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Steady revenue growth but margins contract!

Our view

Greenply reported a steady quarter wherein topline grew by 24%YoY, largely driven by 11.4% volume & 7.3% realization growth over similar period. However, margins contracted from 12.3%/11.5% in Q3FY21/Q2FY22 respectively to 10.2% in Q3FY22 due to (i) increase in both timber & chemical prices, though company undertook price hikes the same was implemented with lag‐impact, (ii) change in sales‐mix wherein the contribution of own‐ manufacturing contracted from 60%/55% in Q3FY21/Q2FY22 respectively to 52% in Q3FY22. Going ahead, we believe company’s volumes to grow by 15%CAGR over FY21‐FY24E on the back of strong real‐estate demand coupled with formalization of industry. Company is expanding their own capacities by 13.5msqm & setting‐up new‐JV (capacity 7.5 msqm) to cater the growth in coming years. Additionally, with Greenply’s MDF unit on‐track to get operational by Q4FY23‐ we expect total revenue to increase by 21% CAGR over FY21‐FY24E. Though we maintain our target price of Rs252 on the stock, we have upgraded our rating from ADD to BUY.

Result Highlights

* Volume: Sales vol came in at 15.6msqm, a growth of 11.4%YoY & a minimal decline of 1.9% QoQ. Avg Realizations for Q3FY22 stood at Rs235 as compared to Rs219/233 in Q3FY21/Q2FY22 respectively.  

* Revenue (consl) stood at Rs4,211Mn (above expectations), reporting a growth of 23.7%YoY & a degrowth of 2.6% QoQ. Standalone sales came in at Rs3,730Mn‐ a growth of 20.3%YoY and flattish as compared to previous quarter. Gabon sales stood at Rs 480Mn, reporting a 58.4% YoY growth but a 14.6% sequential decline.

* EBITDA margins came in at 10.2% (below our estimates) Vs 12.3%/11.5% in Q3FY21/Q2FY22 respectively. Greenply standalone operating margins stood at 11% in Q3FY22 as compared to 12%/12.3% in Q3FY21/Q2FY22 respectively. Gabon’s margins in Q3FY22 came in at 10% Vs 14.5%/12.6% in Q3FY21/Q2FY22 respectively.

* Net profit for quarter stood at Rs298Mn, reporting a growth of 19.3% YoY & sequential decline of 6.5%.

Valuation

We expect Greenply’s Revenue/EBITDA/PAT to grow at 21%/33%/40% respectively over FY21‐FY24E. The company is currently trading at P/E(x) of 16.7x/13.9x on FY23E/FY24E EPS of Rs11.5/14 respectively. Though we continue to value the stock at 18x on FY24E EPS & maintain our target price of Rs252, we upgrade our rating on stock to BUY from ADD.   

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