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New capacities to boost performance!

Our view and valuation

Greenlam Industries Ltd (GRLM) registered a decent quarter wherein laminates biz increased by 39%YoY & remained flattish sequentially. Volumes of laminates division grew by 8%YoY & 3%QoQ while realizations expanded by 23.5%YoY & remained flat as compared to previous quarter. EBITDA margins of laminates came in at 12.4% in Q1FY23 VS 12.9%/13.3% in Q4FY22/Q1FY22 respectively. Domestic & exports mix of laminates was 50?50 for the quarter. In exports, company’s order of Rs180?200Mn was in transit & was not recognized in Q1FY23.  During the quarter company took price hikes of 3% & 5% in domestic & exports markets respectively.   

Going ahead, management is confident of achieving 25% growth in FY23 wherein company is aiming 12?15% growth in volume & value each. GRLM’s newly acquired laminate plant will commence operations in Q2FY23 & additional capacity (2mn sheets) will be operational by Q4FY23. Additionally, company’s south laminate plant & plywood plant will begin operations from Q4FY23.

We reckon company’s new capacities will boost their performance going ahead. We expect strong demand from domestic & export markets; hence we believe company’s laminates volumes to grow by 23%CAGR over FY22?FY24E. Overall, we expect GRLM’s Revenue/EBITDA/PAT to report a growth of 27%/43%/40% over FY22? FY24E. Though we have revised our FY24 earnings upwards by 8.5%, we continue to value the company at 25x on FY24E EPS of Rs15. Hence, we maintain our “NEUTRAL” rating on the stock.

Result Highlights

* Revenue for the quarter stood at Rs4.70Bn, reporting a 40%YoY growth & remained flat as compared to previous quarter. Laminate biz revenue stood at Rs4.30Bn, registering a 39%YoY growth & remained flattish Vs Q4FY22. Veneer & allied product’s sales grew by 52%YoY & 2%QoQ to Rs0.40Bn.  

* On volume front, laminates biz registered a growth of 8%YoY & 3%QoQ wherein domestic biz increased by 41%YoY & exports degrew by 13% YoY. Realizations improved sharply by 23.6%YoY & remained flattish as compared to Q4FY22.   

* Overall EBITDA margins came in at 10.7% Vs 11.4%/10.7% in Q1FY22/Q4FY22 respectively (in?line with our estimate of 10.5%). Laminates EBIT margins improved from 14.7%/15.4% in Q4FY22/Q1FY22 to 15.6% in Q1FY23. Veneers & other segments EBIT loss came in at Rs32Mn in Q1FY23 Vs loss of Rs36Mn/Rs43Mn in Q1FY22/Q4FY22 respectively.

* Net profit stood at Rs246Mn reporting a growth of 41.8%YoY & degrew by 3.8%QoQ.  

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