Greenlam Industries - Laminate margins surprise positively - ICICI Securities

Greenlam Industries (GRLM) reported a beat in its Q3FY21 numbers with consolidated PAT up 10% YoY to Rs320mn (I-Sec: Rs256mn) led by sharp improvement in laminate EBITDA margin at 17.3% (I-Sec: 15%), up 200bps YoY. The higher EBITDA margin is largely attributable to consumption of lower-cost inventory of raw materials and wastage reduction during the quarter. However, overall revenues were down 6.5% YoY to Rs3.35bn (I-Sec: Rs3.4bn) due to sustained decline in veneer and allied product revenues, down 36% YoY (largely due to container availability issues). However, laminate and allied product revenues fared better with laminate exports growing 3.1% YoY. With market share gains to sustain in the laminate segment, and veneer and allied product segment likely to achieve normalcy in Q4, we expect significant earnings traction going forward. Upgrade to BUY.

- Valuation and outlook: Factoring-in the Q3FY21 performance and expected uptick in laminate margins, we tweak our revenue / PAT estimates for FY21E / FY22E / FY23E by 1.7% / -0.7% / -0.8% and 20% / 12% / 9.2% respectively. We now expect the company to exhibit revenue and PAT CAGRs of 7.7% and 14.6% respectively, over FY20-FY23E. We upgrade the stock to BUY with a revised target price of Rs1,080 valuing it at 20x FY23E earnings. Key risks: 1) delay in EBITDA breakeven of veneer and allied products, and 2) slowdown in exports due to Covid.

- Laminates and allied product segment - exports continue to outshine domestic recovery: Overall, laminate revenues in Q3FY21 were down 0.5% YoY, largely due to 4.4% decline in domestic revenues. Domestic volumes however grew 12.1% YoY due to higher sales of 0.7mm thickness laminates thereby impacting realisations, which were down 14.8% YoY. Export revenues were up 3.1% YoY aided by 9.1% YoY volume growth and 5.5% YoY decline in realisations. Management remains optimistic in laminates (domestic and export) growth going forward led by market share gains. We expect laminate and allied product segment to clock revenue and EBIDTA CAGRs of 5.5% and 9.9% respectively, over FY20-FY23E.

- Veneer and allied product segment - recovery remains muted: Veneer and allied product revenues declined 36% YoY due to shipment issues. DV revenues shrunk 23.2% YoY while revenues of EWF/ED segments fell 45.7%/59.2% respectively. With volume recovery in niche segments (EWF and ED) likely to be gradual going forward, EBITDA breakeven in both these businesses may defer to FY22E. We expect veneer and allied product segments to register revenue and EBIDTA CAGRs of 9.8% and 111% respectively, over FY20-FY23E.

- PAT at Rs320mn (I-Sec: Rs256mn), up 9.9% YoY: Consolidated PAT stood at Rs320mn largely driven by superior laminate segment margins. Going forward, we expect PAT to grow at 14.6% CAGR over FY20-FY23E.

Shares of Greenlam Industries Ltd was last trading in BSE at Rs.840.3 as compared to the previous close of Rs. 825.7. The total number of shares traded during the day was 730 in over 78 trades.

The stock hit an intraday high of Rs. 850.35 and intraday low of 831.35. The net turnover during the day was Rs. 612317.

Source : Equity Bulls

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