Greenpanel Industries Q3 Results Review - Weakness To Prevail In The Near Term: Systematix

Systematix Research Report

Greenpanel Industries Ltd.’s weak Q3 (revenue/Ebitda/profit after tax down 8%/34%/8% YoY - missed our estimates by 12-30%) was driven by both MDF and plywood segments. Profit after tax was also impacted by currency losses of Rs 83.6 million. Tight net-working capital cycle (25 days, debtor days at five days) aided Rs 541 million free cash flow during Q3. MDF demand remained soft.

Tracking a 3% volume decline in 9M, we expect flattish MDF volume for FY24. Ebitda margin is also likely to be ~21% in FY24. With a likely reduction in imports, Greenpanel Industries is expecting its volumes to rebound in FY25. BIS implementation is likely to boost volumes of domestic manufacturers.

Greenpanel will focus on retail sales with an aim to reduce original equipment manufacturer mix to less than 30%. The 231,000 cbm thin MDF capacity will be operational by Q FY25 (Rs 6 billion capex, Rs 8 billion revenue potential). Weak plywood results are expected to improve gradually only.

Timber prices are near bottom; restructuring of the sales team will drive plywood sales.

We cut earnings by 12-15% and now estimate 9%/7%/7% compound annual growth rate in revenue/Ebitda/PAT over FY23-26E. Notwithstanding capex, return on equity (~17%), return on invested capital (~25%) and free cash flow should remain healthy.

While we are cognisant of concerns pertaining to rising MDF imports (though transient) and huge capacity additions by domestic players over next one year, we find scrip’s valuation compelling at 15 times FY26E price/earning.

Hence, we maintain 'Buy', with a revised target price of Rs 429 (17 times FY26E price/earning).

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