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Greenply Industries' Q4FY19 results (Outperformer) - Ply strong, MDF should start to improve from here on…

Q4FY19 Standalone Highlights

• Strong Plywood performance: Ply rev. grew 24.5% yoy to ~Rs3.8bn (4% beat), while segment EBITDA margins came in at 10.6% (vs est. 10.0%; +150 bps yoy). Volume grew 23.9% yoy to 17.2 MSM while realization rose 1.4% yoy due to better product mix (despite price cuts taken across Ply products).
• MDF: MDF revenue grew 21.3% yoy (and 3.4% qoq) to ~Rs1.3bn (4% beat) and segment EBITDA margin came in at 21.0% (vs 31.8% yoy). Adjusting for forex gain, EBITDA margin stood at 11.6% (est 16.0%). Volume grew 62.5% yoy (AP MDF production was not in the base) while blended realization fell 25.5% yoy due to higher exports share and sharp fall in realisation due to overcapacity.
• Overall: Rev. grew 18.1% yoy to ~Rs5.2bn (4% beat) on beat in both Plywood and MDF. Gross margin declined ~500 bps yoy to 42.1% due to lower MDF realizations/price cuts in ply/higher exports. Adjusting for forex fluctuations, EBITDA fell 15.7% yoy to ~Rs533m (5% miss) while margin fell ~420bps yoy to 10.3% (IDFCe: 11.3%). EBITDA was under pressure due to lower GM and low utilisation (of 30%) in AP plant.
• Q4 has ~Rs108m of forex gains (booked in other expenses/finance costs). Adjusting for the same, PAT fell 58.2% yoy to ~Rs162m (13% miss).
• NWC stayed steady at 62 days yoy. Although DIO shot up by 9 days yoy to 55 days, the same was balanced by an 11 day yoy increase in DPO to 58 days. DSO rose by 2 days yoy to 65.

Key positives: All round revenue beat

Key negatives: Weak profitability in MDF continues.

Impact on financials: 5% cut in FY20E EPS. Introduce FY21E financials.

Valuation & view

Although Plywood performance was on a relatively weak base and MDF overcapacity related pricing pressures continue, nevertheless MTLM’s performance in Q4 came as a pleasant surprise. On the Plywood side, organized players are set to capture a healthy portion of the mid-market plywood segment as the GST/eWay bill/surveillance measures pick up pace post elections, while on the MDF side, despite overcapacity issues, the market growth of ~20%+ is heartening. MDF pricing seems to have stabilised in North India as incremental capacity addition is expected to be minimal over the next ~12-18 months; however, in the South (MTLM has put up a large AP plant) imports continue to undercut domestic pricing and hence MTLM’s capacity utilisation will increase only gradually. The CMP offers an attractive entry point (trading at 15.5x FY20E EPS) in our opinion, even though upside will be gradual with increasing utilisation on the MDF front. Maintain OP with a TP of Rs183 (18x FY21E EPS).