Greenpanel Industries - Pricing tailwind an additional kicker - ICICI Securities

Faster-than-expected demand recovery in MDF category post Covid-19 breakout has led to GNPL sweating its capacities much faster than envisaged earlier. Recent delays in greenfield MDF projects of CPBI and Rushil Décor have now allowed the top 3 players to take a price increase of 3-4% in MDF boards w.e.f. 7th Dec (as per our checks) in all regions (except South India). While this we believe is partially driven by higher resin costs, we expect players like GNPL to witness gross margin accretion by 50-100bps from Q4FY21. The sustained strong demand recovery coupled with current price hikes, recently initiated productivity enhancement and cost control measures at MDF units, may drive significant improvement in its profitability going forward. Maintain BUY.

- Increase earnings by 58%/24% for FY21/FY22. Adjusting for improving demand, better pricing and earnings visibility in MDF segment, we increase our revenue/earnings estimates by 1.9%/2.6% and 58.1%/23.8%, respectively, for FY21/FY22. We expect the company to report revenue/PAT CAGR of 23%/115% over FY21-FY23E. Despite the recent surge in stock price, the company is available at 7.8x Sep'22 earnings. We maintain our BUY rating with a revised TP of Rs155 (15x Sep'22 earnings) vs Rs100 (15xFY22 earnings) earlier.

- Key beneficiary of capacity vacuum likely to be faced by MDF majors amid sharp revival in demand. Despite incremental capacity addition announced by few unorganised players in the recent past, we expect GNPL to be the biggest beneficiary of the burgeoning demand for MDF (post Covid-19) with CPBI likely to run out of its capacities over the next few quarters. Also, a) delayed greenfield projects of Rushil Décor and CPBI, b) likely imposition of anti-dumping duty on thin MDF and CVD on all MDF imports and c) increasing demand for modular furniture (for own consumption and exports) will drive higher utilisation rates for GNPL in near to medium term. We expect GNPL's overall revenue to grow at 23% CAGR over FY21-FY23.

- Pricing tailwind, an additional kicker, will boost its EBITDA margin in near term. Price hike w.e.f. Dec 7, '20, coupled with operating leverage, recently initiated productivity enhancement and cost control measures and improving revenue mix (focus on domestic volumes) will drive strong margin recovery in FY22E/FY23E for GNPL. We, thus, expect its MDF margin to expand to 19.3%/23.1%/24.6% in FY21/FY22/FY23 vs 20.6% margins reported in Q4FY20, respectively.

- RoCEs may cross 22% in FY23E. We expect MDF category RoCEs to inch upwards of 22% by FY23 vs 5.6% witnessed in FY20. This can be driven by higher capacity utilisation, sharp improvement in profitability, higher FCF generation (with no capex in store over the next two years amid stricter working capital management) and subsequent debt reduction. Gross debt of the company may see a sharp reduction to Rs1.8bn in FY23E vs Rs5.6bn in FY20. This, we believe, will drive P/E multiple expansion for GNPL going forward.

Source : Equity Bulls

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