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Greenpanel Industries’ (Greenpanel) 2QFY24 print was a 6%/12% miss on revenue/EBITDA respectively. MDF segment revenue declined 10% YoY (+4% QoQ, 2% below JMFe) led by fall in both volume (-2% YoY/ +7% QoQ, 5% below JMFe) and realisation (-8% YoY/-2% QoQ). Domestic volume (-9% YoY) was hit due to lower sales to OEMs, but export volume improved 24% YoY/ 21% QoQ. Despite growing competitive intensity, Greenpanel maintained its market leadership in the retail segment. On the profitability front, gross margin contracted 310bps YoY/260bps QoQ on account of higher raw material prices (timber prices up 10% YoY in South and 5% in North) and higher share of exports. EBITDA margin shrank by 750bps YoY (+30bps QoQ) to 17.3%. The management has guided for volume growth of 3-4% (vs. 12-15% guided during 1Q) and operating margin of 22-23% (vs. 23-25% earlier) for FY24. Further, it has indicated a slight delay in commissioning of the MDF unit in AP (231k CBM) in 3QFY25 (vs. 2QFY25 guided earlier) due to delay in shipment of equipment. We cut our FY24-26 EPS estimates by 5-10% to reflect the current quarter performance and arrive at a revised Dec’24 TP of INR 420 (basis 22x Dec’25 EPS). Key risks: a) Significant rise in imports beyond current levels, and b) demand weakness in the domestic market.

* 2QFY24 summary: Greenpanel’s revenue declined 13% YoY (+21% 4-year CAGR; +3% QoQ, 6% below JMFe) to INR 3.9bn as MDF segment revenue fell 10% YoY (+3% QoQ, +30% 4-year CAGR; 2% below JMFe) while plywood revenue declined 29% YoY (31% below JMFe) on poor volume (-35% YoY). MDF volume decreased 2% YoY (+7% QoQ, 5% below JMFe). Blended MDF realisation declined 8% YoY (-2% QoQ, 3% above JMFe). Higher timber prices led to gross margin contracting by 310bps YoY (-260bps QoQ, +160bps above JMFe). EBITDA margin shrank by 750bps YoY (+30bps QoQ) to 17.3%. EBITDA declined 39% YoY (+5% QoQ) to INR 691mn and was 12% above JMFe.

* Domestic volume fell 9% YoY (+2% QoQ), exports grew 21% YoY: In 2QFY24, domestic MDF volume declined 9% YoY (+2% QoQ, +18% 4-year CAGR) as the company chose to reduce its sales to OEMs on account of lower realisation; however, it has resumed the offering with a newer product. On the other hand, export volume grew 24% YoY (+21% QoQ). Despite increasing competitive intensity, the company has maintained its market share. The management has guided for volume growth of 3-4% in FY24. The company will continue to focus on widening its distribution reach, and increasing domestic volume and proportion of value-added products. The management had revised its margin guidance to 22-23% from 23-25% earlier.

* Plywood performance remains weak: Ply segment revenue fell 29% YoY / 4% QoQ (31% below JMFe); volume declined 35%YoY (+4% QoQ) largely on account of lower sales of decorative veneers. EBITDA margin contracted 530bps YoY (740bps below JMFe) on account of higher commodity inflation. The company is optimistic on its plywood segment performance in future

* Cut estimates; maintain BUY: We cut our FY24-26 EPS estimates by 5-10% as we assume lower volume growth to arrive at a revised Dec’24 TP of INR 420 basis 22x Dec’25 EPS.

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