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Gabon disappoints; balance sheet strengthens further

Greenply Industries (MTLM) has reported lower-than-estimated PBT of Rs392mn (Rs430mn), up 106%/16% YoY/QoQ led by disappointing EBITDA margin at 11.5% (I-Sec: 12.7%), down 80bps QoQ. Gabon revenue (-21.5%) and EBITDA margin (7.8% vs 12.9% QoQ and 10.9% YoY) took a sharp dive in Q4FY21 led by continued issues in container availability. The silver lining was plywood growth of 16% QoQ and 20bps higher EBITDA margin QoQ at 13%. Management continued strengthening balance sheet with WC days at 53 days vs 78 days YoY and reduction in consolidated debt from Rs2.67bn to Rs1.92bn YoY. Management outlook on revenue growth was cautiously optimistic led by the impact of second covid wave and extended impact on Gabon due to logistical issues. However, plywood EBITDA margin may improve further driven by better mix, cost optimisation and operating leverage. Downgrade to ADD.

Valuation and outlook:

Factoring in Q4FY21 outperformance, we tweak our revenue and earnings estimates by -3.3%/-1% and -8.6%/-5.8% for FY22E/FY23E, respectively. We now expect MTLM to report revenue and adjusted PAT CAGRs of 20.5% and 54%, respectively over FY21-FY23E on a low base. We downgrade the stock to ADD from BUY with a revised target price of Rs235 (earlier: Rs250) valuing it at 20x FY23E earnings (33% discount to CPBI’s target multiple of 30x). Downside risks: Sudden decline in secondary real estate sales and sustained weakness in Gabon.

Consolidated revenue at Rs3.97bn is in-line, up 16.5% QoQ.

Standalone plywood revenue recovered QoQ by 21% to Rs3.6bn. Gabon operations on the other hand reported 21.5% QoQ decline mainly led by logistical-led issues with persistent container unavailability. Plywood utilisation in Q4FY21 was 145% with recovery in demand. With improving demand visibility in plywood segment and slower recovery expected in Gabon operations once the situation normalises in Europe, we expect MTLM’s overall revenues to exhibit 20.5% CAGR over FY21-FY23E.

Consolidated EBITDA margin down 80bps QoQ to 11.5% (I-sec: 12.7%).

MTLM reported its consolidated EBITDA margin at 11.5% (I-Sec: 12.7%) in Q4FY21 led by lower gross margins by 210bps QoQ. Gabon’s EBITDA margin at 7.8% vs 12.9% QoQ was disappointing with sharp revenue decline, while standalone plywood margin stood at 13% vs 12.8% QoQ. Going forward, we expect MTLM’s consolidated EBITDA margin to gradually improve to 13.3% by FY23E driven by operating leverage and product mix improvement.

RoCE to improve sharply to 28% by FY23E: 

Expected improvement in profitability, stricter working capital management and fast improving FCF from operations may drive sharp debt reduction over the next two years, which in turn will drive RoCE higher by 1,200bps to 28% in FY23E.

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