Greenpanel Industries - Strong MDF volume recovery aids Q2 beat - ICICI Securities

Greenpanel Industries (GNPL) has reported better-than-expected Q2FY21 revenue at Rs2.25mn (I-Sec: Rs2.15bn), up 17% YoY driven by 25.8% YoY growth in MDF and mere 4.5% YoY decline in plywood segment. EBITDA margin at 20.6% (I-Sec: 19.5%), up 500bps YoY was aided by 220bps YoY improvement in MDF EBITDA margin to 21.8% and 430bps YoY increase in plywood EBITDA margin to 16.4%. Operating leverage, reduction in plant wastages, and cost optimisation led to beat in EBITDA margins. Sustainable demand tailwind in MDF, sharp recovery in its plywood segment volumes, delay in greenfield MDF projects of CPBI and Rushil Décor, stable MDF pricing and the recently initiated productivity enhancement & cost control measures at its MDF units are expected to drive considerable improvement in its profitability going forward. Maintain BUY.

- Valuation and outlook: Factoring in an impressive Q2FY21 performance, we retain our revenue and PAT estimates for FY21/FY22E, while already building in a considerable improvement in volumes and margins going forward. We expect GNPL to report revenue and adjusted PAT CAGR of 14.5% and 138%, respectively, over FY20-22E. We expect GNPL's RoCE to improve from 5.6% in FY20 to 12.7% in FY22E. We value GNPL at 15x FY22E earnings and maintain our BUY rating on the stock with an unchanged target price of Rs100.

- Strong MDF segment growth aids outperformance: GNPL reported revenue growth of 25.8% in MDF segment while plywood segment declined 4.5% YoY, leading to 17% YoY growth in its overall Q2FY21 revenue. Higher growth is led by widening of its distribution reach and focus on small towns and cities. MDF realisation too remained firm with mere 1% decline YoY driven by 17% YoY jump in exports realisations. With the likely delay in new MDF capacities of large players viz Rushil Décor and CPBI and demand tailwinds in MDF to sustain, we expect GNPL to post revenue CAGR of 5.8% over FY20-22E.

- GNPL reports EBITDA margin of 20.6%, up sharply by 500bps YoY. The company reported EBITDA margin of 20.6% (I-Sec: 19.5%) driven by operating leverage, cost optimisation and reduction in wastage. While MDF EBITDA margin for the quarter stood at 21.8%, (up 220bps YoY), plywood margins were at 16.4% (up 430bps YoY). With stable input cost and utilisation levels expected to improve going forward, we expect overall EBITDA margin to improve to 20% in FY22E from 15.7% in FY20.

- Reported PBT at Rs164mn (I-Sec: Rs121.5mn), up 162% YoY. GNPL reported better-than-expected PBT at Rs164mn led by strong operational performance. Tax write-back in Q2 also helped register a sharp increase in its PAT by 385% YoY at Rs184mn. We expect GNPL to report adjusted PAT CAGR of 138% over FY20-22E.

- RoCE to improve post FY21. We expect GNPL to be a big beneficiary of the likely imposition of anti-dumping duty (ADD) on thin MDF and CVD on any MDF imported into the country over the next couple of quarters. This would help sustain traction in its volumes and profitability going forward. Strong traction in profitability, minimal capex and expected debt repayment over the next two years will drive its RoCEs higher to 12.7% in FY22E vs 5.6% in FY20.

Source : Equity Bulls

Keywords