Greenply Industries - Sanguine on MDF business… :: ICICI Securities, report

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Sanguine on MDF business…
We met the management of Greenply Industries (GIL) to understand GIL’s
business model and its plans, going ahead. GIL is one of India’s leading
plywood players and enjoys ~25% share of India’s organised plywood
market (~30% of total plywood market). Recently, GIL demerged its
laminate segment into Greenlam Industries for optimal usage of
resources. Also, GIL is more sanguine on MDF demand in future and
expects next leg of growth to come from MDF. With the structural shift in
the industry due to Myanmar ban, GST development and GIL’s strong
brand recall & wide distribution network, GIL is expected to outpace
industry growth with significant market share from unorganised players.
Demerges laminate business into Greenlam Industries…
GIL recently demerged its laminate business into Greenlam Industries as
the management wanted i) to separate the wood based business from the
decorative business ii) to focus on exports in the laminate segment
(accounted for 47% of laminates division revenues - | 804 crore in FY14
iii) to have different cash flows for both businesses that would be utilised
for future growth of the respective businesses. The demerger is effective
from November 2014 and GIL’s shareholders are likely to get one share of
Greenlam for every share held in Greenply Industries. Greenlam is
expected to get listed in February, 2015.
Outsourcing share to rise in plywood division…
GIL has capacity of 129,620 cubic metre (CBM) in the plywood division
and enjoys ~25% market share in the organised plywood industry. GIL’s
plywood division grew at 16% CAGR during FY09-14 to | 1094 crore in
FY14 and is expected to maintain strong growth in the coming year on
the back of expanding organised market pie post GST rollout and export
ban of timber by Myanmar. Currently, its plywood plants are running at
100%+ capacity utilisation. Going ahead, the management is planning to
focus more on the outsourcing model (RoCE of 39% in outsourcing vs.
19% in manufacturing) and is aiming 40% of plywood sales from the
outsourcing model vs. 25% currently.
Focusing more on MDF segment, going ahead…
GIL has 180,000 CBM of capacity in MDF with 40% market share of 100%
organised MDF market. Though MDF revenues de-grew recently due to
lower acceptance from the Indian consumer, GIL is sanguine on its
demand and is expecting the next leg of growth to come from MDF. For
that, it is planning to do further capex to expand its existing capacity to
360,000 CBM, going ahead.

LINK
http://content.icicidirect.com/mailimages/IDirect_Greenply_MgmtNote_Jan15.pdf