GREENPANEL INDUSTRIES Stock Research Report by ICICI Securities
Sector: Wood & Wood Products
CMP Rs. 309, Target Rs. 505 (63% upside potential)
Target Period: 12 Months
GREENPANEL INDUSTRIES Stock Research Report: Tepid quarter; structural outlook remains positive
Greenpanel Industries (GREENP) has reported Q4FY23 blended MDF volume growth of 10.2% YoY (4-year CAGR of 20.4%) driven by 89.1% YoY growth in export volumes, while domestic volumes declined 7.4% YoY (+1.6% QoQ; 4-year CAGR of 19.5%) on high imports. Consolidated revenue declined 6.1% YoY as plywood revenue fell 22.9% YoY (due to plywood volume decline of 17.1% YoY) while MDF revenue declined 3.1% YoY (lower export realisation). Consolidated operating margin declined 11.9ppt YoY (-6.1ppt QoQ) due to a) higher raw material prices (gross margin declined 736bps/451bps YoY/QoQ), b) adverse geographical mix (higher MDF export volume mix of 31% in Q4 vs 18% YoY, which have lower margins), c) increased branding (sales promotion expense up 90bps/120bps YoY/QoQ), and d) price cuts (export realisation down ~22%/6% YoY/QoQ), resulting in EBIDTA/PBT decline of 44.4%/46.0% YoY, respectively. Management has guided for 12-15% YoY blended MDF volume growth with domestic volumes growing in low double digit and export volumes growing ~20% YoY and it has guided for EBITDA margin of 23-25% for MDF segment in FY24. It has also guided for A&P spend of ~2.5% of revenue in FY24 (vs ~1.3% in FY23). We cut our PAT estimates by ~9%/5% for FY24/25E due to near-term headwinds in domestic demand on rising imports, higher raw material cost and increased spend on A&P. Maintain BUY with a revised Mar’24 target price of Rs505 (earlier Rs532), set at an unchanged 20x PER. Though GREENP has near-term headwinds due to higher imports, we continue to like its leadership position in MDF, increased focus on branding and attractive valuations (12.2x P/E FY25E).
● Volume growth of 10.2% YoY, driven by 89.1% YoY growth in exports: GREENP posted 10.2% YoY (4 year CAGR of 20.4%) growth in blended MDF volumes in Q4FY23, driven by 89.1% YoY (+68.9% QoQ) growth in export volumes, while domestic volumes declined 7.4% YoY (+1.6% QoQ; 4-year CAGR of 19.5%). Decline in domestic volumes was due to high imports (avg. monthly run rate of imports was 20,288MT in Jan-Feb’23 which is closer to pre-covid levels of ~22,525MT in FY19). Blended MDF realisation declined 10.2% YoY due to price cuts taken for exports (export realisation down 21.5%/6.4% YoY/QoQ) while domestic realisation remained flat YoY/QoQ. Management has guided for 12-15% YoY blended volume growth for MDF segment in FY24, with domestic volumes growing in low double digit and export volumes growing ~20% YoY. Plywood business saw revenue decline of 22.9% YoY on volume decline of 17.1% YoY (+2.5% QoQ) while realisation declined 6.3% YoY (due to lower share of decorative veneers). GREENP’s net cash positioned improved to ~Rs1.9bn in Q4 (+430mn QoQ) and the company plans to remain net debt free despite planned capex of Rs6bn. For plywood segment, management has guided for double digit YoY volume in FY24. Working capital days improved by 6 days QoQ to 17, primarily due to lower inventory days. In FY23, GREENP has generated FCF of ~Rs3.4bn.
● EBITDA margin declined on raw material pressure and adverse mix: GREENP’s consolidated EBITDA margin (ex-forex gain) in Q4FY23 declined 11.9ppt YoY/ 6.1ppt QoQ to 17.3% due to raw material pressures (gross margin declined 736bps/451bps YoY/QoQ), along with an adverse product mix (higher exports which have lower realisation/margins) and also due to higher branding spends (sales promotion expense up by 90bps/120bps YoY/QoQ) resulting in EBIDTA/PBT decline of 44.4%/46.0% YoY, respectively. MDF segment margins decreased 12.7ppt YoY (-370bps QoQ) due to higher share of exports and price cuts taken in exports, while plywood margins declined 880bps YoY / 660bps QoQ on higher raw material cost, inventory losses and lower sales of decorative veneer (which has better profitability). Management has guided for MDF margin of 23-25% and plywood margin of 8-10% for FY24. We model blended EBIDTA margin of 22.2% / 22.6% for FY24E / FY25E (vs 23.4% reported in FY23), respectively.
● GREENPANEL INDUSTRIES Stock Research Report: Valuations and view: We cut our FY24/FY25E PAT estimates by 9%/5% due to near-term demand headwinds from high imports and increased raw material prices. However, we continue to like the company for its leadership in MDF segment which has strong growth prospects, increased focus on A&P which will enable long-term growth for the segment and strong net-cash balance sheet. Maintain BUY with a revised Mar’24 target price of Rs505 (earlier: Rs532). Keyrisks: Upward trajectory in RM cost and higher import of MDF.
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