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Greenpanel Industries’ (Greenpanel) 1QFY24 performance was broadly in line, 3% miss on revenue was offset by higher margin (120bps above JMFe). MDF segment revenue declined 13% YoY (-12% QoQ, 5% below JMFe) led by fall in both volume (-7% YoY/ -16% QoQ, 5% below JMFe) and realisation (-6% YoY; higher export mix; domestic realisation flat QoQ). Volumes declined on account of a) slightly weak demand scenario given unseasonal rains, b) moderate substitution of domestic MDF by imports, and c) shutdown of its plant in the North for 20 days in Apr’23 for maintenance. On the profitability front, gross margin contracted 340bps YoY (higher timber prices), but improved 450bps QoQ to 58.3% (430bps above JMFe) on account of improved mix of value-added products (500bps YoY). Higher A&P spend (3.9% of sales vs. 2-2.5% average annual spend) and maintenance shutdown during the quarter led to EBITDA margin shrinking by 10.7ppt YoY (-40bps QoQ) to 17.0% (adjusted for these two, we estimate margins would have expanded by 260bps QoQ). The management remains confident of volume recovery in the remaining quarters to achieve 12-15% volume growth and operating margin of 23-25% for FY24 as it intends to a) widen its direct distribution reach to OEMs and b) increase the proportion of value-added products (targets 65% of sales, currently 54%). Plywood segment continues to show lacklustre performance, but the company remains optimistic and has guided for double-digit volume growth and 8- 10% EBITDA margin for FY24. We marginally trim our FY24/25 EPS estimates and arrive at a revised Jun’24 TP of INR 430 basis 22x June’25E EPS. Key risks: a) Significant rise in imports beyond current levels, and b) demand weakness in the domestic market.

* 1QFY24 summary: Greenpanel’s revenue declined 17% YoY (+17% 4-year CAGR; -5% QoQ, 3% below JMFe) to INR 3.9bn as MDF segment revenue fell 13% YoY (-12% QoQ, +23% 4-year CAGR; in line with JMFe) while plywood revenue declined 37% YoY (20% below JMFe) on poor volume (-37% YoY). MDF volume decreased 7% YoY (+5% QoQ, 5% above JMFe) on account of maintenance shutdown of 19 days of the Rudrapur Plant coupled with rising MDF imports amidst relatively weak demand. Blended MDF realisation declined 6% YoY (+5% QoQ, 5% above JMFe). Higher timber prices led to gross margin contracting by 340bps YoY (+450bps QoQ, 430bps above JMFe). Moreover, higher A&P spend and maintenance shutdown led to EBITDA margin shrinking by 10.7ppt YoY/- 40bps QoQ to 17.0%. EBITDA declined 49% YoY (-15% QoQ) to INR 658mn and was 4% above JMFe.

* Domestic volume fell 10% YoY (-6% QoQ), exports grew 3% YoY: In 1QFY24, Greenpanel posted volume decline of 7% YoY /-16% QoQ (+11% 4-year CAGR; 5% above JMFe), led by steep fall in domestic volume (-10% YoY/-6% QoQ) on account of shutdown and rise in MDF imports. Exports volume, on the other hand, grew 3% YoY but declined by 36% QoQ. The management remains optimistic on recovery in the remaining quarters and has retained its earlier guidance of MDF volume growth of 12- 15% in FY24. The company plans to expand its direct distribution reach to OEMs, which currently account for 12% of the domestic volume, and increase the proportion of valueadded products, currently 54%, and targets to achieve 65% in the medium term. The

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