Despite incurring forex loss of Rs80mn for the quarter, Greenpanel Industries (GNPL) for the second successive quarter delivered a strong beat on its Q3FY21 revenues / earnings driven by: a) 43.3% / 49.5% YoY jump in its MDF volumes / revenues; b) 11.7% / 5.5% YoY growth in plywood volumes / revenues; and c) 690bps YoY expansion in overall EBITDA margin. Sustainable demand tailwinds in MDF, delay in greenfield MDF projects of CPBI and Rushil Décor, firm MDF pricing and recently initiated productivity enhancement and cost control measures at its MDF units, are likely to drive considerable improvement in GNPL's profitability going forward. Management too has guided for double-digit volume growth, 200bps expansion in MDF margins, debt reduction of Rs1.5bn and an impressive RoCE of 22% for FY22. Maintain BUY.
- Valuation and outlook: Factoring-in the strong Q3FY21 performance, we increase our revenue and PAT estimates by 5% / 5.9% / 3.6% and 57.4% / 27.4% / 17.5% for FY21E / FY22E / FY23E respectively. We expect GNPL to report revenue and adjusted PAT CAGRs of 18.3% and 90.2% respectively, over FY20-FY23E. We expect RoCE to improve from 5.6% in FY20 to 23.8% in FY23E. We now value GNPL at 18x FY23E earnings and maintain our BUY rating on the stock with a revised target price of Rs256. Key risks: sudden slowdown in OEM demand, and aggressive capacity addition in the industry in near to medium term.
- Strong MDF segment growth aids outperformance: GNPL's 49.5% YoY growth in MDF segment and 5.5% YoY growth in plywood business led to 34.5% YoY growth in overall Q3FY21 revenues. The strong growth in MDF was driven by market share gains from the cheap plywood segment, strong demand for modular furniture (post-Covid), and widening of the company's distribution reach. Realisation too remained firm with 4.4% YoY increase on the back of recent price hikes and lower share of exports. With likely delay in new MDF capacities of large players, viz. Rushil Décor and CPBI, and sustainable demand tailwinds in MDF, we expect GNPL to post a revenue CAGR of 18.3% over FY20-FY23E.
- EBITDA margin at 21.6%, up by a sharp 690bps YoY. Company reported an EBITDA margin of 21.6% (I-Sec: 20.5%) driven by operating leverage, recent price hikes in MDF segment and reduction in wastage. While MDF EBITDA margin was at 24.5% (up 800bps YoY), plywood margin was 14.7% (up 150bps YoY). With recent and likely price hikes in MDF expected to cover the rising input costs, and both the MDF plants likely to attain >100% utilisation in FY22, we expect GNPL's overall EBITDA margin to improve to 24.5% in FY23E from 15.7% in FY20.
- RoCE improvement gains momentum. We expect the company to be a big beneficiary of the likely anti-dumping duty (ADD) on thin MDF and CVD on any MDF imported into the country over the next couple of quarters. This would help sustain traction in volumes and profitability going forward. Strong traction in profitability, minimal capex, stricter working capital discipline and expected debt repayment (of ~Rs3.2bn) over the next two years would drive the company's RoCE higher to 23.8% in FY23E vs 5.6% in FY20.