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Recommendations India

Greenply Industries review and analysis by Angel Broking

December 29, 2010, Wednesday, 09:15 GMT | 05:15 EST | 14:45 IST | 17:15 SGT
Contributed by Angel Broking

By Angel Broking


Strong brand, high ad-spend: GIL has leading plywood and laminates brands, supported by ad-spend as high as 4.0% of sales (around 10% of laminates revenue). The company also has the largest distribution network of over 15,000 dealers in this industry




Increasing laminate capacity: GIL is continuing its strong expansion in laminates (88% capacity expansion), that is estimated to drive 25% CAGR in sales over FY2010-12. GIL is witnessing very strong demand for its laminate products, with both its new production lines running at full capacity.




Banking on MDF: GIL has forayed into the lucrative, high-growth MDF market, with the largest MDF plant in India (1,80,000m3/ yr capacity). The MDF opportunity is especially huge as it constitutes 20% of wood panel consumption in India, while plywood constitutes 80% - the reverse holds true globally.




New plywood license constraint: Going forward, with strict control on the issue of new plywood licenses and 5-7% CAGR in panel demand would result in MDF meeting this demand and registering 25-30% CAGR over FY2011-14E. Moreover, currently 80% of the present consumption is being met through imports, which we believe that GIL can substitute given the high freight costs and 25% anti-dumping duty on imports.


Further expansion of licensed capacity: GIL holds licenses for additional plywood capacity. In line with this, it is further expanding capacity by 3.75mn sq ft, which will augment its FY2012E revenues by nearly Rs.45cr.

The stock is currently trading 5.9x FY2012E earnings (as against its historical range of 3.3-9.3x 1-year forward EPS). We maintain a Buy on the stock with a target price of Rs.266, valuing the stock at 8x FY2012E earnings.