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Greenply Industries’ (Greenply) 2QFY24 performance was a beat on our and Street expectations (Revenue/ EBITDA was 27%/15% above JMFe), led by strong volume growth in the plywood segment (+12% YoY; 8% above JMFe) and significant ramp-up in MDF volume (CU at 52% in 2Q). Ply revenue grew 11% YoY to INR 4.8bn (+16% QoQ, 5% above JMFe) led by volume growth of 12% YoY while realisation declined 1% YoY (-1% QoQ, 2% below JMFe). The MDF unit in 2QFY24 (its 1st quarter of full operations) reported volume of 31k cbm (vs. JMFe 18k cbm), and realisation of INR 28.8k/ cbm (3% above JMFe). Given the robust performance in MDF, the management reiterated its earlier volume guidance of 100k cbm in FY24. Gabon performance remained weak (revenue declined 36% YoY) on account of political and demand uncertainty. On the profitability front, timber prices remained elevated, which led to price hikes in Aug-Sep’23. The management expects ply volume to grow by 8-9% for FY24. We broadly maintain our FY24-26 estimates and arrive at Dec’24TP of INR300. Keys risk to our call – Weaker-than-expected growth in ply and MDF volume.

* 2QFY24 performance: Greenply’s consolidated revenue was INR 6.1bn, up 23% YoY/+28% QoQ (+12% 4-year CAGR). Ply revenue grew 11% YoY (+9% 4-year CAGR, 5% above JMFe) led by ply volume growth of 12% YoY (+17% QoQ, +6% 4-year CAGR, 8% above JMFe) while realisation declined 1% YoY (-1% QoQ, +2% 4-year CAGR). Timber prices remained elevated; the company hiked prices in Aug-Sep’23. Gross margin expanded 20bps YoY (-170bps QoQ, 190bps below JMFe). Higher spend towards branding and advertisement activity (3.7% of sales vs 3.0% in 2QFY23) led to EBITDA margin contracting by 150bps YoY (+220bps QoQ, 90bps below JMFe) to 8.4%. EBITDA came in at INR 513mn, +5% YoY/+72% QoQ (15%/28% above JMFe/Consensus). Higher depreciation and interest cost led to PAT of INR 139mn, -41% YoY (vs. JMFe: INR 39mn).

* Robust plywood volume growth (+12% YoY, +6% 4-year CAGR, 8% above JMFe): Ply volume grew by 12% YoY to 19.1msm (+17% QoQ; 8% above our estimates). Demand improved during the quarter; however, the management indicated that volume growth came mainly in the value segment. The management continues to be optimistic and has guided for 8% volume growth for FY24. Plywood EBITDA margin contracted 210bps YoY /70bps QoQ to 7.6% (90bps below JMFe) as the company continued to step up its investment towards branding and distribution expansion. Greenply has appointed actor Jr NTR as its brand ambassador as the company intends to strengthen its market share in the southern markets.

* MDF volume and realisation surprise positively: Greenply’s newly commenced MDF segment (1st quarter of full operations, operated only 55 days in 1QFY24) reported revenue of INR 897mn. MDF volume came in at 31K cbm (vs. JMFe: 18k cbm). MDF realisation during the quarter was INR 28.8k (3% above JMFe). The management maintains its earlier guidance of volume of 100k cbm and revenue of INR 2.75bn-3bn in FY24. On the profitability front, the MDF segment reported operating profit of INR 140mn (vs. JMFe: loss of INR 40mn). However, the management refrained from giving any guidance on what is a sustainable margin as believes that it is too early to do so. Pace of distribution expansion in the MDF segment is trending well (c. 250 dealers now and to achieve 1,000 by Mar’24).

* Challenging times for Gabon: Gabon revenue declined 36% YoY (-38% QoQ, +3% 4- year CAGR) as the quarter was impacted by political challenges in the country, leading to a halt in operations at the unit. EBITDA declined 49% YoY to INR 30mn (+7% QoQ, 112% above JMFe). EBITDA margin shrank by 190bps YoY to 7.5% (+310bps QoQ).

* Maintain estimates and BUY rating: We broadly maintain our FY24-26 EPS estimates to reflect the current quarter performance and arrive at a Dec’24 TP of INR 300, basis 22x Dec’25EPS. We maintain BUY on cheap valuation. Keys risks to our call – Weaker-thanexpected growth in ply volume.

* Other highlights:

- The management highlighted that the value segment of the plywood industry is witnessing higher growth; however, it added that the company’s efforts in premium segment was still continuing.

- Greenply’s MDF is 2-2.5% cheaper than its peers. These prices are introductory prices till Mar’24; after that the company will price its products at par.

- Imported MDF prices are substantially lower at INR 19-20k per cbm for interior grade whereas domestic prices for interior grade are priced at INR 25-26k.

- Greenply has entered into a JV with Samet BV, a leading furniture hardware manufacturer in Turkey. The JV will invest INR 3-3.5bn over 3 years with a mix of debt and equity (Greenply will invest INR 400mn in the form of equity contribution). As per the management, this facility can generate peak revenue of INR 8bn at an attractive operating margin (EBITDA margin >20%).

- Working capital days during the quarter decreased to 48 days (vs. 63 in Jun’23) on account of lower inventories (54 days vs. 62 in June’23) and receivable days (42 days vs. 48 in June’23).

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