Stock Update: Century Ply

Q3 FY17 investor presentation and concall summary -

• Hoshiarpur plant for MDF is to start in Mar 2017
• Sainik sold 11,819 CBM (cubic meter) vs 12,037 cbm last year. This is despite impact of demonetization
• Ply sales have been strong in January 2017 as well
• There are around 3,300 plywood units in the country and out of 3,300 units, 2,500 are totally exempted, the turnover is less than Rs1.5 crore, 700 units are under the partial exemption their turnover is Rs1.5-5 crore and only 100 units are there which are in the full duty paying
• MDF: Co 600 CBM/ day capacity MDF plant is expected to come on stream by April, 2017. It entails an investment of 380 cr with 207 cr spent till Q3FY17. 
• The company would also use the MDF produce to make value added products like doors, pre-laminated boards. While it would also produce high density fibreboard (HDF) for manufacturing wooden flooring
• Market share: The company looked to maintain market share in difficult times post demonetisation. Hence, it gave dealers some discounts which led to a margin contraction. However, going forward, the management has indicated that they would reduce these discounts over the time
• Demonetisation impact: The management believes that demonetisation impact is over as the company witnessed ~5% growth in January, 2017. Though the unorganised sector is still witnessing problems, the company believes that it has a great opportunity to capture market share from unorganised players post demonetisation
• Pre-lam particle board plant: Currently, the company has a capacity of producing 1000 boards/day at its pre-lam unit and it would augment its capacity to 3000 boards/day by commissioning one more unit in next 3-4 months
• Commercial veneer: The realisations of commercial veneer increased sharply during the quarter as company sold premium veneer. It expects to maintain such realizations, going forward
• Pricing changes: The company has not taken any price hikes post demonetisation. It would benefit from softening raw material prices and so would look to maintain prices, going forward before the final rate of GST is known. Further, the unorganised players have already take price hikes of ~5% post demonetisation and could also take further price hikes. This would lead to contraction in price differential between organised and un-organised products which would help the company gain market share from unorganised players
• Winding up furniture business: The company has decided to completely wind up its furniture business which it started in 2012. Over the years, the division has accumulated losses of ~25 crore
• Laminates capacity expansion: The company is planning to rampup its laminates capacity by 50% to 7.2 mn sheets
• GST rate: The management expects a GST rate of either 18% against the current incidence of ~27-29%. Post GST implementation, a level playing field would be established and organised players are set to benefit

Near term triggers
• GST implementation is likely to migrate unorganised to organised sector
• Pre-lam is expected to give good growth
• MDF, new facility, is expected to give good growth - FY18 revenue is expected to be around 400cr; At full utilization it can generate 600 cr