Report
Rohit Dokania

Greenply Industries' Q2FY19 results (Outperformer) - MDF weakness persists...

Q2FY19 Standalone Highlights

  • Plywood: Ply revenue grew 11.3% yoy to ~Rs3.5bn (3% beat), while segment EBITDA margins came in at 11.5% (vs est. 11%; +50 bps yoy). Volume grew 11.4% yoy to 11.4 mn sq. m. while realization fell 1% yoy.
  • MDF: MDF revenue fell 27.9% yoy to ~Rs876m (15% miss) and segment EBITDA margin at 4.7% (vs est. of 18%) plunged ~21% points yoy led by fall in pricing and negative operating leverage. Volume fell 17.9% yoy to 37,563 cbm (13% miss), while realization fell 12.7% yoy, due to heavy price competition (given oversupply in the markets).
  • Overall: Revenue was flat yoy to ~Rs4.5bn (in-line), due to better Plywood performance (versus weak MDF performance). Gross margin declined ~140bps yoy to 45.6% due to lower contribution of MDF in the mix. Also higher other expenses (A&P at 4.6% of rev. vs 4.0% yoy; forex impact of ~Rs91m), led to EBITDA falling 34.7% yoy to ~Rs416m (26% miss). EBITDA margin fell ~400 bps yoy to 9.3% (IDFCe: 12.5%).
  • Higher than est. interest exp. (led by ~Rs142m forex impact on debt) and poor EBITDA led to PBT coming at Rs36m (-93% yoy) vs est. of Rs217m. However, PAT miss was just 12% because of a ~Rs107m tax write-back (vs est. 25% tax rate); PAT fell 60.8% yoy to ~Rs143m.
  • NWC increased by 11 days yoy to 73. DSO fell by 11 days to 66, while DIO increased to 61 days (vs 37 yoy) and DPO rose by 2 days to 54.

Key positives: Plywood performance better than estimates.

Key negatives: MDF performance far weaker than expected.

Impact on financials: FY19E/20E EPS cut by 31%/17%.

Valuation & view

MTLM’s continued weakness in the MDF segment remains a key concern given that it has clearly lost market-share in North India (despite being a 10+ year old incumbent). After holding out, the company has finally cut prices in Q2 (reflective in realizations) but continues to remain at a 2-4% premium compared to competition. Given the overcapacity situation in India (industry utilisation at ~50%), further price cuts are not ruled out even as MTLM looks to export markets in the interim (which have lower realizations, and thus margins, versus domestic markets), profitability of the MDF business would continue to remain subpar in the near-term. Plywood business on the other hand is showing a decent recovery, and we are particularly encouraged that the company is gearing itself to capture market-share in the mid-market segment from unorganized players. Given weak H1 performance and sharply cut in earnings estimates, we cut our target multiple to 18x (vs 20x earlier). However, the recent price correction provides a decent entry point. Maintain OP with a revised TP of Rs194 (Rs260 earlier).

Underlying
Greenply Industries

Greenply Industries Limited. Greenply Industries Limited is an interior infrastructure company. The Company is engaged in the business of manufacturing plywood and allied products, medium density fiberboards (MDF) and allied products through its factories at various locations. The Company's segments include Plywood & Allied Products and Medium Density Fibre Boards & Allied Products. The Plywood & Allied Products segment is engaged in the business of manufacturing and trading of Plywood, block boards, veneer, doors and other wood panel products through its wholesale and retail network. The Medium Density Fibre Boards & Allied Products segment is engaged in the business of manufacturing of Medium Density Fiberboards and other allied products through its wholesale and retail network. The Company offers a portfolio of residential and commercial products comprising plywood and block boards, MDF, wood floors, flush doors and decorative veneers. The Company offers Wood floors under the brand name Green Floormax.

Provider
IDFC Securities
IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions,  both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement  amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

Analysts
Rohit Dokania

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