Greenlam Industries - VAP business continues to disappoint - ICICI Securities

Greenlam Industries (GRLM) has reported largely in-line Q2FY21 numbers with consolidated revenue down 17% YoY to Rs2.89bn (I-Sec: Rs2.97bn) due to laminates and allied products (LAP) / veneer and allied products (VAP) declining at 12.7%/41.8% YoY, respectively. International/domestic laminates revenue declined 6.9%/18.8% YoY, respectively. Under VAP, ED reported faster recovery while DV and EWF continued to report sharp decline due to the discretionary nature of the products. EBITDA margin at 14% (I-Sec: 14.5%) was up 10bps YoY, led by operating deleverage. With GRLM foreseeing strong market share gain opportunity in both domestic and export laminate markets in near to medium term, we build-in a steady-state recovery in laminates segment starting H2FY21. Downgrade to ADD.

- Valuation and outlook: Factoring in largely in-line Q2FY21 performance, we maintain our revenue/PAT estimates for FY21E/FY22E. We expect the company to exhibit revenue and PAT CAGRs of 5.1% and 3.8%, respectively, over FY20-FY22E. We downgrade to ADD with an unchanged target price of Rs850 valuing the stock at 22x FY22E earnings.

- Laminates and allied product segment - exports continue to outshine domestic recovery: Overall, laminate revenues in Q2FY21 were down 12.7% YoY - largely due to 18.8% decline in domestic revenues. Domestic volume declined 5.4% YoY due to higher sales of 0.7mm thickness laminates impacting realisations which were down 14% YoY. Export revenue declined merely 6.9% YoY aided by 8.6% YoY volume decline and 2% YoY increase in realisations driven by superior mix. EBITDA margin improved 80bps YoY due to cost control and higher exports mix. We expect laminate and allied product segment to clock revenue and EBIDTA CAGRs of 3% and 4.3%, respectively, over FY20-FY22E.

- Veneer and allied product segment - Recovery remains muted: Veneer and allied product revenues declined 41.8% YoY largely due to its discretionary nature of the product. Decorative veneer revenues declined 50.8% YoY while revenues of EWF/ED segments declined 39%/13.6%, respectively. With volume disruption in niche segments (EWF and ED) likely to prevail in near term, EBITDA breakeven in both these businesses may defer to FY22E. We expect veneer and allied product segments to register revenue and EBIDTA CAGRs of 2.2% and 135%, respectively, over FY20-FY22E.

- PBT at Rs235mn (I-Sec: Rs250mn), down 13.8% YoY: Consolidated PBT at Rs235mn was slightly lower than expected due to soft operational performance. PAT came in-line at Rs185mn led by lower than expected interest cost. We expect PAT to grow at 3.8% CAGR over FY20-FY22E.

Shares of Greenlam Industries Ltd was last trading in BSE at Rs.754.3 as compared to the previous close of Rs. 749.1. The total number of shares traded during the day was 28 in over 23 trades.

The stock hit an intraday high of Rs. 767 and intraday low of 749.65. The net turnover during the day was Rs. 21252.

Source : Equity Bulls

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