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Greenply Industries Q3FY18: Long-term growth trends remain intact; Hold - IndiaNotes.com
Greenply Industries Q3FY18: Long-term growth trends remain intact; Hold
Way2wealth | Published: 12 Feb, 2018  | Source : IndiaNotes.com

Key Highlights of The Quarter


- The Plywood segment accounted for 69.4% of topline in Q3. It grew by 6.1% (on a net basis) Y-O-Y to Rs276crs. EBIDTA margins in the Plywood segment were at 9.6% vs. 12.6%. Lower margin due to lower realisation and lower sale of decorative veneer. It was down by 15% yoy. Management expects improvement in margin and will stabilised in range of 10%-10.5%.


- The demand for Decorative Veneer was muted during the quarter and this will continue going forward. Substantially it requires 2-3 quarters for revival of demand. Decorative Veneer is a premium product and have realisation of Rs600/sqm compared to Rs200-250/sqm in plywood segment.


- Realizations moved down from Rs222/- to Rs219/-, lower by 1.4% in this quarter. Institutional business contributes 10% in plywood business. For 9MFY18, outsourcing in plywood segment stood at 30% in volume terms and 22% in value terms.


- The capacity utilisation in the plywood segment was at 103% in this quarter vs. 95%; while for the 9M2018, capacity utilisation was at 105%.


- The MDF Segment accounted for ~28.8% of topline. It grew by 19.6% Y-O-Y to Rs115crs, with sales volume growth of 16%. Gross margin improved on account of higher realisation and gain on forex. It stood at 8.15 crs.MDF domestic sales volume stood at 39332 cubic metre vs. 35751 cubic metre whereas, Export volume stood at 4458 cubic metre vs. 2002 cubic metre in Q3FY17.


- EBITDA margins in this segment expanded to 33.9 vs. 20.3% on a Y-O-Y basis in Q3. This was on account of foreign exchange gain on long term borrowing. Average realisation improved by ~3.1% and was at Rs26139/- vs. Rs25348/- last year Q3.


- The company believes the Indian market will be unable to absorb the additional production from the new MDF unit, and therefore it’s setting up customer base in the overseas market.


- MDF’s capacity utilisation was at 98%vs. 93%in Q3.


- Capex for 9MFY18 stood at Rs283 crs (majorly on AP, UP and Gujarat projects).The company planning to spend Rs90 crs in Q4.


- Export sale stood at Rs7.28 crs in Q3 and in volume terms it was 4458 cubic metre. Export realisation decreased by 14% yoy. Average cost of debt stood at 8.22%-8.23% for existing business and 2%-2.5% for new MDG plant.


- Other expenses decreased by 10.8% yoy. Employee cost increased by 22.4% on account of scaling up employees’ strength for MDF plant and manufacturing unit UP. Advertising and promotion spend was lower in Q3, however, Q4 will have reasonable spend.


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.

Key Highlights of The Quarter

- The Plywood segment accounted for 69.4% of topline in Q3. It grew by 6.1% (on a net basis) Y-O-Y to Rs276crs. EBIDTA margins in the Plywood segment were at 9.6% vs. 12.6%. Lower margin due to lower realisation and lower sale of decorative veneer. It was down by 15% yoy. Management expects improvement in margin and will stabilised in range of 10%-10.5%.

- The demand for Decorative Veneer was muted during the quarter and this will continue going forward. Substantially it requires 2-3 quarters for revival of demand. Decorative Veneer is a premium product and have realisation of Rs600/sqm compared to Rs200-250/sqm in plywood segment.

- Realizations moved down from Rs222/- to Rs219/-, lower by 1.4% in this quarter. Institutional business contributes 10% in plywood business. For 9MFY18, outsourcing in plywood segment stood at 30% in volume terms and 22% in value terms.

- The capacity utilisation in the plywood segment was at 103% in this quarter vs. 95%; while for the 9M2018, capacity utilisation was at 105%.

- The MDF Segment accounted for ~28.8% of topline. It grew by 19.6% Y-O-Y to Rs115crs, with sales volume growth of 16%. Gross margin improved on account of higher realisation and gain on forex. It stood at 8.15 crs.MDF domestic sales volume stood at 39332 cubic metre vs. 35751 cubic metre whereas, Export volume stood at 4458 cubic metre vs. 2002 cubic metre in Q3FY17.

- EBITDA margins in this segment expanded to 33.9 vs. 20.3% on a Y-O-Y basis in Q3. This was on account of foreign exchange gain on long term borrowing. Average realisation improved by ~3.1% and was at Rs26139/- vs. Rs25348/- last year Q3.

- The company believes the Indian market will be unable to absorb the additional production from the new MDF unit, and therefore it’s setting up customer base in the overseas market.

- MDF’s capacity utilisation was at 98%vs. 93%in Q3.

- Capex for 9MFY18 stood at Rs283 crs (majorly on AP, UP and Gujarat projects).The company planning to spend Rs90 crs in Q4.

- Export sale stood at Rs7.28 crs in Q3 and in volume terms it was 4458 cubic metre. Export realisation decreased by 14% yoy. Average cost of debt stood at 8.22%-8.23% for existing business and 2%-2.5% for new MDG plant.

- Other expenses decreased by 10.8% yoy. Employee cost increased by 22.4% on account of scaling up employees’ strength for MDF plant and manufacturing unit UP. Advertising and promotion spend was lower in Q3, however, Q4 will have reasonable spend.

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.

We believe the company is well-placed in as the long-term growth trends remain intact. At the CMP of Rs367/- the stock trades at 33.4x& 27.8x its estimated EPS of Rs11.0x/- & Rs13.2/- for FY18 & FY19 respectively. We advise investors with a long-term investment horizon to HOLD the stock.

 


 

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For more information please write in to editor@indianotes.com

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.

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