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Multiple Headwinds to keep performance under check!

Result Synopsis

Greenpanel Industries Ltd (GREENP) registered a sluggish quarter wherein MDF volumes came in at 123,615cbm, a decline of 2%YoY & increased by 7%QoQ. Export volumes (27% of MDF vols), increased by 24%YoY & 21%QoQ, the sequential growth was on account of unbilled inventory at port in previous quarter. Domestic volumes (73% of MDF vols), declined by 9%YoY & improved marginally by 2%QoQ. Blended ASP contracted by 8.4%YoY & 2.4%QoQ due to price correction in export prices as compared to Q2FY23 & higher contribution of exports in Q2FY24 Vs previous quarter. EBITDA margins came in at 21.2% as compared to 30.4%/20.4% in Q2FY23/Q1FY24 respectively. Hence, EBITDA/cbm stood at Rs6,080 Vs Rs9,515/Rs5,993 in Q2FY23/Q1FY24 respectively. Plywood volumes degrew sharply by 20%YoY & increased by 4% sequentially. EBITDA margins contracted drastically to 1.6% from 7.3%/5.9% in Q2FY23/Q1FY24 respectively on account of higher timber cost & lower volumes. Moreover, the prices of deco-veneer reduced during the quarter which further dented the margins.

Management steeply reduced their MDF volume growth guidance to 3-5%YoY for FY24 Vs previous guidance of 13-15%. EBITDA margin guidance has also been lowered to 22-23% Vs previous 23-25%. For plywoods company expects to remain flattish on volume front. The commercial production of new MDF capacity has also been postponed to Q3FY25 from Q1FY25 due to delay in shipment from Germany.

We believe GREENP is likely witness multiple headwinds over FY23-FY25E in terms of (i) softness in demand, (ii) rising imports, (iii) growing domestic competition & (iv) rising input cost. Hence, we do not foresee any major growth over FY23-FY25E, wherein we expect MDF volumes/value to grow by 11%/6%CAGR for MDF. MDF Margins are likely to decline to 20.5% by FY25E owing to contraction in realization with new low-grade product expected to constitute 25-30% of total volumes. We have lowered our FY25E EPS expectation by 12% & downgraded the stock to NEUTRAL from ADD.

Result Highlights

* Revenue for the quarter stood at Rs3.98Bn, a decline of 13%YoY & growth of 3%QoQ.

* EBITDA margins came in at 17.3% as compared to 25.5%/17% in Q2FY23/Q1FY24 respectively. Absolute EBITDA stood at Rs691Mn, a decline of 41%YoY & increase of 5%QoQ.

* Net profit stood at Rs410Mn, a degrowth of 43.4%YoY & growth of 10%QoQ.

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