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Greenpanel’s Q1FY26 performance was weaker than expected on all fronts. MDF sales volumes were lower than estimate due to higher competitive intensity and lower utilization, whereas profitability was impacted by the poor product mix, weak operating leverage, and a one-off expense (forex loss) in MDF. We expect volumes to strongly improve ahead (20% CAGR during FY25-28E), as focus would be to push sales. Hence, while operating leverage would improve in coming quarters, realization is likely to remain weak amid supply pressures (discounting likely to continue). Timber costs have softened, but future trends remain monitorable. Hence, we expect the profitability improvement to remain gradual. We maintain REDUCE and TP of Rs260 on Jun-27E EPS.

MDF sales volume CAGR expected at 20% during FY25-28E Domestic sales volume (ex-commercial grade in the base year) grew 47% YoY to 89,036CBM. Export sales volumes declined 40% YoY to 13,060 due to geo-political developments. Overall sales volume declined 14% YoY to 102,096CBM (adjusted sales volumes grew 24% YoY). Capacity utilization was lower at 47%, although the company aims to strongly ramp up production; also, focus would remain on sales push. Hence accordingly, the company maintained volume growth guidance despite a slow start. We had already baked in a lower than guided volume growth and thus largely maintain our estimates. We expect 20% CAGR in sales volume to ~756,000CBM during FY25-28E.

Adverse impact on profitability; pricing pressures persist The company reported loss of Rs158mn at the EBITDA level due to poor performance in the MDF segment which was a disappointment. MDF division EBITDA margin contracted sharply by 11.9ppts QoQ to 4.4% on account of weak operating leverage, reduction in ratio of value-added products to 44% (vs 50% in Q4FY25), and the 1M long 5% incentive scheme on industrial grade products. Blended realization was lower by 4.8% QoQ; we expect it to remain weak as focus would be primarily on growth amid supply pressures in the industry. Improvement in operating leverage would cushion profitability in coming quarters. Timber prices fell 7% QoQ which is positive, though movement ahead remains a monitorable. Given the weak Q1 and soft realization, we cut EBITDA margin by 70bps/50bps for FY26E/27E, respectively.

We maintain REDUCE While there was some respite on timber costs, continuity of the decline would be a monitorable. Also, coming quarters would see benefits of a better operating leverage, though the company would possibly offer further discounts for pushing sales (supply pressures), which would impact realization. Hence, a meaningful and sustainable recovery in profitability could take time. In view of the Q1 performance and pricing pressures, we cut FY26E/27E PAT by 23%/11%. We introduce our FY28 estimates. Despite the decline in stock price post the Q1 results and attractive valuations, we retain REDUCE; we maintain our TP of Rs260 (unchanged due to roll over on Jun-27E EPS; valued at 20x).

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