Published on 19/12/2019 8:57:53 AM | Source: ICICI Securities Ltd

Buy Greenply Industries Ltd For Target Rs.219 - ICICI Securities

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Evolving into a diversified and asset-light model

Management of Greenply Industries (MTLM) at its recently concluded analyst meet reiterated: i) 8-10% revenue growth guidance for FY20, ii) EBITDA margin improvement with higher sales of Gabon face veneers, iii) focus on asset-light approach with incremental outsourcing in premium and trading products, and iv) stricter discipline in working capital. Management also shared its long-term goal of 12-14% revenue growth, 30% pre-tax RoCE and clearing its entire long-term debt over the next 3-4 years. Improving sales in decorative veneer segment and opening up of exports of Okoume face veneers from Gabon to the EU region would enable MTLM to report double-digit growth and firm margins. This would be despite the subdued volumes in plywood segment in FY20. Maintain BUY with an unchanged target price of Rs219.


Key takeaways from the analyst meet:

* Business strategy remains four-pronged: i) offer quality products, ii) build a strong parent brand, iii) enhance distribution network, and iv) reduce cost and become the most efficient player in the industry.

* FY20 revenue growth to be in the range of 8-10%. However, growth over the next 3- 4 years is expected to be higher at 12-14% aided by better growth in core plywood segment and traction in recently introduced product segments. EBITDA margin is likely to improve with increase in sales of Gabon face veneers and higher sales of value-added products such as decorative veneers.

* Company is likely to maintain its adspend at 4% of net sales in FY20.

* MTLM would intensify focus on working capital discipline going forward with its target to reduce the consolidated debtor days to 80-85 days by FY20-end from the present 90 days.

* Consolidated debt as at Sep’19 stood at Rs2.8bn, which the company targets to reduce to Rs2.25bn by FY20-end. It also plans to clear its long-term debt over next 3-4 years by paying off Rs430mn each year.

* Company targets to reach a pre-tax RoCE of 30% in next three years with increase in outsourcing / asset-light model with minimal capex.

* MTLM intends to increase its outsourced volumes from 50% to 60% over the next three years leading to freeing-up of capacity for premium products.

* Peak revenue from the recently formed JVs is likely to be at Rs1.1bn-1.5bn by FY23.

* PVC boards segment reported revenues of Rs220mn for H1FY20 while the target for fullyear FY20 is Rs500mn, with EBITDA margin likely at 8.5-9%.

* Luxury products like Club Plus and Club 500 have EBITDA margins in excess of 14% while premium products like Green Defender and Green Platinum enjoy 12-13%.

* Decorative veneer segment likely to touch Rs1.3bn in revenues by FY21 with 13-13.5% EBITDA margin. 


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