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Greenpanel’s consol. EBITDA dropped 41% YoY (up 5% QoQ) to Rs691mn, with margin shrinking by 820bps YoY/up 30bps QoQ to 17.3%, broadly in line with our estimate. Volume for MDF de-grew 2% YoY to 123K CBM, with domestic volume falling 9% YoY due to significant rise in MDF imports and higher competitive intensity. Company resorted to higher exports (up 24% YoY) in a bid to boost utilization rate. Given subdued operational performance, the management has cut its MDF volume guidance to 3-5% YoY for FY24 (earlier 12-15%), with 22-23% margin guidance (earlier 23-25%). Factoring-in the near-term challenges, we cut our EBITDA by 9-16% for FY24E-26E and revise Sep-24E TP to Rs410/sh (18x P/E). Company’s leadership position in the MDF segment, lean working capital, and strong balance sheet would help it to weather the near-term headwinds. Hence, we maintain our BUY rating.

Greenpanel Industries: Financial Snapshot (Consolidated)

Result Summary

Revenue declined 13% YoY (up 3% QoQ) to Rs4bn, with MDF revenue declining 10% YoY to Rs3.6bn and the plywood segment registering 29% YoY de-growth to Rs432mn. Domestic MDF volume fell 9% YoY to 90K CBM, whereas exports (low-margin profile) witnessed growth of 24% YoY to 33K CBM. Blended MDF realization sharply fell 8% YoY/ 2.4% QoQ to Rs28,763, owing to material increase in exports (realization in domestic markets declined 2% YoY to Rs32,771, while that in the exports market declined 23% YoY to Rs17,538). Volume in the plywood segment dropped 20% YoY to 1.6mn sqmtr, while realization de-grew 12% YoY. Gross margin deteriorated by 310bps YoY to 55.6% due to rise in timber prices in the South (up 11% YoY). Further, owing to negative operating leverage, EBITDA margin contracted by 820bps YoY (up 30bps QoQ) to 17.3%. Subsequently, absolute EBITDA declined 40% YoY to Rs691mn.

What we liked: Controlled WC days

What we did not like: Cut in volume and margin guidance for FY24

Key Concall takeaways:

1) Management anticipates the domestic MDF industry to have grown in double-digits in Q2FY24. 2) Monthly MDF import run-rate has sharply risen by over 50%, as import prices are lower by 18-20% currently. 3) In October, Company sold 34K CBM in the domestic market, suggesting a 9% YoY growth. 4) Company expects the new MDF plant to be commissioned by Q3FY25 (delayed by a quarter). 5) Company has witnessed 11% increase in wood prices in South India and broadly flat prices in North India, on QoQ basis. 6) Current MDF industry capacity stands at 2.7mn CBM, which the company expects will rise to 3.5mn CBM by the end of FY25. Majority of the capacity expansion is happening in South India. 7) Company has restructured its plywood sales team, to regain market share. 8) It re-iterated brand spends at 2-2.5% of sales for FY24; ad-spends in Q2 were low at 0.8%. 10) Company recorded Q2FY24 volume of 12K CBM in the new OEM category, and targets 46K-48K volume over the next six months.

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