Exports continue to drive outperformance
Greenlam Industries (GRLM) has reported a decent set of numbers led by betterthan-expected recovery in its international business (laminate export revenue declining mere 12.9% YoY). However, domestic laminates revenue declined 65.7% YoY marred by Covid-19 led intermittent lockdown and muted real estate sector demand. Veneer and allied product segment continued to disappoint with losses swelling YoY due to operating deleverage. EBITDA margin came in at 4.9% (I-Sec: 5.3%), down 540bps YoY, due to operating deleverage. With GRLM foreseeing strong market share gain opportunity in both domestic and export laminate markets in near to medium term, we build-in a steady-state recovery in laminates segment starting Q2FY21. Maintain HOLD.
* Valuation and outlook: Factoring in largely in-line Q1FY21 outperformance, we maintain our revenue/PAT estimates for FY21E/FY22E. We expect the company to exhibit revenue and PAT CAGRs of 1.7% and 5%, respectively, over FY20-FY22E. We maintain HOLD with an unchanged target price of Rs792, valuing the stock at 20x FY22E earnings.
* Laminates and allied product segment – better-than-expected recovery in exports helps mitigate decline in domestic volumes: Overall laminate revenue in Q1FY21 was down 40.7% YoY – largely due to 54.5% decline in domestic volumes. Export revenue declined merely 12.9% YoY aided by 21.1% YoY volume decline and 12% YoY increase in realisations driven by the recent commissioning of large-sized laminate capacity at Nalagarh. Despite decline in domestic volume growth, segmental gross margin improved 20bps YoY aided by superior product mix and lower input costs. EBITDA margin declined 410bps YoY due to operating deleverage. We expect laminate and allied product segment to clock revenue and EBIDTA CAGRs of 2.2% and 3.5%, respectively, over FY20-FY22E.
* Veneer and allied product segment – revenue declined sharply by 66.5% YoY: Veneer and allied product revenue declined 66.5% YoY largely due to the discretionary nature of the product. Decorative veneer revenue declined 75% YoY, while revenues of EWF/ED segments shrunk 71%/27%, respectively. With volume disruption in niche segments (EWF and ED) likely to prevail in the near term, EBITDA breakeven in both these businesses would defer to FY22E. We expect veneer and allied product segment to register revenue and EBIDTA CAGRs of - 1.1% and 125%, respectively, over FY20-FY22E.
* Loss after tax at Rs77mn (I-Sec: Rs57mn): Consolidated loss after tax came in at Rs77mn due to muted performance of domestic laminate and veneer and allied product segments and higher than expected interest cost. We expect PAT to grow at 5% CAGR over FY20-FY22E.
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