The two stocks recommended by SMC Global Securities’ Research Team this week are Century Plyboards and Sapphire Foods India. These two stocks have shown great potential with the financial estimates rising in the next two financial years. So, let’s go through the details of the two stock recommendations for the period between October 7, 2024, and October 11, 2024.
Century Plyboards (India) Limited
Its CMP was ₹861.80 (as on October 4, 2024) and its target price is set at ₹1,052 with an upside potential of 22%.
*As on October 4, 2024
Investment Rationale
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- Century Plyboards (India) is a manufacturer and distributor of building products. Its portfolio of products comprises plywood, block board, decorative veneer and timber, particle boards, flush doors, Medium Density Fiberboards (MDFs), decorative laminates, pre-laminated boards, and fiber cement boards.
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- 20 Lac+ unique clients
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- Recently, the company has commenced commercial production of all products, including MDF, laminate, and PVC, at its Century Panel plant at Badvel, Andhra Pradesh. With this, it has doubled its MDF capacity from 900 to 1900 cubic meters. It is a Greenfield project spread across 100 acres.
- According to the management, its Andhra Pradesh facility is ramping up, which would add to the sales of the Laminate segment. The newly set up MDF facility has picked up exceptionally fast in the very first quarter of operation. The company expects it to be EBITDA positive by the third quarter.
- The company has also set up a PBC board facility at its Andhra location. This has started production in the month of May 24. This facility is also ramping up very fast and would add to almost ₹100 crores of revenue by FY2026.
- In Q1FY2025, revenue grew by 12.8% to ₹1,005 crores. Plywood division posted better-than-expected YoY growth of 14.9% with EBITDA margins of 14.4%. In the laminate segment, the EBITDA margin from 9.2% to 12.3%. Better raw material linkages helped the company to keep its costs under check.
- According to the management, the company plans to raise product prices again soon after implementing a hike in June. The company raised laminate prices in the current quarter; it added that the realizations in MDFs have also bottomed out. The company retained its revenue growth projection at over 15% for FY25. Plywood revenue growth is pegged at over 10% with a margin of 12-14%, laminates revenue growth at over 20% with a margin of 10-12%, and MDF revenue growth at over 40% with a margin of 15%.
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
Promoter shareholding is highest in Century Plyboards (India) at 72.59%, while institutions hold 16.67% shares.
Valuation
The company has recently commissioned a new facility in Andhra Pradesh and is ramping up very fast. The company expects growth in all segments which would be driven by a newly commissioned facility. Price increases and better cost management are expected to drive margin. Thus, it is expected that the stock will see a price target of ₹1,052 in an 8 to 10-month time frame on a three-year average P/BV of 8.03x and FY26 (E) BVPS of ₹131.01.
Risk
- Economic slowdown
- High raw material prices
Sapphire Foods India Limited
Sapphire Foods India’s CMP was ₹350.40 (as on October 4, 2024) and its target price is set at ₹404 with an upside potential of 15%.
Investment Rationale
- Sapphire Foods started operations in September 2015, through the acquisition of about 270 KFC and Pizza Hut Stores in India and Sri Lanka, by a group of leading Private Equity firms and is managed by a team of professionals. It is a leading YUM franchise operator in the Indian subcontinent with a presence in India, Sri Lanka, and Maldives. As of Jun 30, 2024, it owns and operates 442 KFC and 320 Pizza Hut restaurants in India, 111 Pizza Hut and 9 Taco Bell restaurants in Sri Lanka, and 2 KFC and Pizza Hut each in Maldives.
- In order to improve its operational efficiency, the company’s Dragontail kitchen planning tool has been rolled out in 100% of restaurants. With this, it has seen improvement in service levels, especially in delivery. The Dragontail is integrated with the aggregator platforms. Its lunch daypart activation was also rolled out, and now 90% plus high-speed restaurants are open for late-night deliveries.
- In Q4FY24, it added 13 KFC restaurants and 1 Pizza Hut restaurant. For FY24, Sapphire KFC added 88 new restaurant additions, Sapphire Pizza Hut opened 33 new restaurants and in Sri Lanka, it added 6 new restaurants. Sapphire Foods total restaurant count stood at 886 as on 30th June 2024 and it is on track to double its restaurant count by the end of the year.
- In the KFC division, the launch of Chizza LTO in Q4FY2024 has improved consumer interest and according to the management, the company has taken its burger game to the next level by launching 5 new burgers: American, Caribbean, Mexican, Indian, and Indian veg and Indian non-veg. It also relaunched the Indian veg option, a paneer Zinger.
- Pizza Hut is the company’s second pillar of growth in its multi-brand restaurant operation strategy. To revive consumer interest in the brand, it launched Melts, which is an absolutely unique product. It is a folded handheld pizza concept. It is aimed at extending the pizza consumption to in-between meal locations. Melts would expand the number of occasions that pizza is consumed. The company also launched a very interesting Thin N Crispy Crust pizza to support brand revival. It continues to build its innovation over the next 4-6 quarters allied with the increased investment in marketing and consumer experience.
- The Sri Lanka business continues to improve with a strong quarter of double-digit SSSG and restaurant Sales grew by 13% in LKR (up by 19% in ₹ terms) and Restaurant EBITDA margins were at 13.2% (up 20 bps YoY).
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
In the overall shareholding of Sapphire Foods India, institutions hold the highest share of 31.45%.
Valuation
The company is focusing on operational efficiency by improving service levels and introducing late-night deliveries. Moreover, it is adding new restaurants and plans to double its restaurant count. The company is also investing both in marketing and improving or strengthening the consumer experience to revive the Pizza Hut brand. Thus, it is expected that the stock will see a price target of ₹404 in 8 to 10 months’ time frame on current P/BVx of 8.37x and FY26 BVPS of ₹48.41.
Risk
- Economic slowdown
- Regulatory risk
Conclusion
These two stocks Century Plyboards and Sapphire Foods, one from the plywood sector and the other from the QSR (Quick Service Restaurants) sector can reach their target price in the coming 8 to 10 months. But it is always good to do your analysis before investing and then setting a stop-loss target. To keep track of your invested stocks, open a demat account with SMC Global Securities and invest on the go.
Reference:
https://www.smctradeonline.com/research/wise-money/241
Author: All Content is verified by SMC Global Securities.
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account