Stock Market Update on Greenply Industries for 4QFY2011

Stock Market Update on Greenply Industries for 4QFY2011 with a Buy recommendation and a Target Price of `270 (12 months).

    Greenply Industries(GIL) registered strong top-line growth in 4QFY2011. The company’s net sales grew by 35.0% yoy and 10.3% qoq to `350cr. GIL reported 143bp yoy contraction in OPM to 8.1% (9.5%) mainly due to forex losses of `9cr. Net profit declined by 55.4% yoy to `5.9cr (`13.3cr). Nonetheless, we believe the company is well placed to benefit from its laminates capacity expansion, commencement of the MDF plant and expansion in the plywood segment. Hence, we maintain our Buy view on the stock.

Top line posts strong growth, margin disappoints: For 4QFY2011, GIL’s top line reported 35.0% yoy growth to `350cr (`259cr) mainly on the back of laminate capacity expansion, higher capacity utilisation in the MDF segment and increased realisations during the quarter. EBITDA declined by 14.7% yoy and 3.1% qoq to `28cr on the back of forex loses of `9cr in the quarter. EBITDA margin also came down by 143bp yoy and 112bp qoq to 8.1%. For FY2011, EBITDA margin fell by 225bp to 9.0%, largely due to zero contribution from the MDF segment in 1HFY2011. PAT for 4QFY2011 came down by 55.4% to `5.9cr and PAT margin fell by 343bp to 1.7%.

    Outlook and valuation: We believe Greenply is well placed to benefit from its laminates capacity expansion (which increased by nearly two-folds in FY2010) and is expected to achieve 100%+ utilisation in FY2012. The company will also benefit from the commencement of the new MDF plant at Uttarakhand, which will achieve around 50% capacity utilisation in FY2012. In addition, expansion of the company’s plywood capacity by 3.75mn sq. ft. is expected to contribute around `45cr to the company’s FY2012 top line. At `190, the stock trades at attractive valuation of 4.7x FY2013E earnings. We maintain Buy with a target price of `270.