Century Plyboards to build on stronger rupee, housing demand

Plywood maker Century Plyboards is confident of its prospects in the year ahead on hopes that a stable rupee will knock off the heavy losses it suffered over the past two years. The company is also hoping that its expanded capacities, aggressive advertising and overall improvement in demand will support growth.

"Being dependent on imported timber, we suffered heavily due to rupee depreciation of last 2-3 years. For FY14 alone, our forex loss was Rs 44 crore," said Arun Julasaria, chief financial officer at Century Plyboards.

"Even the demand from housing was weak, which is our main market." But the company sees fresh demand coming up with the new government’s focus on housing and infrastructure. "During the lull period of last two years, we added capacities and are now ready to face 50per cent spurt in demand," said Julasaria.

Century Plyboards added 20per cent to its plywood capacity and doubled its laminates capacity during FY14. The company has also strengthened its marketing and distribution set up accordingly and recently launched a new advertisement campaign. It plans to expand its 5,000-strong dealership network by 30 per cent annually over next couple of years.

The decision to hive off its cement business in FY13 into a separately listed company, Star Ferro and Cement, also helped as it enabled the management to focus on plywood business.

The move to set up a manufacturing unit in Myanmar—Indian plywood industry’s preferred supplier of raw timber— assumes importance since the country banned raw timber exports starting April.

"Our timber peeling unit in Myanmar can support our entire requirement, so we have security of raw material," said Julasaria.

"On the other hand, this ban has caused timber prices to go down 15-20 per cent in Myanmar, while the veneer prices in India have gone up 15per cent," he added. All these factors have put the company in a bullish mode.

"We are projecting at least 25per cent revenue growth in FY15, with no forex loss and a higher EBIDTA margin," said Julasaria. According to a recent report by Mumbai-based brokerage Emkay the company’s earnings could grow at an average annualised growth rate of 50per cent in the next two years.

"We believe the strong earnings trajectory, improving return ratios, improving cash flow and decent payouts will drive the re-rating for the stock," it said, giving the company’s share a target price ofRs 80, which is 21per cent higher than the current market price.