly unpredictable over the medium term. Both CPIL and GIL are gearing up to capture the strong growth by gearing up for both different product categories. While both CPIL and GIL have promising growth prospects ahead, CPIL seems to be better placed considering its derisked and well expanded raw material sourcing strategy, end-to-end product portfolio and diversified investment plans. Post demerger of laminates business in to Greemlam industries, GIL has some product gaps and direct competition for veneer and allied products with Greenlam. Plywood companies are fetching lower valuations compared to other home improvement segments such as paints, sanitaryware/tiles etc as it faces challenges such as high competition from unorganized / imports, concern over raw material availability, changing market trend etc. Nevertheless, the leading organized playersboth CPIL and GIL are better placed to grow and yield decent ROEs and hence merit higher valuations. We have a positive view on both the stocks and initiate coverage with a Buy rating. Peer Valuations Particulars (Rs mn) Revenue EBITDA PAT EBITDAM (%) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Centuryply % 17.6% 17.9% Greenply % 15.6% 15.1% Greenlam* % 1.4% 11.6% Kajaria Ceramics % 19.7% 2.9% CERA Sanitaryware % 14.1% 15.3% Somany % 6.6% 7.7% Asian Paints* % 17.9% 18.4% Berger Paints* % 13.4% 14.1% Particulars CAGR-15-18E (%) EPS (Rs) ROE (%) PER (x) Recommendation Mcap CMP Rs bn Reve EBITDA PAT FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Rating TP Centuryply 11% 17% 1% BUY 226 4% Greenply 8% 18% 12% BUY % Greenlam* 2% 25% 62% NA NA NA Kajaria 15% 31% 36% ACCUMULATE 98 8% CERA 17% 2% 22% ACCUMULATE 188 5% Somany 15% 27% 42% BUY % Asian Paints* 14% 21% 24% NA NA NA Berger Paint* 14% 23% 33% NA NA NA * Bloomberg Estimates Upside (%) Kamlesh Kotakkamlesh.kotak@amsec.in Refer Disclosures & Disclaimer at the end of the report.our reports are available on Bloomberg ASNM <GO>, ThomsonReuters, Factset and Capital IQ January 2, 216

3 Wood and Panel Product Sector Report Index Sr. No Particulars Page No Wood and Panel Product Industry 1 Industry profile 3 Growth catalysts 7 Players profile 8 2 Century Plyboards (I) Ltd. Business profile 12 Investment Rationale 14 Financial Analysis 18 Key Financials 23 About the company 24 3 Greenply Industries Ltd. Business Profile 26 Investment Rationale 28 Financial Analysis 32 Key Financials 37 About the company 38 January 2, 216 2

4 Wood and Panel Product Sector Report Exhibit 1:Wood and Panel products industry profile Product Plywood MDF Laminates Product Features Durability Cost Scaled to standard ply The most preferred wood for making furniture in India Better durability, so widely used for any application Branded products : Lower quality : 65, Commercial : 1, Premium ply: 13) Unbranded : 45 / 65 The new low cost engineer wood catching up Lower than Ply, so limited applications for heavy load bearing structure 5 (between commercial and unbranded products) Market size Rs185 bn Rs15 bn Rs 42 bn laminates are used for providing an aesthetic look to furniture Decorative application Rs8/166 sheet (8x4 sq ft size) Organised / Unorganised (%) 3/7 8 / 2 (Imports) 7 / 3 Raw Material Manufacturing process Key players & Market share Source: Industry, AMSEC Research Face timber (22%), Core wood (64%), chemicals/adhesives (14%) A 19mm ply would have 2 outer layer of face timber (.4mm thickness) and 11 layers of core wood (.8mm thickness) pressed using chemicals /adhesives Century ply, Greenply, Sarda plywood, Archid ply, Uniply Wood residuals (tree trunk, branches, chemicals) Paper like pulping process. Wood residuals cooked to obtain fibres which then are pressed with adhesives. Greenply, Mangalam timber, Action, VIR, Shirdi Industries (Brown paper, Decorative printed paper, Clear translucent paper, Melamine, Phenolic resin) Brown paper and Decorative paper soaked in phenolic and melamine resins are hard pressed together to form a stiff laminate sheet Merino, Greenlam, Royal Touch, Century ply, Rushil Decor Industry at a glance Exhibit 2:Wood Panel Industry-Segment (%) Exhibit 3:Organised/Unorganised Industry market share (%) 5% 3% 17% 3% 7% 74% Plywood Lamintes MDF Veneer Organised market Unorganised market Exhibit4:Industry demand- New construction/replacement market (%) Exhibit 5:Industry Demand-Residential/Commercial market (%) 15% 3% 85% 7% New construction Replacement market Residential market Commercial market January 2, 216 3

5 Wood and Panel Product Sector Report Industry Overview Plywood: constitutes the largest share of Indian wood product industry Plywood is the most preferred wood for making furniture in India. It is a manufactured wood panel made from thin sheets of wood veneer. To manufacture plywood, three critical raw materials are needed: face veneers (22%), core/panel veneers (64%) and chemicals / adhesives (14%). Plywood is made of three or more thin layers of wood bonded together with an adhesive. Most plywood is pressed into large, flat sheets used in building construction. The top and bottom layers of plywood utilise core veneers. Core and panel veneers form the intermediate layers. Face veneer is imported predominantly from Myanmar. Core timber/veneer is available abundantly from domestic suppliers. Plywood is available at different price points depending upon brands and quality. Price varies from Rs 45/sqm for non branded product to Rs 13/sqm for a branded superior quality product. Plywood is durable so widely used for any furniture / wood panel application. Market size of Indian plywood segment is Rs 185bn which is dominated by unorganised players having a share of 7%. The industry has grown at a steady rate of ~1% CAGR over the last five years). Greenply and Centuryply together command ~5% of organised plywood market. Other players in the segment are Sarda plywood, Archid Ply, Uniply etc. Besides there are large number of small manufacturers in clusters in Yamuna Nagar, Haryana; Kandla, Gujarat; Vizag, Kochi in Andhra Pradesh; Karnataka etc. Exhibit 6: Plywood Raw material (%) 14% 22% 64% Face veneer Chemicals Core veneer January 2, 216 4

