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Greenply Industries' Q3FY18 results (Outperformer) - eWay Bill key for growth revival; new capacities coming up on time to capture the same…

Q3FY18 Standalone Highlights

• Revenue grew 10.6% yoy to ~Rs4.0bn (2% miss). Plywood grew ~6.1% yoy, (IDFCe: 8.5% yoy) due to lower realizations, while MDF grew strongly by ~19.6% yoy (IDFCe: 19.0% yoy) on a weak base.
• Plywood volumes grew at a healthy 13.1% as dealer restocking resumed post Nov. 15, but lower realizations due to weak decorative veneer sales (3x realization vs regular Plywood) led to revenue growth of only ~6.1% yoy. MDF volumes grew by ~16% while realizations improved ~3.1% yoy (due to better domestic mix).  
• Plywood EBITDA margins were weak (9.6%; 300 bps yoy decline) mainly due to lower decorative veneer sales. MDF EBITDA margins, adjusting for ~Rs81.5 mn forex gains, stood at 26.8% (+650 bps yoy as base was impacted by demonetisation). MDF margin expanded due to higher utilization.
• EBITDA jumped 25.9% yoy to Rs626mn. However, adjusting for the MDF forex gains, EBITDA grew 9.5% yoy (14.6% miss on poor margin).
• PAT stood at Rs361mn (+50.2% yoy). Growth was aided by lower depreciation/interest expenses, and the weak base quarter performance. However, adjusting for the forex impact, PAT grew 16.3% yoy (20.3% miss).
• Working capital days has risen from 51/62 days as of March/Sep 2017 to 68 currently, majorly due to lowering of creditor days. This level would be a normal level from here on.

Key positives: MDF volume / realization growth.

Key negatives: Plywood margin weakness.

Impact on financials: FY18E/19E/20E EPS cut by 5%/13%/19% to account for lower margin and delay in accrual of GST benefits.

Valuation & view

Although, the GST rate revision to 18% has partially levelled the playing field for organized players, the much important eWay Bill (now deferred) would be crucial to really tilt the scales in favour for them. Post the eWay bill implementation settling down, the organized industry in general, and MTLM in particular would be in a strong position to capture market share from unorganized players even though the overall Plywood industry outlook remains muted in the near-term. Its key capex plans (MDF/Plywood) are also on the verge of conclusion by mid FY19E, post which the company would have enough capacities to grow until FY22E. Given long-term visibility in growth, we roll-forward to 25x FY20E EPS and maintain OP on MTLM with a revised target price of Rs403.