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We interacted with the management of Greenlam Industries Ltd which was represented by Mr. Ashok Sharma (CFO) and Mr. Samarth Agarwal (VP finance) & following are the key highlights from the same:

* Demand has been decent for laminates. Domestic demand is expected to remain steady, however export is facing headwinds due to Red-sea crisis. During Q3FY24, company was not able to book sales of Rs200Mn. However, the same is likely to get fulfilled in Q4FY24.

* Commenting on Red-sea issue, currently the prices are steady at elevated levels and there has not been any material change post Q3FY24, the situation is “StatusQuo”. Company has passed on the increase in freight cost to the customers as freight surcharge, hence margins are not likely to get impacted.

* In laminates, company commenced the new capacity in Sept’23 & is operating at ~35-40% utilization levels. Management expects to break-even at 50%+ utilization levels. Moreover, this plant will enable company to launch new products of bigger sizes.

* Other input cost has been steady, KRAFT paper prices have witnessed marginal uptick, however management does not foresee any impact on margins.

* BIS norms have been implemented for Particle Boards & MDFs. For Plywoods, the same is expected to get implemented by month end. Management stated that this could curb the dumping of imports, but the suppliers look at India as a sustainable business will get the regulatory approvals and continue their business.

* Particle boards commencement has been deferred by 2-quarters to Q2FY25 due to supply challenges. However, management maintained their guidance of achieving 40-50% utilization in Year-1 of operations i.e., FY25. Currently the Particle board industry is dominated by unorganized players & price difference Vs MDFs is ~30-35%.

* For plywoods as well, management expects to breakeven at 50% utilization. ? Geographic split: In domestic markets, south constitutes ~35-38% of business followed by North-West and East.

* Of the total inventory cost, ~2/3rd is Raw material inventory while balance is Finished goods which includes goods in transit.

* Net Debt as on Dec’23 stood at Rs8.47Bn Vs Rs6.7Bn in Sep’23. Management expects debt to peak at Rs9Bn & debt repayment will commence from FY25E.

* Overall management maintained their guidance of 15%/20% revenue growth in FY24/FY25 respectively. Post all capex, peak revenue will be Rs40-42Bn.

We believe GRLM will deliver healthy topline growth of 20%CAGR over FY23- FY26E owing to steady demand for laminates and company’s foray into Particle Boards & Plywoods. With higher contribution of value-added products in laminates, we believe margins should improve gradually & in Particle Boards we expect EBITDA to be positive from Year-2 of operations i.e FY26E, hence overall margins are likely to remain rangebound. At CMP, the stock trades at P/E(x) of 25.6x on FY26E EPS. Given the capped upside due to rich valuations, we maintain our NEUTRAL rating on the stock

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