6 Wood and Panel Product Sector Report Medium density fibreboard (MDF): Catching up in line with global trend MDF is engineered wood made from wood residuals (tree trunks, branches), glued together using heat, resin and pressure. Being eco-friendly and cost effective, MDF is superior substitute for cheap unorganised plywood. It produces smooth surface when painted and can be cut, filed, and machined without damaging its surface. MDF is widely used as its surface grain is not affected by paint. Demand in this sector is driven by readymade modular furniture, modular kitchen, ready-to-move into offices/retail outlets etc. MDF can be also be used in various applications such as the shelves, decorative molding, doors, furniture and laminated flooring. As such, the business model is different with B2B (small and large readymade furniture makers) accounting for a larger pie of the demand. Market size of Indian MDF segment is Rs15bn (grown at 25% CAGR over the last five years) of which 7% is dominated by a few organized players like Greenply, Mangalam timber, Action, VIR, Shirdi Industries etc. and 3% is accounted by imports. Globally, MDF constitutes ~65% of total panel products compared to ~4% in India. Plywood constitutes ~95% of the panel industry in India. Housing furniture which accounts for major part of furniture industry is still in traditional mode of using plywood / timber products due to its higher durability. However, the trend is catching up with the advent of ready-made furniture. Particle board: leveraging the growing readymade furniture market Particle Boards are engineered wood product that are made from gluing together small chips and saw-dust and firmly pressing them together to make boards or sheets. These are low cost, low density, light weight boards though has limited life and less durability so finds limited application such as making make-shift, lower load bearing furniture, cabins and cubical, panels etc. Ideally particle board is sold as pre-laminated product. Laminates: Huge growth potential in India and exports Laminates are engineered materials made from paper and chemicals. Their utilisation has extended from furniture and cabinetry to decorative walls since they are preferred over wood and paint for reasons of choice, aesthetics, installation easeof maintenance, durability and cost-effectiveness. Laminates are stain-proof and resistant (to water, light acids, steam, moisture and abrasion). Laminates is basically a blend of paper and plastic. Brown paper and Decorative paper soaked in phenolic and melamine resins are hard pressed together to form a stiff laminate sheet. Total market size of Indian laminate industry is Rs 42bn split between organized and unorganized players as 3:7. Major players in organized segment are Greenlam, Centuryply, Merino, Royal Touch, Rushil Décor etc. Besides, a large number of players exist offering lower quality products in the range of.6mm and.8mm thickness which are used as liners inside the furniture. There is a huge export market for Indian laminate manufacturers. A standard 8*4 sq ft sheet costs Rs8 to 2 depending upon the brand, design, thickness etc. Price differential between organised and unorganised players is significant ranging between 2/5%. January 2, 216 5

7 Wood and Panel Product Sector Report Veneer: gaining market share in the premium segment Veneer is a thin layer of wood which is sliced from a log. From the clean lines and consistency of contemporary reconstructed veneer to the traditional individuality of wood grain patterns there s a veneer to suit every application from the traditional beauty of naturally grained veneer or the designer appeal of dyed veneers, there is a colour palette to enhance every design. While a veneer is environmentally friendly as it is a renewable resource, it is also timeless and never quite goes out of style. The result is that each veneer is distinctive; there are no two veneers alike. Veneers make ideal fashion statements; they can be used in interiors by the exclusive-seeking customers. Compared to decorative laminates, cost of veneer is 3 to 4 times expensive depending upon the design and finish. Total market size of domestic Veneer industry is Rs 8bn. Veneer needs finishing, polishing, lamination and also needs to be maintained. Hence, compared to laminates, veneer is 2/4 times costlier and used for high-end applications. Major players in the organised veneer segment are Greenlam, Greenply, Centuryply, Orchid Veneers etc. Pre-laminated Board: array of product alternatives, new applications driving the growth Various pre-laminated Boards are available in the market. These are easy to use fix and maintain. Products like pre-laminated ply, veneered ply, pre-laminated MDF, Veneered MDF, Laminated flooring, pre-laminated particle board etc. are widely being accepted for ready-made furniture which in turn provide fillip to MDF and low density particle board. Fast growing markets like wood flooring (size Rs13bn, ready-made flush doors (Rs6bn) are also key drivers for the product segment. January 2, 216 6

8 Wood and Panel Product Sector Report Wood industry growth catalysts Strong growth in housing sector The housing sector alone contributes 5-6% to the country s GDP. Moreover, in the period FY8-2, the sector s size is expected to increase at a 11.2% CAGR. India is having housing shortage of about 6 mn units. The NDA government s massive programme Housing for All by 222 aims at building 11mn houses across 35 cities and towns in nine states over next seven years. Commercial real estate to grow at a healthy pace There is a burgeoning demand for commercial real estate, retail, hospitality, healthcare sectors. As FDI in real estate is relaxed, foreign funds are also expected to flow in the real estate market providing fillip to the commercial realty market. Rapid urbanization Almost 33% of the total Indian population is urban. This is attributable to migration from other states as well as improvements in the standard of living. The same figure is to reach to about 4%, a sharp increment by about 7 % by 23. The governmental focus on creating smart cities will further drive demand for homes. Growing renovation, replacement market Increasing per capita income led to high aspirations for better living. This is reflective in declining home renovation cycle times. Overall, tiles and sanitary ware replacement cycle is 1 to 15 years, furniture is 8/1 years and paint is 3 to 5 years. With new designs and changing trend, Furniture replacement cycle is expected to shorten to 5/7 years over the coming years. Renovation and replacement market for furniture which is currently at 15% of the overall market is expected to grow at a healthy pace. GST a game changer: Shift from unorganized to organized sector to gain momentum Over the last five years, the plywood industry 8/1% CAGR while both organized players Century ply and Greenply logged CAGR of 16% and 23% respectively. Superior quality of product, brand pull and aggressive marketing strategy helped leading players garner market share from small unorganized players who were constrained due to challenges such as availability of raw materials (face veneers), lack of brand and reach etc. Nevertheless, still unorganized players constitute ~7% of the overall plywood market in India. The proposed implementation of GST can help correct the skew between the organized and unorganized players bringing the unorganized and organized sector at level playing field. We expect the shift to organized sector will gain momentum over the coming years. January 2, 216 7

