Greenlam Industries Analysis : Healthy performance
Stock Call & Research Report by Anand Rathi Research
Sector : Building Material
CMP Rs. 362, Target Rs. 472 ( 30 % upside)
Target Period : 12 Months
Healthy performance, in line with expectation; maintaining a Buy
Greenlam’s Q1 revenue. EBITDA and PAT grew respectively 40%, 32%
and 42% y/y to Rs4,706m, Rs504m and Rs247m, broadly in line with ARe
of Rs4,830m, Rs498m and Rs251m. Input cost pressure continued, leading
to an 86bp gross-margin contraction y/y to 45%. However, the operating-
margin contraction was 66bps lower y/y to 10.7%. The Rs10bn capacity
expansion is progressing as scheduled.
Laminates: higher sales volumes and realisations. Capacity utilisation was
unchanged y/y at 110%, resulting in muted production. Volumes sold increased
7.9% y/y and realisations improved 21.1% y/y.
Veneers: greater utilisation trims losses. Capacity utilisation improved
1,000bps y/y resulting in 58.8% and 87.5% y/y increases in production and
sales volumes respectively. Realisations improved 12.4% y/y. All this helped
trim losses at the EBIT level to 7.9% vs. 13.7% a year ago.
Steps in the right direction. The recent equity funds raised and healthy cash-
flow generation are expected to strengthen the balance sheet and fund the
vigorous capex plans over FY23 and FY24. The acquisition of a laminate-
manufacturing plant would immediately remove capacity constraints. The
amalgamation with HG Industries is expected to reduce costs (avoiding
overlapping ones).
Valuations. Outlook intact, maintaining a Buy. We believe the company
would deliver 32% and 40% revenue and earnings CAGRs over FY22-24
respectively. At the CMP, the stock trades at 40.7x and 25.4x FY23e and FY24e
respectively. We are upbeat about the company and maintain our Buy
recommendation on it, with a target price of Rs.472 (lowered marginally) based
on 33x (earlier 30x) FY24e earnings. Risks: Demand slowdown, keener
competition and cost pressures.
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