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Challenging outlook

About the stock:

Greenply Industries (GIL) is one the leading players in the plywood business in India. It has a distribution network of 2,350+dealers/authorised stockists pan-India.

* It is foraying into the MDF boards business with manufacturing at Vadodara, Gujarat of 800 CBM/day (capex of ~| 595 crore) with revenue potential of ~| 600-650 crore per annum, to be commissioned by May, 2023

Q3FY23 Results: GIL reported a muted performance.

* The topline at | 428.2 crore, was up 1.7% YoY led by 8.7% growth in plywood revenues at | 405 crore with volumes up ~2.4% YoY and realisation growth of 6% YoY

* The consolidated EBITDA margin was at 7.6%, down 257 bps YoY, owing to high timber costs and weak Gabon performance

* The PBT (before exceptional items) at | 19.8 crore, was down 46% YoY, given the weak operating performance

What should investors do? GIL’s share price has declined by 62% over the past five years given the lagging growth trajectory vis-à-vis peers.

* We maintain our HOLD rating. GIL’s relative market share in plywood, margin trajectory (given high timber prices) needs to be monitored. Furthermore, while foray into MDF is positive one needs to be cautious at the possibility of increased capacities impacting pricing in the interimGIL’s share price has declined by 62% over the past five years given the lagging growth trajectory vis-à-vis peers. ? We maintain our HOLD rating. GIL’s relative market share in plywood, margin trajectory (given high timber prices) needs to be monitored. Furthermore, while foray into MDF is positive one needs to be cautious at the possibility of increased capacities impacting pricing in the interim

Target Price and Valuation: We value GIL at | 155/share (at 18x FY24E P/E).

Key triggers for future price performance:

* Planned capex in plywood and MDF business to provide additional revenue in the medium to long term ? Recovery in plywood growth momentum, which has lagged peers

* Strong brand presence, well established distribution network and product portfolio offering at varied price points; improving dealer’s network and healthy momentum in real estate to support sales growth

Alternate Stock Idea: Besides Greenply, we like Brigade in the real estate space.

* A play on strong demand in its key markets

* BUY with a target price of | 620

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