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Greenply Industries - Initiating Coverage - Angel Broking

Posted On: 2018-03-05 10:10:50

The plywood maker for growing India

Greenply Industries Ltd (GIL) manufactures plywood & allied products and medium density fibreboards (MDF). GIL offers a portfolio of residential and commercial products comprising plywood & block boards, MDF, wood floors, flush doors and decorative veneers. GIL offers wood floors under the brand name Green Floormax. Currently, GIL has ~26% market share in the organized plywood industry.

Shifting of trend towards the organized plywood sector to propel growth: Indian plywood industry is estimated at Rs. 18,000cr (largely unorganised), and accounts for ~75% share of revenues. With the implementation of GST, the share of organized players is expected to improve, which would benefit branded players like GIL. Hence, we believe that GIL is best placed to gain market share on the back of better product quality, strong brands and wide distribution network. Currently, the company has ~26% market share in the organized plywood industry.

Capacity addition in MDF segment a growth catalyst: GIL has added new MDF plant in Andhra Pradesh, which would increase the capacity from 1,80,000 CBM to 540,000 CBM (new plant can generate revenue of Rs. 800-900cr). Total capex required for this MDF plant is Rs. 700cr out which the company has already spent ~Rs. 550cr till 1HFY18 and the balance would be spent by FY2019. The commercial production would start from 2QFY19, boosting the company's profitability. Currently the company has ~30% market share in MDF.

Pradhan Mantri Awas Yojana (PMAY) - trigger for MDF segment: The government has set an aim to build ~1.2cr houses by 2022 under PMAY, which would increase the demand for plywood industry for making doors and furniture. Moreover, in the lower segment, demand for MDF would increase for these houses.

Strong brand visibility with wide distribution network: GIL has been continuously focusing on strong brand visibility. Historically, the company has been spending around 3% (% of sales) on ad spends to increase its brand visibility. Currently, GIL's products (Plywood and MDF) are available across India through 30-35 branches, which address more than 2,000 dealers and nearly 10,000 retailers.

Outlook and Valuation: We expect GIL to report net revenue CAGR of ~14% to ~Rs. 2,478cr over FY2017-20E mainly due to healthy growth in plywood & lamination business and MDF (capacity expansion) on the back of strong brand and distribution network. On the bottom-line front, we expect ~13% CAGR to Rs. 179cr over the same period owing to strong revenue and better margins in MDF business. At the current market price of Rs. 340, the stock trades at PE of 23.3x its FY2020E EPS of Rs. 14.6. We initiate coverage on GIL with Buy recommendation and Target Price of Rs. 395 (27x FY20E EPS), indicating an upside of ~16% from the current levels.

Shares of GREENPLY INDUSTRIES LTD. was last trading in BSE at Rs.345 as compared to the previous close of Rs. 338.85. The total number of shares traded during the day was 1150 in over 95 trades.

The stock hit an intraday high of Rs. 345 and intraday low of 332.05. The net turnover during the day was Rs. 386928.


Source: Equity Bulls

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