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Result Synopsis.

wherein revenue was in-line with our estimates at Rs3.65Bn, EBITDA margins were steeply lower at 9.9% Vs our estimate of 13.6%. Margins were under pressure due to higher timber cost, low volume off take and higher contribution of exports to total MDF volumes which came in at 18% Vs 8% in previous quarter & margins in export markets are mere 1-2%. To mitigate the rise in timber prices & cushion the impact on margins, management is mixing various species (low cost) of timber to bring the cost lower and focusing on enhancing the mix of value-added products along with reducing the overhead cost. Imports during the quarter were lower due to higher freight cost and management believe that imports will be lower for coming 2-quarters.

Management has maintained their MDF volume growth guidance of 15% and operating margins at ~16% for FY25E and plywoods volumes to grow by 8%YoY with positive EBITDA. Notably, management stated that margins have bottomed out and should improve from hereon on the back of better volumes & improved product-mix.

We reckon, MDF volumes to grow by 12%YoY (previous 15%) in FY25E and EBITDA margins to come in at 14.5% (Vs earlier estimate of 16%). We believe, higher timber cost and new capex cost will keep margins under pressure for this fiscal. However, with major capex in industry likely to conclude by FY25E end, timber prices likely to contract from FY26E, and better volume trajectory for GREENP, we believe margins to improve in FY26E to 16.5% (Rs4,670/cbm). Overall, we expect Revenue/EBITDA/PAT growth of 14% each over FY24-FY26E. Hence, we have valued the stock at P/E(x) of 22x on FY26E EPS of Rs19, arriving at a target price of Rs330 and revising our rating to REDUCE from NEUTRAL.

Result Highlights

* Revenue stood at Rs3.65Bn (est of Rs3.64Bn), a decline of 5.5%YoY & 8%QoQ.

* EBITDA margins contracted to 9.9% (est 13.6%) as compared to 17%/12.9% in Q1FY24/Q4FY24 respectively, largely owing to higher RM cost which came in at 49% of sales Vs 42%/46% in Q1FY24/Q4FY24 respectively. Absolute EBITDA stood at Rs361Mn, a degrowth of 45%YoY & 30%QoQ.

* Net profit stood at Rs157Mn, a decline of 58%YoY & 47%QoQ.

Segmental Highlights for Q1FY25

MDF

* Revenue (91% of sales), declined by 2%YoY & 8%QoQ to Rs3.32Bn. Volumes stood at 119,071cbm, a marginal growth of 3%YoY & decline of 6%QoQ (2-year CAGR -2%). Blended ASP came in at Rs27,864/cbm Vs Rs29,375/Rs28,325 in Q1FY24/Q4FY24 respectively.

* Domestic vols (82% of MDF vols), grew by 10% YoY & degrew by 16%QoQ (2-year CAGR stood at -1%) & ASP declined by 10%YoY and remained flattish on sequential basis. Export volumes declined by 21%YoY to 21,671cbm & ASP increased by 12%YoY.

* EBITDA margins came in at 12.1% as compared to 20.4%/16.4% in Q1FY24/Q4FY24 respectively. EBITDA/cbm stood at Rs3,372 as against Rs5,993/Rs4,645 in Q1FY24/Q4FY24 respectively.

Plywood

* Revenue stood at Rs324Mn, a degrowth of 28%YoY & 9%QoQ.

* Volumes came in at 1.22msqm, a steep decline of 23%YoY & 14%QoQ while ASP declined 7%YoY & grew by 6%QoQ.

* EBITDA loss stood at Rs7Mn Vs loss of Rs37Mn in previous quarter and profit of Rs27Mn in Q1FY24.

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