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Plywood recovers; logistic issues impact Gabon…

Greenply Industries (GIL) reported robust growth, albeit on a benign base (~12% YoY decline in Q4FY20). The topline at | 396.7 crore was up 15.1% YoY driven by 20.9% growth in plywood revenues at | 359.4 crore. EBITDA margins expanded 279 bps YoY to 11.5%, owing to cost rationalisation and operating leverage benefits. PAT was at | 28.6 crore vs. loss in the base quarter owing to one-time exceptional hit of ~| 50 crore (reversal of excise duty benefit on retrospective basis due to Supreme Court ruling).

Plywood segment capex planned…

Plywood sales volumes grew 18.9% YoY at 15.9 million sq mt (MSM) in Q4FY21 while realisations were up 1.9% YoY at | 222/sq mt. GIL’s own manufacturing facility is running at 145% utilisation as of Q4FY21 (vs. 128% utilisations in Q3). The management has indicated that the demand momentum has temporarily been disrupted due to the second-wave and recovery is likely from Q2FY22. GIL also planned to set up a greenfield plywood unit in Uttar Pradesh with 13.5 MSM capacity (likely to be added by Q4FY22) with estimated cost of | 75 crore (excluding cost of land and license of ~ | 40 crore).

The management expects revenue of | 250 crore from the proposed expansion on a full-operational basis. We note that notwithstanding proximity to raw material site and availability of labour, own manufacturing RoCEs at 13-14% vs. sharply lower than 25%+ for outsourced product. This is a clear shift from asset light model that the company earlier had guided. GIL has guided for double digit growth in FY22E and 10-12% growth thereafter. Overall, we expect plywood revenues to witness 15% CAGR to | 1348 crore in FY21-23E, on a benign base.

Gabon continues to be impacted by logistics issues

Gabon revenues at | 37.3 crore were down 21.5% YoY as operations were impacted by non-availability of required levels of containers and higher freight rates. Overall, we expect Gabon revenues to witness -15% CAGR to | 199 crore in FY21-23E. Driven by cost rationalisation and operating leverage, we expect consolidated margins to expand to 13.5% in FY23 (vs. 10% in FY21).

Valuation & Outlook

GIL’s stricter working capital control and cost has brought about a strength in balance sheet. The continued demand from Europe and newer areas will hold the key for Gabon, going ahead, albeit the management has guided for muted H1FY22 given logistic issues. Furthermore, while plywood will witness decent growth on a benign base, GIL’s relative market share and traction thereafter will be key for further rerating after sharp run up in share price. We maintain HOLD with a revised target price of | 230/share (22x FY23E earnings at ~30% discount to Century Ply) vs. | 180/share, earlier.

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