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Forays into MDF with greenfield capacity…

About the stock: Greenply Industries (GIL) enjoys a leadership position in the plywood business with 26% of the organised plywood market in India. It has a distribution network of 2,300+dealers/authorised stockists and a retail network exceeding 6,000 and 50+ physical and virtual branches pan-India.

* It is foraying into the MDF boards business with greenfield manufacturing set-up at Vadodara, Gujarat of 800 CBM/day (capex of ~| 548 crore) with revenue potential of ~| 600 crore per annum at its peak utilisation.

Q1FY22 Results: GIL reported weak Q1FY22 sequential results.

* The topline at | 396.7 crore was up 96.5% YoY, down 34.3% QoQ with 98.3% YoY growth, 41% QoQ decline in plywood revenues at | 213.3 crore with volume, up 88.6% YoY but down 44% QoQ) at 8.9 million square metre

* EBITDA margins were down 640 bps QoQ at 5.1%

* PAT came in at | 4 crore vs. loss in the base quarter and down 86% QoQ owing to weak revenues and margins.

What should investors do?

GIL’s share price has declined by 24% over the past five years given the challenging growth trajectory.

* We maintain our HOLD rating on the company

Target Price and Valuation: We value GIL at | 215/share (at 22x FY23E 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 Century Ply in the ply sector

* A play on superior growth compared to peers in plywood/MDF

* BUY with a target price of | 490

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