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Recommendations » India

Greenply Industries Stock Idea

January 7, 2013, Monday, 12:01 GMT | 07:01 EST | 16:31 IST | 19:01 SGT
Contributed by Nirmal Bang


Greenply Industries (GIL) is the integrated manufacturer offering products related to interior infrastructure industry with product presence across all price points with a complete range of plywood, block boards, decorative laminates, decorative veneers, flush doors and MDF boards. The company enjoys a strong brand recall with an extensive market distribution network which helps the company to garner 36% of organized plywood market, 26% of organized laminates market and 22% of MDF (medium Density Fibreboard) market.

The reason we like GIL is; a) Increasing utilization and change in product-mix at new plants would substantially boost revenues and profits in the next two years, b) Strategically located manufacturing units enables easy accessibility of raw-material, c) With no capex and equity dilution until FY13E, we expect RoE’s and RoCE’s to improve going forward, d) Leadership position in all the business segments, e) Incumbency a major entry barrier will benefit existing business like Greenply, f) Shift in consumption from the unorganized segment to the organized segment, in turn growing the organized industry space which will benefit Greenply in the long run, g) Positive operational cash flow generation.

We expect the net revenue to grow by 10% YoY to Rs. 1878.8 crores in FY13E with MDF contributing 15%, Laminates 34% and Plywood 46% of the total revenue. We expect the EBITDA to grow by 39.3% to Rs. 239.7 crores and PAT by 116.4% to Rs. 100.4 crores in FY13E. We expect the operating margin to improve by 270bps YoY to 12.8% in FY13E on the account of increased capacity utilization in MDF segment, better product mix and value added products. We expect the return ratios to improve going forward on the account of no capex and equity dilution until FY13E. We expect RoE to improve to 23.9% in FY13E as against 16.8% in FY12 and RoCE to 17.9% in FY13E as against 14.7% in FY12.

The Company’s outlook remains favorable on account of its product integration, growing brand popularity, increase in capacity utilization of MDF and better product mix. At CMP of Rs. 297 per share, the stock is trading at a PE of 7.6x FY13E and EV/EBITDA of 4.7x in FY13E. We are positive on the stock owing to the excellent set of numbers during the Q2FY13 where all the segments reported strong growth. The stock has risen before the declaration of quarterly result, but with the strong guidance by the management we feel that the company will report strong performance during FY13E. We feel that investors can BUY the stock at current levels and on decline. We recommend “BUY” rating and with a target price of Rs. 365 per share (9x PE for FY13E), an upside of 23% from the current levels.