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MDF to boost growth, retain BUY!

Result Synopsis

Greenply Industries Ltd (GPIL) registered a volume growth of 6%QoQ & remained flattish YoY at 17msqm (2-year volume CAGR came in at 4%) & ASP came in at Rs246/sqm Vs Rs238/Rs249 in Q4FY22/Q3FY23 respectively. GP% for the quarter stood at 38% as compared to 38%/39% in Q4FY22/Q3FY23 respectively & EBITDA margins came in at 11% Vs 10%/10% in Q4FY22/Q3FY23 respectively. However, volumes were below growth of peers on account of headwinds witnessed in premium segment which constitute 51% of total volumes. Management expects a volume growth of 10-12% in FY24 backed by improvement in demand & shift from unorganized to organized segment.

Gabon biz witnessed sequential revival wherein revenue stood at Rs180Mn Vs Rs90Mn in previous quarter. GP margins/EBITDA margins expanded by 372bps/345bps QoQ. However, the situation in Gabon continues to remain uncertain & could impact FY24 performance.

MDF plant has commenced production & company has established their sales & marketing team as well. The product will contribute to revenue from Q1FY24E. For this plant major capex is already done, Rs450-500Mn will be spent in FY24. Also, the debt repayment of Rs500Mn will be made from Oct-Nov’23. In year-1, GPIL aims to operate MDF plant at 40-45% & initially company will manufacture interior & exterior grade MDF along with HDMR category.

We believe, GPIL is embarking on a strong growth trajectory wherein we reckon Plywood biz to grow by 6%over FY23-FY25E with margins coming in at 10.5% in FY24E & FY25E respectively. MDF will boost performance from FY24E & we expect revenue from this segment to come in at Rs2.7Bn/Rs3.9Bn in FY24E/FY25E respectively. With major capex behind & debt likely to get repaid from FY24E & ROE/ROCE to improve to 20%/26% respectively by FY25E, we believe GPIL is available at lucrative valuations of 14x/11x on FY24E/FY25E EPS of Rs11/14 respectively. We continue to value the company at P/E(x) of 18x on FY25E EPS & arrive at a target price of Rs250. Hence, we retain our BUY rating on the stock.

Result Highlights

* Revenue stood at Rs4.7Bn, a growth of 5%YoY & 10%QoQ. Green standalone revenue stood at Rs4.3Bn, a growth of 3%YoY & 5%QoQ. Gabon revenue increased by 22%YoY & 83%QoQ to Rs420Mn.

* For plywood: Volume stood at 17msqm, a growth of 6%QoQ & remained flattish YoY. ASP came in at Rs246 Vs Rs238/Rs249 in Q4FY22/Q3FY23 respectively. EBITDA margins came in at 11% Vs 10%/10% in Q4FY22/Q3FY23 respectively. Gabon biz, EBITDA margins improved to 5% Vs 1% in previous quarter.

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