PL Stock Report: Greenpanel Industries (GREENP IN) - Q2FY24 Result Update – Muted performance - BUY

Greenpanel Industries (GREENP IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs345 | TP: Rs464

Q2FY24 Result Update – Muted performance

We downward revised our FY24/FY25/FY26E earnings estimates by 13.0%/9.1%/3.8% to account for weak H1FY24 results, even as we value the stock at 21x Sep’25 EPS and arrive at revised TP of Rs464 (Rs 495 earlier). Greenpanel (GREENP) downward revised its MDF volume growth guidance +3-4% from 12-15% with MDF EBITDA margin of 22-23% from 23-25% for FY24, even after 4.7% decline in MDF volume in H1FY24 (considering improvement in volume in H2FY24). MDF dom. realizations are expected to be stable in near future.

Plywood is expected to deliver flat volume growth in FY24 (earlier double digit vol. growth guidance) despite severe fall in vol. (-29.2%) in H1FY24. Consolidated EBITDA margin contracted to 17.3% with 1) steep increase in raw material cost which impacted both MDF & plywood segments, 2) higher import volumes in MDF segment and 3) increase competition in domestic MDF market. Higher timber prices, which were flat in North and +11% in South on QoQ basis in Q2FY24, continue to impact margins in coming quarters while management indicated moderation in timber prices only once new crop comes in, FY26 onwards.

We believe GREENP is well-positioned for growth & value creation given its 1) leading position in domestic MDF segment, 2) healthy growth prospects in domestic MDF demand, 3) planned capacity increase of 35% and 4) extensive distribution network. We estimate FY23-26E Revenue/EBITDA/PAT CAGR of 8.8%/6.4%/7.2% with MDF volume CAGR of 11.7%. Maintain ‘BUY’ rating.

Revenue decline by 12.8%, Adj. PAT decline 40.1%: Rev. down 12.8% YoY to ~Rs3.9bn (PLe:Rs4.3bn). MDF segment declined 10.3% YoY to Rs3.6bn. MDF vol. declined by 2.1% YoY and reported blended realization of Rs 28,679/CBM (-8.4% YoY) and domestic realization was Rs 32,771/CBM (-2.3% YoY). Plywood segment reported a revenue of Rs432mn down 29.2% YoY. Plywood vol. declined by 19.6% YoY and reported realization was Rs263/sqm (down 12% YoY). EBITDA declined by 40.8% YoY to Rs691mn (PLe: Rs908mn). EBITDA margin was at 17.3% (PLe:21.0%). In MDF segment, EBITDA margin contracted to 21.2% mainly due to excess supply in domestic market. PBT declined by 50% YoY to Rs555mn (PLe:Rs720mn). PAT declined by 43.4% YoY to Rs410mn (PLe:Rs540mn).

Concall highlights: 1) MDF volumes were impacted in Q2FY24 due to increase in domestic competition and rise of imports, while dom. MDF sector has grown at double digit in Q2FY24. 2) Dom. MDF sector capacity has gone up from 2.3mn CBM in Mar’23 to 2.7mn CBM in Sep’23 and expected to rise to 3.5mn CBM by Mar’25. 3) MDF EBITDA margin impacted by a) steep increase in raw material cost b) higher import volumes & c) increase in domestic competition. 4) Timber prices were flat QoQ for north plant & +11% QoQ for south plant in Q2FY24. 5) Resin prices declined & lower brand expense (0.8% rev.) in Q2FY24, compensated hike in timber prices. 6) Mgmt expects +3-4% MDF volume growth, 22-23% EBITDA margin. 7) Plans to add 231,000 CBM MDF capacity through brownfield expansion by Q3FY25 (vs Q2FY25 earlier) at capex of Rs 6bn, due to delay in shipment of plants from Germany. 8) Plans to increase sales of low-value added products to OEM and increase its contribution. 9) BIS norm would become mandatory for both domestic and imported MDF product Feb’24 onwards, which may help in restricting flow of MDF imports in future.