BoB Capital issues buy call for shares of Greenpanel Industries Ltd on robust growth outlook

1. Stock market outlook

The current market price of the share is Rs 475.25 each on NSE. The target price is Rs 595 and the stock should yield a return of 25%. The stock hit the 52-week high at Rs 625 each and the 52-week low at Rs 215 each.

Current market price Target price Potential gain475
475.25 595 25%
2. MDF volume growth

2. MDF volume growth

Management expects MDF volume growth of 15-18% in FY23 and 15% in FY24. The company is poised to capitalize on the steady growth in demand at short term thanks to the growing acceptance of MDF in the Indian ready-made furniture market and the absence of major industry capacity additions in FY23 (beyond the 240,000 m3 expansion of Rushil Décor which has already been absorbed and ICRA’s upcoming addition of 130,000 m3 in S1FY23).

EBITDA margin is guided to 31-32% for FY23 versus 31% for FY22.

3. Brownfield Expansion

3. Brownfield Expansion

The company plans to increase MDF capacity at its Andhra Pradesh plant from 180,000 to 240,000 m3 and is in talks with suppliers to finalize capacity and capital expenditure within a month. The expansion is expected to go live by T4FY24 or T1FY25. GREENP expects the plant to reach approximately 60% capacity utilization in FY25 and generate revenue of approximately Rs 4 billion, increasing to Rs 5.5 billion in FY25. ‘EX26.

By management, this new capacity will generate revenue of up to Rs 7 billion at peak utilization, targeted for FY27.

4. Plywood margin

4. Plywood margin

To counter rising raw material costs, GREENP raised prices by 3% in June 22. The company expects to have sales volumes of 10 million sqm in FY23 with revenue potential by Rs 3 billion to 10.8 million sq m and Rs 3.2 to 3.3 billion respectively in FY24. Management believes that plywood operating margins will remain stable within a range from 10 to 11%.

5. Assessments

5. Assessments

According to BoB Capital, “We expect ROCE (Return on Capital Employed) to increase by 200 basis points to 22.2% in FY22-24, driven by better utilization, strong improvement in earnings, higher FCF generation and subsequent debt reduction.We continue to model revenue/EBITDA/PAT CAGR of around 13%/11%/15% over FY22-FY24.The stock is currently trading at 18.4x FY24E EPS and looks attractive following the recent correction. We are raising our rating from HOLD to BUY while keeping our TP at Rs 595, based on 23x FY24E EPS – a 34% discount on CPBI.”

6. About Greenpanel Industries Ltd

6. About Greenpanel Industries Ltd

Greenpanel is India’s largest wood panel manufacturer. Its state-of-the-art manufacturing plants located in Uttarakhand and Andhra Pradesh produce premium quality Medium Density Fibreboard (MDF), plywood, decorative veneer, flooring and doors as per the official website of the company. The market capitalization is Rs 5,827 crore.

Disclaimer

Disclaimer

The stock was featured in the BoB Capital Markets Ltd brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.