Woodpanel Sector – H2 Outlook Much Healthier Led By Higher Volumes, Margin Improvement: ICICI Securities

Wood panel companies under our coverage reported a mixed performance in Q2 FY24 with plywood companies reporting higher volume growth, whereas MDF companies were partly impacted by higher imports in the quarter.

Plywood companies Century Plyboard India Ltd./Greenply Industries Ltd. reported plywood and allied volume growth of 7.8%/11% YoY with operating profit margin declining 77 basis points/200 bps YoY due to continued higher timber cost.

We expect demand for plywood to improve in H2 FY24 with margins likely to increase as raw material prices are now stabilising. MDF domestic demand in Q2 was healthy but with imports rising heavily, growth for domestic players was muted.

Also, rising timber cost, coupled with the inability to take price hikes due to higher imports, impacted the operating margins for companies in the sector.

Greenpanel Industries Ltd. reported volume deceleration of 9.1% (+2.3% QoQ), whereas Century Plyboards reported volume growth of 19.1% YoY (+12% QoQ) and Greenply Industries’ reported volumes stood at 31,019 cubic metre (+412% QoQ) with the commissioning of its new plant in Q1 FY24.

MDF demand is expected to remain healthy in H2 FY24 with margins expected to improve due to operating leverage and raw material stabilisation.

We have a ‘Buy’ rating on Greenply Industries, Century Plyboards and Greenpanel Industries.

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