9 19-Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-16 Wood and Panel Product Sector Report Players profile: Market presence cross product segments Century ply Greenply Greenlam Ply x MDF x Particle Board x x Laminates x Veneers Engineered door solutions x Engineered wood flooring panels Prelam Particle Board / MDF Board Furniture, modular kitchen x x Polymer and Cement composite material x x Melamine Faced Chipboards x x Partitions and Cubicles x x Wall paper x x Number of Dealers, Distributors, Retailers Number of plants Revenue split - FY15 (Rs mn) Centuryply Greenply Greenlam Plywood Laminates MDF CFS Others Total Revenue % Contribution Plywood Laminates MDF CFS Others Total Exhibit 7: Advertising and sales promotion / Sales (%) (%) 4.5% 4.3% 4.2% 4.% 3.4% 3.5% 2.9% 3.% 2.6% 3.1% 2.5% 2.7% 2.7% 2.7% 2.8% 2.% 1.5% 1.%.5%.% FY11 FY12 FY13 FY14 FY15 Greenply Centuryply Exhibit 8: Price performance (Rs) Greenply Centuryply Greenlam January 2, 216 8

10 Wood and Panel Product Sector Report Plywood-Business trend: Century and Greenply Exhibit 9 : Revenue Exhibit 1 : EBIT (Rs mn) 14, (Rs mn) 2, 12, 1, 1,8 1,6 1,4 8, 6, 4, 1,2 1, 8 6 2, FY11 FY12 FY13 FY14 FY15 Centuryply Greenply 4 2 FY11 FY12 FY13 FY14 FY15 Centuryply Greenply Exhibit 11 : EBITM% (%) 18% 16% 16% 14% 11% 12% 1% 11% 9% 1% 8% 9% 6% 5% 8% 7% 9% 4% 2% % FY11 FY12 FY13 FY14 FY15 Greenply Centuryply Exhibit 13 : Volume Exhibit 12 : ROCE% (%) 4% 35% 33% 3% 35% 24% 25% 23% 25% 17% 25% 2% 22% 21% 15% 18% 1% 5% % FY11 FY12 FY13 FY14 FY15 Greenply Centuryply Exhibit 14 : Realisation (CBM) (Rs) (Rs) FY11 FY12 FY13 FY14 FY15 Greenply-SQM Centuryply-CBM FY11 FY12 FY13 FY14 FY15 Greenply, Rs/SQM Centuryply, Rs/CBM January 2, 216 9

11 Wood and Panel Product Sector Report Laminate-Business trend Century and Greenlam Exhibit 15 : Revenue (Rs mn) 9, Exhibit 16 : EBIT (Rs mn) 8 8, 7 7, 6 6, 5, 4, 3, 2, 1, FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 Centuryply Greenlam Centuryply Greenlam Exhibit 17 : EBITM% Exhibit 18 : ROCE% (%) 12% 11% (%) 3% 1% 8% 6% 4% 2% 7% 6% 8% 11% 8% 1% 3% 9% 8% 25% 2% 15% 1% 5% 15.% 9.5% 23.9% 15.7% 13.1% 17.5% 14.4% 5.% 19.% 13.5% % FY11 FY12 FY13 FY14 FY15 Greenlam Centuryply % FY11 FY12 FY13 FY14 FY15 Greenlam Centuryply Exhibit 19 : Volume Exhibit 2 : Realisation (mn pcs) (Rs) FY11 FY12 FY13 FY14 FY15 Centuryply, mn pcs Greenlam, mn pcs FY11 FY12 FY13 FY14 FY15 Greenlam, Rs/sheet Centuryply, Rs/sheet January 2, 216 1

