Stock Market Update on Greenply Industries for 1QFY2012

 Stock Market  Update on Greenply Industries for 1QFY2012 with a Buy recommendation and a Target Price of `326 (12 months)

Greenply Industries (GIL) registered strong top-line growth in 1QFY2012. The company’s net sales grew by 34.4% yoy and 0.9% qoq to `353cr. GIL reported 92bp yoy contraction in OPM to 10.8% mainly due to forex loss of `5cr. Net profit increased by 24.7% yoy to `13cr. We believe the company is well placed to benefit from its laminate capacity expansion, improved utilisation levels 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 improves qoq: For 1QFY2012, GIL’s top line grew by 34.4% yoy to `353cr mainly due to laminate capacity expansion, higher capacity utilisation in the MDF segment and increased realisations. EBITDA for the quarter increased by 23.9% yoy and 34.4% qoq to `38cr on the back of higher revenue. EBITDA margin increased by 269bp qoq but declined by 92bp yoy to 10.8% due to forex loss of `5cr. PAT for 1QFY2012 increased by 24.7% yoy and 119% qoq to `13cr. PAT margin increased by 198bp qoq to 3.7%.

Outlook and valuation: We believe the concerns related to the MDF segment have receded considerably. Hence, higher utilisation levels in the MDF segment will aid in improving GIL’s overall margins on a qoq basis going ahead. The MDF segment is expected to achieve 45% utilisation in FY2012. Further, the company is well placed to benefit from 1) its laminates capacity expansion, which increased nearly two-folds in FY2010 and is expected to achieve 100%+ utilisation in FY2012 and 2) expansion of its plywood capacity by 3.75mn sq. ft., which is expected to contribute around `45cr to FY2012 top line. At `230, the stock trades at 5.6x FY2013E earnings. We maintain our Buy rating with an upgraded target price of `326, valuing the stock at 8x FY2013E earnings.