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| Summary of Contents | STOCK IDEA Century Plyboards (India)
Recommendation: Buy
Price target: Rs200
Current market price: Rs151 Score a Century Key points - A leading player in a fast growing niche space: Century Plyboards (Century) is a leading player in the fast growing plywood and laminate segment, with an overall share of 25% of the organised plywood market, which is estimated at Rs4,500-4,800 crore. The organised plywood and laminate segment is growing at healthy double digits due to an improving demand environment and a shift towards branded products. Century has the advantage of a strong brand equity, wide distribution network and a manufacturing presence in the timber-rich region of Myanmar. We believe it can grow ahead of the industry, at 22% CAGR, over the next three to five years.
- Roll-out of GST to provide a fillip to organised segment: For procuring wood, the plywood industry doesn't pay any excise duty or VAT. Therefore, there is no CENVAT credit available to the plywood manufacturers. As a result, the scope for savings is huge if the excise duty is evaded (that is why the plywood segment has more unorganised players, who form 70% of the segment). However, once the GST comes into force, the tax advantage currently enjoyed by the unorganised players would diminish sharply and the market share of the organised players would surge.
- Improving demand and premium positioning to support margins: In the past couple of years, the company has invested in building capacities (set up new plywood plants in Gujarat and Myanmar, closer to the sources of timber; and doubled the laminate capacity from 2.4 million sheets to 4.8 million sheets). Consequently, it is positioned to ride the economic revival-driven recovery in demand and increase its market dominance in the plywood and laminate segment. The margins would be supported by the improving trend in the revenue mix and the benefits of operating leverage due to higher capacity utilisation across plants. Therefore, we expect its profit after tax to surge at a healthy rate of 47% CAGR over FY2014-17.
- Key risk: As the company imports around 50-60% of its raw material, it faces a big risk from the rupee's depreciation against the dollar. Besides, a lower than expected improvement in the demand environment is a risk to our earnings estimates.
- Quality consumer play with strong growth outlook; Buy: Century is a high-quality consumer play with a dominant market share in a fast growing niche segment. Consequently, we expect the stock to command a premium valuation and outperform the broader market over the long term. We initiate coverage on the stock with a Buy rating and price target of Rs200.
STOCK UPDATE Cox & Kings
Recommendation: Buy
Price target: Rs395
Current market price: Rs294 Focus on deleveraging balance sheet Key points - With a view to deleveraging its balance sheet Cox & Kings decided to raise Rs1,200 crore though a qualified institutional placement (QIP) issue and a preferential allotment to the promoter group. The proceeds would be entirely utilised to reduce the debt on the consolidated books and strengthen the balance sheet.
- Cox & Kings has about Rs3,475 crore of debt on its consolidated books. It intends to reduce the debt by another Rs250 crore by the end of FY2015 (and by Rs500 crore each in FY2016 and FY2017) through internal accruals. Further, the proceeds of the QIP and preferential allotment would be utilised to reduce debt to the tune of Rs1,000-1,200 crore.
- The debt reduction through internal accruals and equity issuance would result in interest cost savings of Rs70-75 crore per annum over the next two years. Hence, the proposed equity issuance would not result in any earnings dilution in the coming years.
- Foreign tourist arrival (FTA) data stood encouraging during the lean period of August-September 2014 with the year-on-year growth rate standing in the range of 9-16%. This gives an indication of a strong improvement in FTA in the upcoming season. The ongoing bookings for the upcoming inbound season are encouraging for Cox & Kings and hence Q3FY2015 is expected to be better for the company's Indian business. Also, the domestic outbound tourism business is expected to grow by 20-25% in Q1FY2016.
- A likely strong growth in the Indian travel business and a steady revenue growth in the education business in Europe would help Cox & Kings to post a better operating performance in the coming years. Besides, its focus on deleveraging the balance sheet makes it a better pick in the Indian travel and tourism space. We maintain our Buy recommendation on the stock with an unchanged price target of Rs395.
| | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | |
| Regards,
The Sharekhan Research Team |
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