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Greenply Industries – 2QFY2011 Result Update
Angel Broking maintains a Buy on Greenply Industries with a Target Price of Rs266.
Greenply Industries (GIL) registered strong top-line growth in 2QFY2011. Net
sales grew 32.7% yoy and 10.2% qoq to `289cr. The company reported (411)bp
contraction in OPM to 7.8% (11.9%) mainly due to forex losses reported during
the quarter. As a result, net profit declined 86.2% yoy to `1.6cr (`11.4cr).
Nonetheless, we believe that the company is well placed to benefit from its
laminates capacity expansion, commencement of the MDF plant coupled with
expansion in the plywood segment. Hence, we maintain a Buy on the stock.
Top-line posts strong growth: For 2QFY2011, top-line reported 32.7% yoy growth
to `289cr (`218cr) mainly on the back of the laminate capacity expansion, higher
capacity utilisation and increase in realisations during the quarter. The plywood
segment reported 119% capacity utilisation and realisation increased to `205/sq
mt from `185/sq mt qoq. The laminate segment reported 112% capacity
utilisation at the Rajasthan unit and 80% capacity utilisation at the new Nalagarg
unit.
The average realisation of laminates increased to `466/sheet in 2QFY2011
from `454/sheet in 1QFY2011. OPM contracted by 411bp yoy and 391bp qoq
to 7.8% (11.9%) largely due to the forex losses registered during the quarter to the
tune of `6.5cr. Thus, on the back of lower OPM, higher depreciation and interest
cost at the new MDF unit, which did not contribute to sales during the quarter, net
profit plunged 86.2% yoy to `1.6cr (`11.4cr).
Outlook and Valuation: We believe that the company is well placed to benefit
from its laminates capacity expansion (which increased nearly two-folds in
FY2010), commencement of the new MDF plant at Uttarakhand, which will
contribute to revenues in 2HFY2011E as well as expansion of its plywood capacity
by 3.75mn sq ft, which is expected to contribute around `45cr to FY2012
top-line. We have revised downwards our OPM estimates to factor in the decline
during 2QFY2011 as well as the delayed commencement of the MDF unit. At
`189, the stock trades at 5.7x FY2012E earnings. We maintain a Buy, with a
revised Target Price of `266 (`291), valuing the stock at 8x FY2012E EPS.
Investment Arguments
Banking on MDF and laminates
GIL is foraying into the lucrative, high-growth MDF market, with the largest MDF
plant in India (1,80,000m3/yr capacity), while continuing its strong expansion in
laminates (88% capacity expansion), that is estimated to drive 25% CAGR in sales
over FY2010-12E. GIL is witnessing very strong demand for its laminate products,
with both its new production lines running at full capacity. The MDF opportunity is
especially huge: MDF constitutes 20% of wood panel consumption in India, while
plywood constitutes 80% - the reverse holds true globally. China alone consumes
about 10-11mn m3/yr of MDF v/s 0.6mn m3/yr in India. Going forward, with a
strict control on issue of new plywood licenses and 5-7% CAGR in panel demand,
MDF is likely to meet this demand, translating into 25-30% CAGR for MDF.
Moreover, even out of present consumption, 80% is being met through imports,
which GIL can substitute given high freight costs and 25% anti-dumping duty on
imports.
Strong brand, high ad-spend and massive distribution
GIL has leading plywood and laminates brands, supported by ad-spend as high as
4.3% of sales. The company also has the largest distribution network of over
15,000 dealers in this industry. These advantages underpin the strong RoE profile
of the company's brand-driven business model (20% over FY2010-12E).
Outlook and Valuation
We believe that the company is well placed to benefit from its laminates capacity
expansion (which increased nearly two-folds in FY2010), commencement of the
new MDF plant at Uttarakhand, which will contribute to revenues in 2HFY2011E as
well as expansion of its plywood capacity by 3.75mn sq ft, which is expected to
contribute around `45cr to FY2012 top-line. We have revised downwards our
OPM estimates to factor in the decline during 2QFY2011 as well as the delayed
commencement of the MDF unit. At `189, the stock trades at 5.7x FY2012E
earnings. We maintain a Buy, with a revised Target Price of `266 (`291), valuing
the stock at 8x FY2012E EPS.
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