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  • Stock Recommendation: Greenply Industries Ltd - BUY - TP Rs.286

    Publish date: 9th August, 2018

    Result Update

    Greenply industries posted weak set of results for Q1FY19 with pressure on plywood and MDF realization as well as forex loss. Plywood segment margins had witnessed an improvement on yearly basis while MDF margins declined due to pressure on realization and higher costs owing to low capacity utilization. Net profits came lower than our expectations due to lower than expected margins. Till Q4FY18, company tried to maintain the prices in MDF by restricting sales at lower prices but from Q1FY19, it had to reduce the average prices of MDF due to increased competition and further cut of 8-10% was announced from August 2018. Growth going ahead is likely to be led by volume gains in each segment.

    Key highlights

    • Revenue improvement of 3.7% YoY is largely led by higher plywood volumes while realization was impacted by increased competition from peers in MDF. Margins were under pressure due to lower margins in MDF and cost pressure.
    • Margin decline coupled with lower other income led to 22.3% YoY decline in net profits.

    Valuation and outlook

    • At Rs 202, stock is currently trading at 19.2x/16.2x P/E and 11.1x/9.3x EV/EBITDA on FY19/20 estimates. We revise our estimates downwards to factor in lower realization and margins in MDF. We also reduce our valuation multiple downwards to factor in the near term challenges associated with MDF pricing owing to increased competition. We arrive at a revised price target of Rs 286 based on 23 x FY20 estimated earnings (Rs 358 earlier). We continue to maintain BUY recommendation on Greenply Industries as we believe that with increase compliance towards e-way bill implementation, volumes in plywood and MDF are likely to witness improvement.


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