Greenpanel Industries - Encouraging outlook - ICICI Securities

Greenpanel Industries (GNPL) has reported better-than-expected revenue at Rs902mn (I-Sec: Rs835mn), down 57% YoY due to 62% YoY decline in plywood segment and 55.7% YoY decline in MDF segment. Gross margin fell sharply by 510bps YoY on higher mix of low-margin MDF exports and operating deleverage. However, with sharp recovery being witnessed in Jun'20 and Jul'20 (achieving ~90% of sales compared to same months last year), management expects a mere 10% decline in MDF revenue for FY21. The encouraging outlook in GNPL's MDF segment is largely driven by higher demand prospects in domestic modular furniture space post Covid-19 breakout and likely faster recovery in MDF exports. Maintain Hold.

- Valuation and outlook: Factoring in Q1FY21 performance, we cut our PAT estimates by 6.8%/9.3% for FY21/FY22E, respectively, while maintaining our revenue estimates. We now expect GNPL to report revenue and adjusted PAT CAGR of 5.8% and 37.8%, respectively, over FY20-22E. We expect GNPL's RoCE to improve from 5.6% in FY20 to 8.4% in FY22E. We now value GNPL at 10x FY22E earnings on account of improving demand visibility in its core MDF segment (8x earlier) to arrive at a revised target price of Rs39 (Rs35 earlier). Maintain HOLD.

- MDF segment fares better than plywood with lower-than-expected decline: GNPL reported revenue decline of 62.3%/55.7% in plywood/MDF segment, respectively, leading to 57.3% YoY decline in its overall Q1FY21 revenue. MDF realisation, however, declined 8.9%/3.4% YoY/QoQ due to higher mix of MDF exports. GNPL saw sharp recovery in Jun'20 and Jul'20 achieving 90% of sales of last year. With this swift recovery in revenue, we expect GNPL to post revenue CAGR of 5.8% over FY20-22E.

- GNPL reports EBITDA margin in negative terrain due to sharp operating deleverage. The company reported EBITDA margin of -9.2% (I-Sec: -15%) as against 13.1% YoY due to lower capacity utilisation in both segments and higher sales of lower margin MDF exports. While MDF EBITDA margin for the quarter stood at -4.3% (adjusted for forex gain, MDF margin stood at -10.4%), plywood margins were down to -18.5% driven by operating deleverage and lower decorative veneer sales. With stable input cost and utilisation levels expected to improve going forward, we expect overall EBITDA margin to improve to 17.2% in FY22E from 15.7% in FY20.

- Reported PBT at -Rs383mn vs our estimate of -Rs430mn. GNPL reported better-than-expected PBT at -Rs383mn. Forex loss continued to impact interest cost which stood higher by 60% YoY (forex loss at Rs65mn). We expect GNPL to report adjusted PAT CAGR of 37.8% over FY20-22E.

- RoCE to improve post FY21. We expect GNPL to be a big beneficiary of the likely imposition of 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 gain traction in its volumes and profitability going forward. Strong traction in profitability, minimal capex and expected debt repayment over the next two years would drive its RoCEs higher to 8.4% in FY22E vs 5.6% in FY20.

Source : Equity Bulls

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