Add Greenlam Industries Ltd For Target Rs. 1,452 - Yes Securities
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Our view
* Q1FY22 was impacted due to regional lockdowns caused by 2nd wave of COVID‐ 19 in domestic markets. However, with normalcy returning from July’21 (laminates at ~100% & veneers at ~80% of pre‐2nd wave of COVID‐19), we believe demand to bounce back in coming quarters. Additionally, demand in export markets should continue to remain sturdy.
* Along with domestic laminates industry set to grow by 8‐10% in coming years, industry is witnessing a sharp shift from unorganized to organized segment due to rampant rise in input cost coupled with higher working capital requirement. Hence, Greenlam is expected to outperform industry growth by reporting 14% volume growth in laminates segment over FY21‐FY23E. Moreover, Greenlam is also gaining marketshare from global unorganized players in export markets which will enable the company to strengthen their global footprints. Therefore, we expect company’s total revenue to grow by 18% CAGR over FY21‐FY23E.
* We reckon, better pricing power coupled with higher utilizations; company’s operating margins are likely to come in at 14.6%/15% in FY22E/FY23E respectively. Hence EBITDA is expected to grow by 20.3% CAGR over FY21‐FY23 to Rs2,507 Mn.
Valuation:
At CMP, Greenlam Industries is trading at P/E(x) of 23.4x on FY23E EPS of Rs58.1. We have valued the company at 25X on FY23E EPS arriving at a target price of Rs 1,452 (previous target of Rs 1,356), translating into an upside of 6%. We therefore change our rating from “BUY” to “ADD”.
Result Highlights
* Sales stood at Rs3,361 Mn above our estimate of Rs3,154 Mn. Laminates sales stood at Rs3,096 Mn, a degrowth of 15.3% q/q majorly on account of 15.6% drop in volumes. Veneer & allied segment reported revenue of Rs 265 Mn, degrowth of 47% q/q. Veneer volumes stood at 0.16 msqm Vs 0.47 msqm in Q4FY21.
* Company reported EBITDA of Rs382 Mn Vs our expectations of Rs396 Mn. EBITDA was below our expectations on account of lower EBITDA margins which came in at 11.4% (Vs our estimate of 12.5%). EBITDA margins contracted sharply from 16.1% in Q4FY21 due to higher COGS %sales which stood at 54.1% in Q1FY22 as against 51.3% in Q4FY21.
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