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Woodpanel demand to improve from hereon: In Q2FY25, we witnessed initial greenshoots in demand recovery, wherein volume growth was respectable for all categories viz. Plywood, MDF (domestic), & Laminates. However, during the quarter, elevated timber costs, increased domestic competition, and higher freight cost kept margins under pressure. Going ahead, we believe the demand should accelerate, given the “handover” of the large real-estate inventory to end user is due over FY26E-FY28E post the mammoth number of pre-sales & bookings over FY21-FY23. This should lead to sturdy demand for “furniture & interior” products which should result in strong demand for woodpanel industry. Moreover, with higher demand for branded products, organized manufacturers will outperform industry growth rate across product segments.

We prefer Plywood & MDFs over other segments: In domestic markets, plywood accounts for ~65-70% of woodpanel industry and owing to reasons mentioned above, the demand for this segment should improve. Higher timber prices and inadequate price hikes have kept the margins under pressure for all manufacturers. Notably, the rapid rise in timber cost has weighed more on the unorganized segment which constitutes ~75-80% of the plywood industry. Going ahead, with overall demand likely to improve & with higher preference for premium products, we reckon organized plywood manufacturers will continue to gain market share. Incrementally, timber cost should start to soften FY27E onwards as new logs would be available, and supply should get restored. Consequently, margins for ply manufacturers are expected to improve. For MDFs, the domestic demand has been healthy as existing manufacturers have registered decent domestic growth and new capacities have also started to ramp-up. Currently, the major headwind is the oversupply of MDF as domestic capacity by FY25E end will be ~4mn cbm Vs demand of ~3mn cbm, which is leading to contraction in price realizations and impacting margins. Moreover, higher timber cost is further denting the margins. However, with major capex behind the industry and no new major capacity expected till FY27E, we expect pricing and margins to bottom-out by FY25E. Going ahead, MDF domestic demand should continue to grow by ~15%CAGR owing to higher demand for ready-made furniture and faster displacement of low-end plywood. Incrementally, timber price for MDFs should contract from FY26E which will further aid margin improvement.

Hence, we reiterate GREENPLY INDUSTRIES LTD as our top BUY: Owing to the reasons mentioned, we reiterate GREENPLY as our preferred pick from the segment. The company is one of the largest plywood manufacturers and has an extensive Pan-India distribution network. We reckon Greenply’s plywood volumes to grow by 8%CAGR over FY24-FY27E (in-our base case estimate) & we have built-up 1% improvement in realization as company will take price-hikes to pass-on the incremental timber cost. Hence, we expect revenue to grow by 9%CAGR over similar period. Incrementally, with expected contraction in timber prices & improvement in productmix, we expect EBITDA margins for plywood segment to improve gradually to 10.0% by FY27E from 8.3% in FY24. Greenply’s MDF unit commenced in FY24 & in Year-1 of operations, company reported commendable performance, wherein sales stood 124,772cbm (~52% utilization) with an EBITDA of Rs400Mn (EBITDA/unit came in at Rs3,206/cbm). Going ahead, we believe company will gain market share largely in West, North, & Central region (only plant in West India), which should lead to volume growth of 29%CAGR over FY24-FY27E. Moreover, with major capacity addition likely to conclude by FY25E, we reckon pricing for the industry should improve FY26E onwards therefore, we expect ASP growth of 2%CAGR over FY24-FY27E. Consequently, EBITDA/cbm should inch-up from Rs4,800 in FY25E to Rs5,670 in FY27E. Notably, company has strengthened balance sheet by reducing gross debt from Rs6.71Bn in FY23 to Rs4.26Bn as on H1FY25, largely by selling-off controlling stake in Gabon subsidiary. Moreover, company is commencing a JV with SAMET for hardware business, however, we have not factored-in any major contribution from this JV in our estimates.

Overall, we expect Greenply’s Revenue/EBITDA/PAT to register a strong CAGR of 13%/27%/41% respectively over FY24-FY27E. Given the sturdy growth, we believe Greenply is trading at lucrative P/E(x) of 17.2x on FY27E EPS of Rs19.5. We continue to value the company at P/E(x) of 25x on FY27E EPS, arriving at a target price of Rs488, implying an upside potential of 45% from CMP. Hence, we reiterate GREENPLY INDUSTRIES LTD as our top BUY.

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