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Steady plywood growth & ramp-up in MDF should accelerate overall performance!

We interacted with the management of Greenply Industries Ltd & following are the key takeaways from the same:

Plywood:

? Demand has been decent however festive season (seasonal impact) has impacted the volumes. Largely the mid-segment has been the demand driver for the industry & premium segment has been sluggish.

? In Mid-segment, the customers are preferring branded products which is enabling organized manufacturers to outperform industry growth.

? Management expects plywood volumes to grow by 7-10% over next 3-5 years.

? Timber prices continues to remain at elevated levels, management does not foresee material contraction in price in near-term. ? With central Government’s decision to have imported woodpanels BIS marked, the organized manufacturers could largely benefit from the same.

MDFs:

? Management reiterated their annual guidance of 100,000cbm for FY24.

? Currently, company places their products at 2-2.5% lower in certain regions Vs the existing manufacturers.

? Imports have been growing on m/m basis; however, the importers have revised their prices upwards which will reduce the price difference Vs domestic prices.

? With higher utilization & favorable product-mix, management expects to achieve industry-level margins. ? This segment is likely to be Cash neutral (No profit/loss) by FY24.

? Average debt cost is ~8.5% & management plans to repay Rs500Mn debt annually.

Our View:

We continue to remain positive on company’s growth, hence we expect Revenue/EBITDA/PAT growth of 20%/40%/36% respectively over FY23-FY25E. We expect plywood division to register steady growth of 9%CAGR over FY23-FY25E & with ramp-up in MDF segment, consolidated top-line of the company should accelerate. Moreover, with better margins in MDF biz & expected improvement in Plywood margins, blended operating margins are likely to come in at 12% by FY25E. At CMP, the company trades at P/E(x) of 15x on FY25E EPS of Rs13.9. We continue to value the company at P/E(x) of 18x on FY25E EPS & maintain our target price of Rs250 with a BUY rating.

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