12 Wood and Panel Product Sector Report Company Section January 2,

13 Wood and Panel Product Sector Report Wood and Panel Product Sector Century Plyboards (I) Ltd Initiating Coverage BUY End-to-end product portfolio, de-risked raw material sourcing conducive for growth Institutional Research CMP (Rs) 162 Target (Rs) 226 Nifty: 7,435; Sensex: 24,48 Key Stock Data BSE Code NSE Code Bloomberg CENTURYPLY CPBI IN Shares O/s mn (FV Rs1) Market cap (Rsbn) week High/Low 262/138 3-m daily avg vol. 2,9,78 Price Performance (%) 1m 3m 12m CENTURYPL (3.4) (11.1) (5.9) NIFTY (4.2) (1.2) (13.) Sensex (4.1) (1.5) (13.4) CENTURY PLYBOARDS (INDIA) LIMITED (CPIL) is on an overdrive to consolidate its presence in the Indian wood and panel products industry. Over the last four years, CPIL has invested heavily in manufacturing capability and branding / marketing and has emerged as a dominant player in both plywood and laminates. The Company is investing Rs5bn over FY16-18 to expand its product portfolio as also strengthen the raw material sourcing from abroad. The plywood and laminate industry is poised for healthy growth aided by growing housing and commercial realty markets, increasing urbanisation and aspirations for better living. Century Ply with its strong brand equity, vast distribution reach and end-to-end product portfolio is better placed to garner market share from unorganised players. Introduction of GST can provide further momentum to the shift. We initiate coverage with a Buy rating. Leadership position, excellent brand franchise, distribution reach CPIL is India s largest player in plywood enjoying 7% market share. CPIL has huge infrastructure with seven manufacturing plants and a pan-india plywood dealer network with over 145 channel partners (up from 1,16 dealers in FY12.) supported with 35 branches / sales depots reaching over 5 towns with population more than 1,. Strong reach, Superior product quality, excellent brand equity and aggressive marketing campaign will help CPIL outgrow the industry. Massive expansion in to MDF and particle board will provide end-to-end product portfolio CPIL was predominantly in to plywood till 24 when it set up manufacturing unit for laminates and emerged a leading player in the industry with ~7% market share. Now CPIL is further expanding its product portfolio by entering in to MDF and particle board by setting up own manufacturing units at an outlay of Rs4.2bn. As such, in FY17, CPIL will become the only integrated player in Indian wood and panel industry with end-to-end portfolio that include plywood, decorative plywood, laminates, veneer, doors, MDF, particle board, pre-laminated board etc. With the sharp growth in ready-to-use furniture, MDF growth in expected to outpace plywood growth. CPIL s timely entry will keep it in good stead to capture the emerging trend. Shareholding Pattern (%) Dec 15 Sep15 Jun15 Promoter FII DII Others Kamlesh Kotak kamlesh.kotak@amsec.in Exhibit 21: Key Financials Timely backward integration in Myanmar and Laos assures raw material availability Post ban on export of raw timber by Myanmar in 214, availability of face veneer (procured from matured natural timber) has been a challenge for Indian plywood industry. CPIL proactively set up a unit to process raw timber into veneer and hence survived the ban. Last year, the Company further strengthened its raw material base by setting a similar timber peeling unit in Laos and is on the lookout for more such units in timber growing countries across Asia / Africa. Strong financials CPILs plywood and laminates business CAGR of 12.4% and 19.4% respectively over FY Post demerger of its ferroalloy business in FY14, CPIL marked sharp improvement in its profitability with EBIT CAGR of 52% and 21% respectively for the two businesses. Led by better utilisation and higher margins, return ratios improved sharply with ROCE and ROE of 27% and 44% respectively during FY15. In 1HFY16, the Company reported revenue, EBIDTA and PAT growth of 5% 24% and 4% respectively. To log strong earnings 18% CAGR, comforting valuations, BUY CPIL s dominant market positioning, well-thought investment strategy in the backdrop of strong growth drivers for the wood industry promises excellent prospects ahead. We expect CPIL to report topline and earnings growth of 15% and 18.6% respectively over FY15-18E. Long term growth prospects, strong earnings growth, robust return ratios will support the valuations. We recommend BUY with long term perspective with a TP of Rs226 valuing the 2x FY18 EEPS. Exhibit 22: Key Indicators Y/E Mar (Rs mn) FY14 FY15 FY16E FY17E FY18E Y/E Mar FY14 FY15 FY16E FY17E FY18E Sales EBITDAM (%) yoy (%) NPM (%) EBITDA PER (x) yoy (%) P/BV (x) PAT EV/Sales (x) yoy (%) EV/ EBITDA (x) Equity RoACE (%) EPS (Rs) RoANW (%) January 2,

14 Wood and Panel Product Sector Report Business profile Exhibit 23 :Century Ply-Segmental Breakup 19% 3% Revenue (%) 4% 1% -1% EBIT (%) 1% 21% Capital Employed (%) 8%.4% 74% 82% 71% Plywood Laminates Others CFS Plywood Laminates Others CFS Plywood Laminates CFS Others Strong Brands Plywood Brands Veneer Brands Block board Brands Door Brands Laminates Brands Ready furniture/ Modular Kitchen January 2,

15 Wood and Panel Product Sector Report Investment Rationale Plywood business (74% of revenue, 82% of EBIT): To grow at 1% CAGR over FY15-18 CPBL is India s leading plywood brand, with total installed capacity of 2.1 lakh Cubic meters (CBM) spanning across six manufacturing plants pan-india : East (Kolkata), West (near Kandla), South (near Chennai), North (near Delhi), North East (near Guwahati) and Central / North (near Roorkee). CPIL commands ~25% of the organized plywood market and 7% of the overall market in India. The plywood business has CAGR of 12.4% over FY11-15 with SAINIK brand growing at a higher pace of18%. CPIL s brand commands premium in the market compared to most brands. The Company has differential brands viz. Century Prime (premium brand), SAINIK (midmarket brand), Maxima (affordable product) to offer products at different price points for diverse markets. SAINIK and Maxima brands in particular aimed at mid-market customers (1/2% cheaper than standard product) have done well by gaining markets from unorganised players and contributes 17% of the plywood revenue. Though current utilisation of 73% provides enough room for growth for plywood business, the management has plans to increase the capacity by 4, CBM in two phases by FY18 at an outlay of Rs5mn at its upcoming MDF plant in Punjab depending upon the introduction of GST. We expect CPIL s plywood business to post 1% CAGR over FY15-18 aided by strong growth in SAINIK brand and commercial veneers. Exhibit 24: Plywood revenue trend (Rs mn) 16, , , , 8, 6, 4, 2, FY14 FY15 FY16E FY17E FY18E Plywood Exhibit 26 : Plywood Volume (CBM) Exhibit 25 : Plywood EBIT and EBITM Trend (Rs mn) (%) 3, 2,5 2, 1,5 1, 5 16% 16% 16% 17% 11% FY14 FY15 FY16E FY17E FY18E EBIT EBITM (%) Exhibit 27 :Plywood Realisation 18% 16% 14% 12% 1% 8% 6% 4% 2% % (CBM) 3,5, 3,, 2,5, Rs/CBM 52, 5, 48, ,, 1,5, 46, 44, ,, 42, 5, 4, FY14 FY15 FY16E FY17E FY18E Volume 38, FY14 FY15 FY16E FY17E FY18E January 2,

