Greenlam Industries - Market share gains in laminates to persist - ICICI Securities

We expect Greenlam Industries' (GRLM) laminate volumes to stage steady recovery post Q2FY21 led by market share gains in both domestic and international operations. Our optimism is based primarily on: a) weakening competition in the laminate segment (post Covid) in domestic and export markets and the recent launch of 0.7mm thickness laminates in the domestic space. While exports have largely achieved normalcy, the gradual liquidation of high inventories in the domestic real estate space resulting in increase in rate of occupation of premises, and pent-up demand in renovation, would aid gradual recovery in the domestic laminate space going forward. Maintain ADD.

- Valuation and outlook: Considering the faster than expected recovery in laminate exports, we increase our PAT estimates by 6%/4.7% for FY21E/FY22E respectively. Rolling forward our estimates to FY23E, we expect GRLM to report overall revenue/PAT CAGRs of 8%/11.3% over FY20-FY23E respectively. Maintain ADD with a revised target price of Rs900 (earlier: Rs850) valuing the stock at 20x Sep'22E earnings.

- Laminate and allied product segments - market share gains to continue: With exports nearly achieving normalcy, we expect the domestic laminate segment to stage a steady recovery post Q2FY21 driven by weakening competition in the laminate segment (post Covid) and the recent launch of 0.7mm thickness laminates. GRLM, being one of the top players with strong brand equity and impressive distribution network, has been witnessing market share gains post Covid and this trend will most likely continue. With higher mix of exports and operating leverage likely to offset the recent increase in melamine formaldehyde prices and adverse mix in domestic laminates, we expect segmental EBITDA margin to remain firm. We estimate laminates and allied product segments to register revenue and EBIDTA CAGRs of 5.8% and 7.6% respectively, over FY20-FY23E.

- Veneer and allied product segments - recovery to be gradual: Veneer and allied product revenues would take time to recover due to the discretionary nature of the products. Within the existing product lines, we expect engineered doors (ED) to recover faster than the engineered wood flooring (EWF) and decorative veneer segment. Breakeven for EWF and ED is now likely to get deferred to FY23 and FY22 respectively. We expect veneer and allied product segments to register revenue and EBIDTA CAGRs of 9.8% and 111% respectively, over FY20-FY23E.

- RoCE to inch higher despite large capex for upcoming South plant: Despite incremental capex of Rs1.75bn for the company's upcoming laminate plant in South India, we expect GRLM's balance sheet to strengthen even further driven by its increasing FCF generation amid stricter working capital discipline. This in turn would help improve RoCEs by 230bps to 18.4% in FY23E from 16.1% in FY20.

Shares of Greenlam Industries Ltd was last trading in BSE at Rs.812.95 as compared to the previous close of Rs. 803.25. The total number of shares traded during the day was 425 in over 55 trades.

The stock hit an intraday high of Rs. 819.25 and intraday low of 795. The net turnover during the day was Rs. 340444.

Source : Equity Bulls

Keywords