Greenply Industries : Growth visibility rises
Call & Research Report by Anand Rathi Research
Sector : Building Materials
CMP Rs. 174, Target Rs. 257 ( 47% upside potential)
Target Period : 2 Quarters
Broadly in line with our estimated Rs4.2bn/Rs310m, Greenply’s Q3
revenue/PAT grew 24%/19% y/y to Rs4.2bn/Rs298m. Its gross/
EBITDA margins were 334bps/208bps lower y/y to 38.7%/10.2% (ARe
40%/11.3%). Its revenue growth visibility improved, led by the
standalone entity (volume/realisations up 11.4%/7.3% y/y), and the
overseas subsidiary’s revenue up 58.4% y/y. Margins were slashed by
cost pressures, though, largely higher raw-material cost (standalone) and
other expenses (subsidiary).
Healthy revenue growth. The beneficial demand context supported revenue
growth. Volumes increased largely on the change in strategy (manufacturing
through partnership models introduced (owned: partnership: traded volume
growth -3%/624%/3% y/y), Higher realisation, however, largely offset costs.
Margins squeezed. Higher input costs compressed the gross margin 334bps
y/y to 38.7%. Adj. EBITDA (adj. for Rs30m non-cash ESOP expenses) grew
10% y/y to Rs458m and resulted in a 137bp lower margin y/y, to 10.9%.
Growth visibility improves, expansions underway. The company is setting
up greenfield MDF capacities (800 cu.mtrs. p.d., 240,000 p.a.) and in plywood
(13.5m sq.mtrs. p.a.) in UP/Gujarat at Rs1.1bn/Rs5.6bn. Expected
completion: Q4 FY22/Q4 FY23; commercial production the quarter
following. On optimal utilisation within 2-3 years of commissioning, the
revenue potential expected is Rs2.5bn/Rs6bn-6.6bn.
Valuation, Outlook. We like Greenply for its leading position in plywood. We
introduce FY24e and anticipate 23%/37% revenue/earnings CAGRs over
FY21-FY24. With the increased capacity to go live in FY23/FY24 and the
overall outlook encouraging, we upgrade the stock to a Buy with a higher TP
of Rs257, 20x FY24e earnings (earlier Rs227, 20x FY23e earnings).
Research Report : 18 February 2022