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Result Synopsis

As expected, Greenpanel Industries (GREENP) registered weak performance in Q2FY25. The core segment, MDF (89% of revenue), reported a degrowth of 17%YoY & 11%QoQ, wherein volumes degrew by 18%YoY & 15%QoQ (2-year volume CAGR came in at -10%) and blended realizations improved by 2%YoY & 5%QoQ. Volumes declined owing to higher competitive intensity in domestic markets coupled with sharp degrowth of 55%YoY & 30%QoQ in exports (15% of vols) biz. Domestic ASP declined by 7%YoY but improved by 3%QoQ while export realizations grew by 24%YoY & 9%QoQ. Consequently, domestic sales degrew by 11%YoY & 9%QoQ while export sales declined by 43%YoY & 24%QoQ. Operating margins remained under pressure due to higher input costs and lower volumes. Hence, EBITDA margins for MDF stood at 13.1% Vs 21.2% in Q2FY24 and 12.1% in the previous quarter. EBITDA/cbm came in at Rs3,816 Vs Rs6,080/Rs3,372 in Q2FY24/Q1FY25 respectively. Plywood segment’s volumes and revenue increased QoQ by 18% & 14% respectively. ASP stood at Rs256/sqm Vs Rs265/sqm in the previous quarter. EBITDA stood at Rs9.2Mn Vs Rs7.1Mn loss in Q1FY25. Net-working capital days stood at 40 while net borrowings came in at Rs970.8Mn.

Management Guidance

Management expects domestic volumes to grow by 15-18%YoY in H2FY25, translating into 10%YoY growth for FY25. For exports, the company aims to achieve 6,000-8,000cbm/month run rate for H2FY25. EBITDA margins should improve by 150-200bps in H2FY25 Vs Q2FY25 base. For FY26, domestic MDF volumes should grow by 35%YoY and margins should expand by 150-250bps.

Our View

We believe headwinds for GREENP should continue in FY25 as competitive intensity remains high in the industry and timber cost is likely to remain elevated. However, major domestic capacities are coming up by FY25 end post which no major capex is expected in MDF industry. Hence with demand likely to grow 15-20% CAGR, we believe competitive pressure will moderate and GREENP’s performance should improve H2FY26E onwards. Moreover, timber prices are expected to contract from FY26 which will enable margin improvement. Also, GREENP aims to have 65% contribution from VAP at existing plant by FY27E which will further aid margin expansion. We have revised our FY25E/FY26E estimate downwards by 1% (including one-off tax refund)/3% respectively. We now value GREENP at P/E(x) of 25x on FY27E EPS of Rs18, arriving at a target price of Rs451. Hence, we upgrade the stock to BUY.

Result Highlights

* Sales declined by 15.5%YoY & 7.7%QoQ to Rs3.37Bn (in-line with our estimates).

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