IGI Logo

Improving outlook on likely BIS norms implementation

Greenpanel Industries (Greenpanel) has rallied 14% in the past week itself. We believe the upmove is fueled by: i) likely easing of MDF imports and acceleration in market-share gains from the low-end plywood segment, given the implementation of BIS norms w.e.f. Feb-24; 2) growing possibility of reduction in timber prices, especially from FY26E, with rise in plantations in the past few years for partially addressing margin concerns. Besides, our channel checks suggest the Company maintains healthy demand growth, with low-double-digit YoY volume growth in Q3 (high single digit, sequentially). With ready-made furniture gaining preference, we estimate MDF segment CAGR at >15% over coming years. We continue to favor Greenpanel, given its leadership position, industry-leading margins, lean working capital, and strong balance sheet. We have a BUY on the stock and will soon review our estimates and target price.

BIS implementation to improve growth outlook for domestic manufacturers

As per the GoI notifications, implementation of BIS norms on MDF will be mandatory w.e.f. 11-Feb-24. With execution of this standard in various parameters like density, thickness, etc, lower-quality products would automatically be phased out from the market, cheap imports in India will get restricted and cost of imports will increase, in our view. To recap, run rate of MDF imports has increased to 30-32K CBM p.m. in 8MFY24 vs 18-20K CBM p.m. in FY23. Accordingly, we estimate some softening in MDF imports post implementation of BIS norms. Besides, it may help to accelerate market-share gains from the low-end plywood segment (an over Rs50bn opportunity).

Demand growth remains healthy; margins likely to be stable in Q3FY24

Greenpanel has registered ~5% YoY volume de-growth in its MDF segment, in H1FY24. Our channel checks suggest that demand growth remains healthy, with likely volume growth in low double-digits YoY and a high single-digit QoQ, in Q3FY24. Increasing acceptance of new products for the OEM category also helps in boosting volume for the company. Timber prices remain broadly stable in the North, albeit staying elevated in the South. Accordingly, margin in the MDF segment is likely to remain flat sequentially, as the higher input prices would be offset by better operating leverage. With the increase in plantations since the past few years, timber prices are likely to witness some softening, especially from FY26E, possibly partially addressing the concern on margins.

Capex plans to support long-term growth prospects

MDF is expected to be one of the fastest growing segments in the wood-panel category, and is estimated to clock >15% over FY24-28E, led by deepening penetration and increasing preference for readymade furniture. In a bid to capture this opportunity, Greenpanel has outlined capex of Rs6bn, which would enhance its capacity by ~35%, from 660K CBM to 891K CBM by FY25-end.

Forn More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf

& SEBI Registration number is INH000000354