16 Wood and Panel Product Sector Report Timely backward integration in Myanmar and Laos assures raw material availability Post ban on export of raw timber by Myanmar in 214, availability of face veneer (procured from matured natural timber) has been a challenge for Indian plywood industry. CPIL proactively set up a unit to processing raw timber in to veneer (capacity of 4 CBM) and hence survived the ban. The Myanmar plant undertakes peeling of raw timber and making face veneers, which are thereafter exported to India. Last year, the Company further strengthened its raw material base by setting a similar unit (capacity of 48 CBM) in Laos (through a 51%-owned SPV). The Company thus is at an advantage compared to domestic unorganised players. Besides captive use of face veneers, CPIL markets it in the open market which accrued Rs1.37bn revenue during FY15 (12% of the total plywood revenue). The Company proposes to increase the total capacity from 88, CBM to 1,2, CBM by installing four new lines of 8 CBM each at Laos. With expanded capacity at Myanmar and Laos, revenue from sale of face veneer is expected to increase from Rs1.37bn in FY15 to to Rs2.5bn (16% of plywood revenue) by FY18. To further de-risk raw material supply, the company is on the lookout for more such timber peeling units in timber growing countries across Asia / Africa. Laminates (19% of revenue, 1% of EBIT) to grow at 16% CAGR over FY15-18 Since its foray in laminate business in 24, CPIL has emerged as one of the top-3 laminate producers in India (after Marino and Greenlam) with an installed capacity of 4.8mn sheets. It has over 7 SKUs in this segment and is adding almost 1 new SKUs every year. Unlike its peers which have a large part of the revenue from low end.6mmand.8mm thickness laminates (used as liners), over 9% of CPIL s laminate revenue is accounted for by 1mm thickness value-added decorative laminates fetching it higher realization and better margins. The laminates business has grown at CAGR of 19.4% over FY11-15 and increased by 24% yoyin 1HFY16. Exports constitute 22% of laminates revenue. With current 83%, the company has ample room to grow the business and has plans to add two lines of 1.2mn sheets in FY18 at an outlay of Rs4mn. We expect CPIL s laminates business to post 16% CAGR over FY15-18E. Exhibit 28: Laminates Revenue trend Exhibit 29 : Laminates EBIT and EBITM Trend (Rs mn) 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, FY14 FY15 FY16E FY17E FY18E (Rs mn) (%) % 12% 12% 8% 3% FY14 FY15 FY16E FY17E FY18E EBIT EBITM(%) 14% 12% 1% 8% 6% 4% 2% % Exhibit 3 : Laminates Volume (CBM) Exhibit 31 :Laminates Realisation (Rs) 7,, 6,, 5,, 4,, 3,, 2,, 1,, FY14 FY15 FY16E FY17E FY18E FY14 FY15 FY16E FY17E FY18E January 2,

17 Wood and Panel Product Sector Report Logistics container freight stations (4% of revenue, 1% of EBIT) CPIL owns and operates East India s largest and first privately owned CFS, located near Kolkata Port. Spread across ~1, square meters, it can handle up to 16, TEUs. The business is though small (4% of total revenue) is yielding decent EBIT of ~3%. We expect modest growth of 11% CAGR over FY15-18 in this division with sustained margins of 3% plus. Exhibit 32: CFS Revenue trend (Rs mn) Exhibit 33 : CFS EBIT and EBITM Trend (Rs mn) (%) 1,2 1, % 31% 32% 32% 32% 33% 32% 31% 3% 29% 28% % FY14 FY15 FY16E FY17E FY18E FY14 FY15 FY16E FY17E FY18E 26% EBIT EBITM (%) Exhibit 34 : CFS Volume Exhibit 35 :CFS Realisation (TEU) (Rs/ TEU) 1,, 9, 8, 7, 6, 5, 4, 3, 2, 1, FY14 FY15 FY16E FY17E FY18E 1,4 1,2 1, 9,8 9,6 9,4 9, FY14 FY15 FY16E FY17E FY18E January 2,

18 Wood and Panel Product Sector Report Foray in to new products to mark end-to-end portfolio Medium density fiberboard (MDF) Medium density fiberboard (MDF), though constitutes less than 4% of total panel products in India, has grown at 2% CAGR over the last five years to the present size of Rs15bn. Plywood currently accounts for ~95% of the panel industry in India, as housing furniture accounts for most of the demand. Being eco-friendly and cost effective, MDF constitutes ~65% of total panel products globally and the trend is catching up in India with the fast growing readymade furniture market. CPIL has firmed up plans to set up MDF manufacturing unit in Punjab with a capacity of 6 CBM per day (2.1 lakh CBM per annum) at an outlay of Rs3.5bn. The plant will be commissioned by December 216 and will generate revenue of ~Rs5.5/6bn at peak capacity. MDF has distinct characteristics and features compared to plywood making the transition from plywood to MDF highly unpredictable and may be slower in Indian context. CPIL is treading safe by gearing up capacities for both the products to adapt to the evolving trend. Particleboard unit CPIL is setting up a green field particle board unit at its Chennai plant at a capex of Rs65mn and having capacity of 54CBM which is expected to commission by March 216. Particle board is manufactured by using saw mill dust and timber wastage. Particle board is low density product and costs ~2% cheaper than mid-market branded plywood like SAINIK as also MDF. Pre-laminated particle board is largely used in readymade furniture, kitchen cabinets, false ceiling, wall panels, partitions, cubicles etc. The manufacturing unit will backward integrate the company s existing prelaminated board business which currently outsources particle board. The unit is expected to generate revenue of ~Rs8/ 1bn mn at peak capacity. January 2,

