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Strong growth on depressed base…

About the stock: Greenply Industries (GIL) is one of the leading players in the plywood business in India. It has a distribution network of 2,300+dealers/authorised stockists pan-India.

* It is foraying into the MDF boards business with greenfield manufacturing set-up at Vadodara, Gujarat of 800 CBM/day (capex of ~| 555 crore) with revenue potential of ~| 600-650 crore per annum at its peak utilisation

Q2FY22 Results: GIL reported a strong Q2FY22 performance on favourable base.

* Topline at | 432.4 crore, was up 46.3% YoY on a benign base (Q2FY21 had ~ 22% YoY decline). It was driven by 57.8% growth in plywood revenues at | 376.2 crore with volumes up ~43% YoY at 15.9 MSM

* EBITDA margins expanded 60 bps YoY to 11.5%, owing to operating leverage benefits

* PAT came in at | 31.9 crore, up 72% YoY

What should investors do? GIL’s share price has declined by 14% 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 | 250/share (at 24x 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 Mahindra Lifespace in the realty/building material segment.

* Play on expanding residential real estate portfolio

* BUY with a target price of | 335

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