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Operating margins remained under pressure !

Our view and valuation

Greenlam Industries Ltd (GRLM) reported a steady revenue growth of 11.6%YoY & 3%QoQ. Laminates revenue increased by 15.9%YoY & 4%QoQ wherein volumes degrew by 11.5%YoY & remained flat as compared to previous quarter. Realization surged sharply by 29.7%YoY & 3% QoQ owing to price hikes taken by GRLM to mitigate the rise in input cost. Laminates EBITDA margins came in at 12.9% in Q4FY22 as compared to 17.9%/13.3% in Q4FY21/Q3FY22 respectively. During the quarter company had to operate at 5‐days in a week from Jan 01‐Feb 04 due to National Capital Region air pollution issues, Commission of Air Quality Management (CAQM), ordered restriction on operation of manufacturing units in the Behror region, post which the operated their plant for all 7‐days, this lead to production loss of 10‐days & Rs250‐ 255Mn of revenue. Consequently, company’s margins and inventory management were impacted. Going ahead we reckon demand to remain healthy & company’s laminate volume should grow by 12%CAGR over FY22‐FY24E. Also, shift in demand from unorganized to organized players should accelerate GRLM’s growth. Additionally, company’s new laminate capacity will be onstream by Q4FY23E which will cater to the incremental growth. GRLM’s plywood plant will also get commissioned by Q4FY23E which will further boost company’s performance. The particle board plant will start to contribute post FY24E. We believe volatility in input cost to continue & though company will take price hikes, the same will be implemented with a lag‐impact. However, with better product mix  & no further plant closures, EBITDA margins should not contract further. Hence, we expect EBITDA margins to come in at  13.3%/14.2% in FY23E/FY24E.

At CMP, GRLM is trading at 32.7x/25.1x on FY23E/FY24E EPS of Rs9.8/12.8 respectively. We continue to value the company at 25x on FY24E EPS & maintain our target price of Rs320 on the stock. We have assigned an ADD rating to the stock.

Result Highlights

* Revenue for quarter stood at Rs4,634Mn (Vs our expectation of Rs4,569Mn), reporting a growth of 11.6%YoY & 3%QoQ. Laminates sales increased by 15.9%YoY & 3.9%QoQ to Rs4,239Mn while Veneers&allied products revenue declined by 20.6%YoY & 5.2%QoQ.

* EBITDA margins came in at 10.7% Vs 11.9%/16.1% in Q3FY22/Q4FY21 respectively & as compared to our estimate of 12.5%. Absolute EBITDA stood at Rs496Mn, a degrowth of 26%YoY & 7.1%QoQ.

* EBIT margins for laminates came in at 14.7% in Q4FY22 Vs 18.5%/16.2% in Q4FY21/Q3FY22. Veneers & allied product’s reported EBIT loss of Rs43Mn as compared to Rs11Mn loss in Q3FY22 & profit of Rs13Mn in Q4FY21. 

* Net profit stood at Rs256Mn, a decline of 17.3%YoY & 5.1%QoQ. PAT margins came in at 5.5% as against 7.4%/6% in Q4FY21/Q3FY22 respectively & against our estimate of 6.6%.  

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