19 Wood and Panel Product Sector Report Strong financials CPIL s plywood and laminates business CAGR of 12.4% and 19.4% respectively over FY Post demerger of its ferro alloy in FY14, CPIL marked sharp improvement in its profitability with EBIT CAGR of 52% and 21% respectively for the two businesses. Led by better utilisation and higher margins, return ratios improved sharply with ROCE and ROE of 27% and 44% respectively during FY15. In 1HFY16, the Company reported revenue, EBIDTA and PAT growth of 5% 24% and 4% respectively Financial charts (Standalone) Exhibit 36 : Revenue trend (Rs mn) 3, 25, 2, 15, 1, 5, Net sales Exhibit 37 : EBITDA EBITDAM% trend (Rs mn) (%) 5, , , 16 3, , ,5 1 2, 1,5 1, 5 EBIDTA EBIDTAM % Exhibit 38 : PAT & PATM% trend Exhibit 39 : Revenue mix (%) (Rs mn) (%) 3, , , 8. 1, , % 1% 8% 6% 4% 2% 5% 4% 5% 4% 5% 5% 2% 2% 1% 9% 16% 18% 19% 19% 19% 22% 5% 4% 21% 2% 8% 77% 76% 77% 76% 74% 71% 64%. % PAT PATM % Plywood Laminates CFS MDF Partical Board January 2,

20 Wood and Panel Product Sector Report Exhibit 4: Return Ratios Exhibit 41 : Debt/Equity Ratio (%) (x) ROCE ROE Exhibit 42 : Working Capital (Days) Exhibit 43 : Cash flow (Rs mn) 4, 3, 2, 1, (1,) (2,) (3,) (4,) Net cash in investing activities Net cash from operations Net cash used in financing activities January 2,

21 Wood and Panel Product Sector Report Strong growth, excellent consumption play: BUY CPIL s dominant market positioning, well-thought investment strategy and strong growth drivers for the wood industry promises excellent growth ahead. The management is keeping watch on the progress on GST front and is geared up to fast track its capex plans in case of any positive developments. We expect CPIL to report topline and earnings growth of 15% and 18% respectively over FY We expect EBIDTA margin to expand by 26bps over FY15-18 with the share of high margin businessesviz. Veneer, particle board and MDF increasing to 21% from 11% now. The Company has high D/E of 1.3 due to heavy investment of Rs2.4bn over the last five years. However, the strong cash generation will partially fund future capex of Rs5.5bn over FY18. We expect the D/E to come down to.9 by FY18. The Company enjoys tax exemptions at two of its manufacturing units (both income tax holiday and excise exemption) hence has lower tax incidence of 17%. While tax rate will increase marginally going forward, the same will remain at MAT level (~2%). Long term growth prospects, strong earnings growth, robust return ratios (ROCE and ROE of 25% and 33% for FY18) will support the valuations. We recommend BUY with long term perspective with a TP of Rs226 valuing the 2x FY18 EEPS. Exhibit 44 : One Year forward PER Chart (Rs) Price 12x 15x 18x 2x Risks and concerns Slowdown in real estate may impact the demand for wood products Foreign exchange risk: With over 64% of raw materials being imported, CPIL is vulnerable to foreign currency volatility. Slow pick up in MDF business: CPIL is investing heavily in to capital intensive MDF manufacturing. If the demand does not pick up, growth outlook for the Company may be subdued. January 2, 216 2

22 Wood and Panel Product Sector Report Exhibit 45: Century Plyboards (India) Ltd. Financial Snapshot Financials Snapshot (Rs mn) FY6 FY7 FY8 FY9 FY1 Sales 2,677 4,252 5,959 6,997 7,686 8,771 11,183 11,311 12,84 15,648 16,856 19,177 23,986 EBIDTA ,388 1,128 1,482 2,498 2,972 3,438 4,532 PAT ,58 1,828 2,2 2,515 CFO (52) (41) (116) (1) ,378 2,247 2,563 2,76 CFI (385) (67) (32) (34) (354) (531) (48) (94) (533) (624) (2,382) (3,595) (1,35) Cash Flow from Fin (481) (5) (391) (764) 1 1,45 (1,575) Equity Total Net Worth 1,29 1,177 1,633 1,687 2,288 2,784 3,125 2,497 2,914 3,876 5,141 6,572 8,471 Gross Debt 863 1,99 1,354 1,979 1,963 2,54 3,371 4,449 4,459 4,558 5,652 7,721 7,399 Gross Block 1,77 1,155 1,549 1,731 2,97 2,878 3,222 3,199 3,744 4,159 6,44 1,17 1,962 Long Term Invest Cash & Current Inves Key Ratios EPS ROE% ROCE% Debt Equity Gross Asset Turn (x) WC Days Dividend Payout % Cost Matrix RM/Sales% Employee cost/sales% Power & Fuel/Sales% Gross Margin% EBIDTAM% PATM% Selling Exp./ Sales% January 2,

23 Wood and Panel Product Sector Report Exhibit 46: Century Plyboards (India) Ltd. Quarterly Financials Particulars, Rs mn Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 yoy (%) qoq (%) 1HFY15 1HFY16 yoy (%) Gross Sales Less: Excise Duty (2.1) Net Sales Other operating income Net Sales & Other Operating Income Total Expenditure (Increase) / Decrease In Stocks (229.8) (773.) (188.6) Purchase of Finished Goods (5.8) (3.8) Cost of Services & Raw Materials (2.7) (16.3) Excise Duty Operating & Manufacturing Expenses Electricity, Power & Fuel Cost Employee Cost PBIDT (Excl OI) Other Income (87.2) (68.8) 7 21 (7.2) Operating Profit Interest Exceptional Items PBDT Depreciation (1.6) (2.4) PBT Tax (37.7) (23.7) (2.2) Profit After Tax Equity Capital EPS, Rs EBIDTA (%) bp (96bp) bp PATM (%) bp (25bp) bp Tax / PBT (%) (76bp) (361bp) (599bp) Raw material / Net sales (%) (1359bp) (555bp) (124bp) Employee cost / Net Sales (%) bp (113bp) bp January 2,

