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Result Synopsis

Greenlam Industries Ltd (GRLM) reported healthy growth in Q2FY25, which was better than our estimates. Growth was driven by strong performance in laminates segment (88% revenue) wherein sales increased by 12%YoY (2-year CAGR stood at 13%) owing to 9%YoY growth in volumes & 3% improvement in realizations. Domestic sales (49% of laminates), increased by 15%YoY, backed by 16% growth in volumes (2- year volume CAGR came in at 18%). Export sales (51% of laminates), grew by 10%YoY, driven by improvement in realizations as volumes increased by mere 2%YoY. Laminates capacity utilization improved to 92% during the quarter. Operating margins came in at 14.7% Vs 16.4%/13.6% in Q2FY24/Q1FY25 respectively. Veneer & allied segments revenue remained flattish on YoY basis at Rs579Mn while EBIT turned positive at Rs11Mn Vs loss of Rs9Mn/Rs26Mn in Q2FY24/Q1FY25 respectively. Deco veneer volumes declined by 10%YoY while Engineered wooden floor revenue increased by 6%YoY. In Plywood, the volume declined by 11%QoQ & revenue degrew by 6%QoQ. EBITDA loss for plywoods stood at Rs67Mn as compared to Rs83Mn/Rs61Mn in Q2FY24/Q1FY25 respectively. Total debt as on H1FY25 stood at Rs11.23Bn & Net Debt came in at Rs9.91Bn.

Management Guidance

Management maintained their annual growth guidance of 18-20% for FY25. Particle boards plants should commence operations from Q3FY25 and is expected to operate at 40-50% utilization in FY26E. Company expects peak net debt to reach Rs10-10.5Bn in FY25E.

Our view

Going ahead we reckon laminates volumes to grow by 15%CAGR over FY24-FY27E & operating margins should improve gradually with softening of ocean freight and better product-mix hence, we expect margins to come in at ~15% for FY26-FY27E. With particle boards scheduled to commence operations from Q3FY25 onwards, we believe topline would accelerate and contribute meaningfully to profitability FY27 onwards. Plywood biz is also expected to ramp-up gradually. Hence, we expect overall Revenue/EBITDA/PAT growth of 20%/21%/22% respectively over FY24-FY27E. We have valued the company at P/E(x) of 30x (5-year average 1-year forward P/E is ~35x), on FY27E EPS of Rs20, arriving at a target price of Rs600. Hence, we upgrade the stock to ADD.

Result Highlights

* Revenue stood at Rs6.81Bn, a growth of 13%YoY & QoQ.

* EBITDA margins came in at 12% (est 11%) as compared to 12.5%/10.6% in Q2FY24/Q1FY25 respectively. Absolute EBITDA grew by 7.7%YoY to Rs810Mn.

* Net profit stood at Rs344Mn, a decline of 12.6%YoY owing to higher finance and depreciation cost.

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