Greenply industries revenues were ahead of our estimates but forex losses and pressure on MDF business impacted the net profit performance adversely. 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 as well as forex loss on unhedged borrowings. Though MDF prices have not yet bottomed out, but company management expects MDF volumes to double in H2FY19 as compared to H1FY19. We believe that growth going ahead is likely to be led by volume gains in each segment. However, any further fluctuation in currency is likely to impact MDF margins due to unhedged borrowings.
Revenues were largely flat YoY as the gains in plywood segment volumes were offset by decline in MDF volumes. Plywood realizations declined marginally but MDF realizations declined sharply due to increased competition. Margin decline coupled with forex losses led to 60.8% YoY decline in net profits.
Valuation and outlook
At Rs 144, stock is currently trading at 20.3x/16.1x P/E and 11.0x/8.8x 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 in line with its peers to factor in the challenges associated with MDF pricing owing to increased competition. We arrive at a revised price target of Rs 161 based on 18x FY20 estimated earnings (Rs 286 earlier based on 23x FY20 estimates). We downgrade the stock to ACCUMULATE since we believe that pain in MDF business and unhedged forex borrowings are likely to weigh on the performance in coming quarters too.
Shares of GREENPLY INDUSTRIES LTD. was last trading in BSE at Rs.134.45 as compared to the previous close of Rs. 135.9. The total number of shares traded during the day was 12350 in over 240 trades.
The stock hit an intraday high of Rs. 137.5 and intraday low of 134. The net turnover during the day was Rs. 1674465.
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