24 Wood and Panel Product Sector Report Century Plyboards (India) Ltd. Financials (Standalone) Profit and Loss Account Y/E (Mar) FY14 FY15 FY16E FY17E FY18E Net sales Inc./(Dec.e) in Stock Raw material cons Power & Fuel cost Employee cost Other manufact. Exp General & Adm. Exp Selling &AdmExpen Misc. Expenses Total expenditure Operating profit Other income Interest expense Gross Profit Dep. & Amortization PBT Provision for Tax Reported Net Profit Share O/s mn EPS Rs Balance Sheet Y/E (Mar) FY14 FY15 FY16E FY17E FY18E SOURCES OF FUNDS : Share Capital Reserves Total Total Shareh. Funds Non-Current Liab. Long term borrowings Defered tax liability Other long term liab Long-term provisions Long-term trade pay Current Liabilities Short term borrowings Trade payables Other current liabilities Short term provisions Total Equity & Liab APPLICATION OF FUNDS : Non Current Assets Fixed Assets Gross Block Less:Accumulated Dep Capital Work in Prog Non current Investment Long term loans & adv Other non-current ass Current Assets Current investment Inventories Sundry Debtors Cash and Bank Short Loans & Adv Others Current Assets Total Assets Valuation Matrix FY14 FY15 FY16E FY17E FY18E EPS Rs CEPS Rs Book Value Rs EV / Net Sales EV / EBITDA P / E Ratio P / BV Ratio Cash Flow Statement (Rsmn) Y/E (Mar) FY14 FY15 FY16E FY17E FY18E PBT Non-cash adjust Chg. in working cap Tax & Interest Paid Cashflow from oper Capital expenditure Change in invest Cashflow from inv Issue of equity Issue/repay debt Interest Paid Dividends paid Other fin. Cash flow Cash flow from fin Chg cash & cash eq Open. cash eq Clsg cash & cash eq CashFlow to firm Key Ratios Y/E Mar FY14 FY15 FY16E FY17E FY18E GROWTH YOY% Sales Growth EBITDA Growth Net Profit Growth Gross Fixed Asset Growth PROFITABILITY Gross Profit/ Net sales (%) EBITDA / Net Sales (%) NPM / Total income (%) Raw Material/Net Sales (%) Int/PBIT (%) ROE (%) ROCE (%) ROIC (%) Tax / PBT (%) TURNOVER (Days) Net Working Cycle Debtors Velocity Inventory Creditors Velocity Gross Asset Ratio Total Asset Ratio LIQUIDITY (x) Gross Debt-Equity Ratio Net Debt-Equity Ratio Interest Coverage Current Ratio (x) Quick Ratio (x) PAYOUT Payout (%) Dividend (%) 1% 2% 21% 22% 23% Yield (%).6% 1.2% 1.3% 1.4% 1.4% Du Pont Analysis NP / PBT (%) PBT / EBIT (X) EBIT / Sales (X) Sales / Assets (X) Assets / Equity (X) ROE (%) January 2,

25 Wood and Panel Product Sector Report About the Company Century Plyboards (India) Limited, incorporated in 1982 by Mr. Sajjan Bhajanka and Mr. Sanjay Agarwal, is a well-known manufacturer of plywood and decorative laminates, veneers, MDF and doors, among others. It is also engaged in the container freight station managing the first private CFS at the Kolkata port. Centuyrply is the largest manufacturer of ply boards in India, with a market share of 25% in the organised market and ~7% in the overall market. The company is leader in ply boards while it ranks amongst top 3 in laminate segment. It also entered into furniture trading business in 212 with 2 pilot retail showrooms in Kolkata and Bangalore under the brand name Nesta. The company has also launched modular kitchen made of waterproof plywood, all proof guarantee and custom made designs. With 6 manufacturing plants, Century has 21, cubic meters of Plywood and 4.8mn sheets of laminate capacity. The company has adequate raw material sourcing through the 4, cubic meters capacity face veneer unit in Myanmar. The company is continuously making efforts to widen its product offering in the laminates segment by adding over 1 new designs every year to its current portfolio of ~7 designs. Centuryply has strong distribution network with 35 marketing offices, over 15 dealers and more than 14,5 retail outlets. The company exports its products to 2 countries that include UAE, China, Taiwan, Bangladesh, Singapore, Hong Kong, Saudi Arabia, France, UK, Germany, Mexico, Canada and Switzerland, among others. Before FY13, Centuryply was also engaged in Cement, Ferro alloy, powder, adhesives and chemical business either directly or through its subsidiaries (Cement Manufacturing Company (CMCL) and Star Cement Meghalaya (SCML).). To focus on its core business, the company demerged its cement and ferro alloy business into separate entity. It became first company to received ISO 92 certification for its quality management under veneer and plywood. January 2,

26 Wood and Panel Product Sector Report Board of Directors SajjanBhajanka Hari Prasad Agarwal Sanjay Agarwal Prem Kumar Bhajanka Vishnu Khemani Ajay Baldawa ManindraNath Banerjee MangiLal Jain SamarendraMitra Santanu Ray Asit Pal MamtaBinani Chairman & Managing Director Vice Chairman Managing Director Managing Director Managing Director Executive Director Director Director Director Director Director Director Top Executives & Management SundeepJhunjhunwala Arun Kumar Julasaria Company Secretary Chief Financial Officer Statutory Auditors Singhi & Co Chartered Accountants Emerald House, 4th floor, Kolkata-71 Manufacturing Plants Product Plywood and Veneer Units Plywood And Veneer Units, Plywood And Veneer Units Plywood And Veneer Units Plywood And Veneer Units Laminate Unit Container Freight Station Container Freight Station Locations Kanchowki, Bishnupur, District: 24, Parganas (S), West Bengal Village: MotiChirai,Taluka: Bhachau, Kachahh, Gujarat Ramba Road, Tarori, Haryana Chinnappolapuram,Gummidipoondi, Chennai, Tamil Nadu MirzaPalasbari Road, Kamrup, Assam Kanchowki, Bishnupur, District: 24, Parganas (S), West Bengal Block B &C,SonaiKhidderpore, Kolkata, West Bengal Hide Road,Brace Bridge, Khidderpore, Kolkata, West Bengal January 2,

