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Steady growth, margins under pressure!

Our view and valuation

Greenply Industries Ltd (GPIL) reported a decent quarter wherein consolidated revenues increased by 74%YoY & remained flattish as compared to Q4FY22. Standalone revenue declined marginally by 5% sequentially while Gabon operations witnessed robust growth over similar period. Standalone volumes degrew by 6% & ASP expanded by 2% in Q1FY23 Vs Q4FY22 while Gabon’s volumes improved from 7,191cbm in Q4FY22 to 13,204cbm in Q1FY23 . EBITDA margins for the quarter came in at 8.8% Vs 9.9% in previous quarter. Standalone biz margins contracted by 100bps sequentially & Gabon’s EBITDA margins contracted by 300bps over similar period. Margins contracted on account of higher input cost coupled with change in product mix wherein trading volume’s contribution expanded from 38% in Q4FY22 to 42% in Q1FY23. GPIL took price hike of 2% in June’22 & the benefit of the same is likely to get reflected in Q2FY23. 

Management stated that company witnessed capacity constraints & could not cater the demand. Going ahead, with commencement of Sandila unit along with Hapur unit likely to begin production from Q3FY23, management is confident of achieving their revenue growth guidance of 15% for FY23. We reckon GPIL’s standalone volumes to grow by 10%CAGR over FY22 FY24E owing to sturdy demand from TierII & III regions. Going ahead, we expect new MDF unit to accelerate company’s growth & hence we expect Revenue/EBITDA/PAT to grow by 20%/29%/25% CAGR over FY22FY24E. We have revised FY24E EPS downwards by 6% to Rs12.4 & continue to value the company at 18x on FY24E EPS, arriving at a target price of Rs218. Therefore, we maintain our BUY rating on the stock.

Result Highlights

* Revenue for the quarter stood at Rs4,535Mn (better than expectations), reporting a flattish growth QoQ & 74%YoY. FY20FY23 revenue CAGR stood at 9%. Standalone revenue stood at Rs3,946Mn, a degrowth of 5%QoQ (FY22FY23 CAGR stood at 9%). Company’s sales volumes stood at 16msqm, registering a 6% sequential degrowth & net realization improved by 2% over similar period. FY20FY23 Volume CAGR stood at 6%.

* Own manufacturing/Partners/Trading constituted 47%/11%/42% of total volumes in Q1FY23 as compared to 49%/12%/38% in Q4FY22 respectively.

* EBITDA margins came in at 8.8% (Vs our expectation of 9%) as compared to 5.1%/9.9% in Q1FY22/Q4FY22 respectively. Absolute EBITDA stood at Rs401Mn reporting a 10% decline QoQ. Standalone EBITDA margins came in at 9.4% as compared to 10.4%/5.6% in Q4FY22/Q1FY22 respectively

* Net profit for the quarter stood at Rs207Mn, reporting a 28.5% QoQ degrowth and as compared to Rs41Mn in Q1FY22.

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