- Net sales for Q2FY18 was up by 2.1% at Rs446crs. Growth was muted mainly due to lower sales volume in MDF segment. Plywood sales reported a growth of 1.5% (on a net basis). Volume growth in the plywood segment was at 5.4% in Q2. MDF sales decreased by1.7% to `122crs in Q2FY18. MDF segment reported volume de-growth of 4.4%. Wallpapers contributed ~Rs9.28crs to topline in Q2.
- EBITDA de-grew by 4% Y-O-Y to Rs68crs in Q2FY18. EBITDA margins contracted by ~90bps Y-O-Y to 14.3%. Margin contraction was primarily due to loss of Rs6 crs on foreign currency borrowings and outstanding for new MDF plant at Andhra Pradesh and due to higher advertising expenses. However, gross margins expanded by ~70bpson account of better capacity utilisations and improvement in MDF domestic realisation. EBIDTA margins in the Plywood segment were at11% vs. 10.4% and margins in the MDF segment were at 26% vs. 28.7%.
- EBIT margins decreased by 70bps on a Y-O-Y to 12%. Segmental EBIT margins for Plywood and MDF were at 9% (+80bps) and 21.7% (-260bps) respectively.
- Reported Profit after Tax grew by 3.6% Y-O-Y to Rs36.4crs in this quarter. PAT Margin expanded by 20 bps to 8.2%. PAT for H1FY18, declined by 3.2% to Rs67 crs.
- Working capital days remained constant at 62 days yoy. Net Debt to Equity is at 0.65 in Q2FY18as compared to 0.41 in the corresponding quarter last year due to incremental capex.
Valuation & Outlook
Greenply enjoys a strong pan-India brand presence with a widespread distribution network. It is well poised to play out a leading trend change in the interior infrastructure space over the next few years. For the next 2 years the company is in capex mode as it is setting up a large facility for MDF production in South India, which will enable the company to treble its MDF capacity and further engrain its leadership position in this segment. MDF enjoys better return on capital and hence going into FY19 we expect the return ratios to start moving upwards. Apart from this the company is adopting an asset light model for its plywood segment. It is planning to increase its outsourcing of economy segment plywood from 22% to 30% over the next 3 years. This will enable the company to free up its in-house capacity for premium plywood production. Over the next few quarters on account of government measures on change in currency denominations the trade is expected to slow down on account of a liquidity crunch. Apart from that we expect the real estate market recovery will also be delayed. While the near-term does seem challenging for the company we believe efforts are being made to grow market reach, expand capacity and improve margins. We believe the company is well-placed in as the long-term growth trends remain intact. At the CMP of Rs317/- the stock trades at 27.3x & 24.6x its estimated EPS of Rs11.6/- & Rs12.9/- for FY18 & FY19 respectively. We advise investors with a long-term investment horizon to HOLD the stock.
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