27 Wood and Panel Product Sector Report Wood and Panel Product Sector Greenply Industries Ltd Initiating Coverage BUY Institutional Research CMP (Rs) 18 Target (Rs) 265 Nifty: 7,435; Sensex: 24,48 Key Stock Data BSE Code NSE Code Bloomberg GREENPLY MTLM IN Shares O/s mn (FV Rs 1) 12.7 Market cap (Rsbn) week High/Low 226/157 3-m daily avg vol. 59,9 Price Performance (%) 1m 3m 12m GREENPLY.8 (1.2) 6.6 NIFTY (4.2) (1.2) (13.) Sensex (4.1) (1.5) (13.4) Shareholding Pattern (%) Sep15 Jun15 Mar15 Promoter FII DII Others Kamlesh Kotak Exhibit 47: Key Financials Consolidating plywood business, aiming massive growth in MDF Greenply is a promising play on the Indian consumption theme. A leader in plywood and MDF wood industry, Greenply has sound business model with the right combination of strong brand, expansive marketing reach / manufacturing capability and assured raw material supply. The plywood and MDF industry is poised for good growth as rising income, higher aspirations, growing urbanisation, insatiated housing demand and a burgeoning replacement market would act as key demand catalysts for the industry. There is a marked shift to branded / organised sector from unorganised sector which can further gain momentum with the introduction of GST. Attractively valued at 14.3x and 12.2x FY17 and FY18 EEPS, we initiate coverage on the company with a BUY rating. Strong Brand, excellent market positioning Over its 25 years journey, Greenply Industries Limited (GIL) has emerged as one of the leading player in the Indian plywood industry enjoying market share of ~5% in the overall market and 25% of organised market. The Company has launched different brands at various price points to meet the competition from unorganised players.strong portfolio of brands, wide market reach provides an edge to GIL thereby gaining market share from the unorganised players. Plywood: Raw Material linkage, outsourcing model to support growth Greeply along with Century command ~5% of the organised plywood market. Availability of veneer and coarser wood is critical for growth of plywood industry and has become a key challenge over the recent past. GIL has strengthened its raw material security with dual strategy of proactive plantation activities and backward integration in to manufacturing of face veneer in Myanmar. The Company is pursuing asset light model for growing plywood business. We expect the plywood and veneer segment to post revenue CAGR of 7% over FY MDF to drive the future growth To penetrate the cheap plywood segment and ready-to-use furniture market, Greenply was amongst a few to enter in to Medium Density Fibreboard (MDF) by setting up its own manufacturing unit in 21. MDF revenue has CAGR of 74% over FY1-15. The 1.8 lakh CBM capacity plant is currently 9% capacity. The Company is setting up another greenfield plant with an installed capacity of 1,2 cubic metres of MDF per day (3.6 lakh CBM p.a.) in Andhra Pradesh at an outlay of over Rs6bn. We believe Greenply is well positioned to capitalise on the future trend. While the new plant would start in FY19, led by higher utilisation at the existing plant, GIL s MDF revenue is expected to grow at CAGR of 15% over FY Strong Balance Sheet, healthy returns ratios Post demerger of laminates business in to Greenlam Industries Limited last year, Greenply s D/E has improved to.7 in FY15 from 1.4 in FY14. Going forward, strong cash generation will help the Company fund the MDF capex over next four years there by keeping the leverage at current levels. The company earns high return ratios (ROCE and ROE of 16.4% and 22.8% in FY15). Going forward, better utilization and the asset light model will maintain high return ratios (FY18E ROCE and ROE of 18.6% and 21.5%). Attractive Valuations Greenply is expected to log revenue, EBIDTA and PAT growth of 9.6% 16.1% and 13.5% respectively over FY Considering high growth prospects of the industry and Greenply sstrong market positioning, the Company has excellent growth visibility over the long term that will support the valuations. 18x FY18 EEPS, we recommend BUY in to the stock with TP of Rs Exhibit 48: Key Indicators Y/E Mar (Rs mn) FY14 FY15 FY16E FY17E FY18E Y/E Mar FY14 FY15 FY16E FY17E FY18E Sales EBITDAM (%) yoy (%) NPM (%) EBITDA PER (x) yoy (%) P/BV (x) PAT EV/Sales (x) yoy (%) EV/ EBITDA (x) Equity RoACE (%) EPS (Rs) RoANW (%) January 2,

28 Wood and Panel Product Sector Report Exhibit 49: Product profile Brands and Product features Product Brand Product features Plywood Greenply plywood Standard ply brand Green Club ECOTEC Optima red Green Defender Green Compreg Green Ready lines Premium ply, 2/3% premium to standard ply Mid market ply 15/2% cheaper than standard ply Ply and block board for projects / commercial application Fire Retardant ply used in kitchen Ply for industrial application like trucks, railways, electric cabinets fusion of ply and laminates. Used for interiors of doors and shelf etc Veneers Green Naturals Myanmar veneer Green Black Forest Green Spectrum wood Green Flexiply Special high grade teak decorative veneer artificial / dyed veneers flexible /bendable ply. Used for sides/edges of tables MDF Panelmax MDF plain board/ pre-laminated / Veneered Floormax Laminated flooring (low to mid-market products made of MDF) Doors Green Doors Flush doors (made of MDF) Green Doors Stellar Exhibit 5: Brands and Product Portfolio January 2,