Greenply Industries - Balance sheet strengthens; robust outlook - ICICI Securities

Greenply Industries (MTLM) has reported an impressive beat in Q3FY21 with a) better-than-expected recovery in plywood volumes (despite loss of sales due to logistic-led issues); b) improvement in plywood EBITDA margins despite lower utilisation YoY and adverse product mix; and c) strong balance sheet strengthening driven by strict working capital discipline. Management outlook too remains optimistic with 1) industry (demand) tailwind likely to sustain in near term; 2) FY22 is expected to witness high double-digit volume growth in plywood segment; and 3) plywood EBITDA margins are likely to improve further driven by the recent price hike, cost optimisation and operating leverage. At 11x FY23E earnings, we believe rerating is inevitable considering robust growth and margin outlook amid expected sharp improvement in RoCEs (30%+) by FY23E. Maintain BUY.

- Valuation and outlook: Factoring in the Q3FY21 outperformance, we increase our revenue and earnings estimates by 3.7%/7.4%/9.0% and 13%/18.7%/14.4% for FY21E/FY22E/FY23E, respectively. We now expect MTLM to report revenue and adjusted PAT CAGRs of 21.4% and 53.7%, respectively, over FY21E-FY23E. Rolling over valuation to FY23E, we maintain BUY with a revised target price of Rs250 (earlier: Rs196) valuing it at 20x FY23E earnings (a 33% discount to CPBI's target multiple of 30x). Downside risks: Sudden decline in secondary real estate sales and sustained weakness in Gabon operations.

- Consolidated revenue at Rs3.4bn (I-Sec: Rs3.25bn), down 1.6% YoY. Standalone plywood revenues recovered sharply QoQ by 30% to Rs3.4bn. Gabon operations on the other hand reported 47% QoQ decline due to fresh lockdowns in the EU region and logistical-led issues. With improving demand visibility in plywood segment and recovery expected in Gabon operations once the situation normalises in Europe, we expect MTLM's overall revenues to exhibit 21.4% CAGR over FY21-FY23E.

- Consolidated EBITDA margin up 40bps YoY to 12.3% (I-sec: 12.1%). MTLM reported its consolidated EBITDA margin at 12.3% (I-Sec: 12.1%) in Q3FY21 led by higher gross margins, operating leverage and sustained cost rationalisation. Despite adverse product mix, gross margins improved led by lower input cost. While standalone plywood margin stood at 12% vs 11% YoY, Gabon operations reported EBITDA margin of 12.9% vs 18.1% YoY. Going forward, we expect MTLM's consolidated EBITDA margin to improve to 13-14% by FY22E/FY23E driven by operating leverage and product mix improvement.

- RoCE to improve sharply to 30.2% by FY23E: Expected improvement in profitability, stricter working capital management and fast improving FCF from operations is likely to drive sharp debt reduction over the next two years, which in turn would drive RoCE higher by 1,300bps to 30.2% in FY23E.

Shares of GREENPLY INDUSTRIES LTD. was last trading in BSE at Rs.168.85 as compared to the previous close of Rs. 164.45. The total number of shares traded during the day was 351700 in over 7703 trades.

The stock hit an intraday high of Rs. 178.55 and intraday low of 159.3. The net turnover during the day was Rs. 59027189.

Source : Equity Bulls

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