Published on 13/08/2016 11:20:38 AM | Source: Religare Capital Markets Ltd

Update on Greenlam Industries Ltd - RCML

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Healthy growth visibility

We hosted a roadshow with the GRLM management. Following are the key takeaways:

* GRLM’s laminates & allied segment contributes ~85% of revenue and the veneer & allied segment brings in the balance ~15%.

* In laminates, the company has 19% organised market share and in the veneer segment, it holds 12%.

* Management believes revenues can grow at 10-12% sustainably over the next few years, with sustainable EBITDA margins of 13-14%. Growth in the veneer & allied segment is expected to be higher than laminates going ahead.

* The company has no major capex plans for the next few years and aims to increase the utilisation of existing capacities.


Laminates & allied segment

* In the laminates business, compact laminates contribute 18-20% of segmental revenue. This segment is seeing higher growth (15-16%) and management expects the momentum to continue.

* Exports have clocked an 18% CAGR over the past five years. Growth slowed to ~3% in FY16 due to currency depreciation in major export markets. Going ahead, GRLM expects growth to revive as currencies are stabilising.

* Key raw materials used in laminates are chemicals and paper. Chemicals account for 35-40% of the raw material cost and paper ~60%. Chemicals are primarily imported whereas paper is sourced both domestically and from imports.

* Margin gains in the laminates & allied segment come primarily from lower raw material cost (~50%) and also a richer product mix.

* The company plans to incur capex of Rs 250mn-300mn for brownfield expansion of its laminate capacity by 2mn sheets. The additional capacity will be operational by Q2FY18 and can generate revenues of Rs 1.2bn-1.3bn on full utilisation.

* Peak utilisation in its current capacity of 12.02mn sheets can be ~112%. GRLM can expand current capacity by ~50% to ~18mn sheets at a cost of Rs 800mn-900mn.


Veneer & allied segment

* In the veneer segment, natural veneer is the major contributor to revenues. The company recently entered into teak and engineered veneer, which too are expected to witness high growth going ahead.

* Management believes its engineered doors (ED) and engineered wood flooring (EWD) products have high growth potential and should see increased traction going ahead. Both products are expected to break even over the next 4-5 quarters.

* ED can yield ~Rs 1bn in revenue and EWD Rs 2.2bn-2.3bn on full capacity utilisation.


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