Greenply Puts Robust Q3 Numbers On The Board, Margins Improve

Investors' bullish stance on Greenply Industries has been justified by the company’s Dec 2012 quarter results. In its quarterly results, Greenply saw a 21.80% growth in its topline to touch Rs 509 crore. The higher growth has been owing to the increasing sales of two products, viz. Medium Density Fibers (MDFs) and Laminates. The margins of all its business segments have expanded, due to which the company’s net profit soared by 108% to Rs 29 crore in the quarter.

Greenply’s strong performance has come due to the robust outlook for the furniture industry. The industry has entry barriers as the government has stopped issuing new licenses to plywood companies. This has helped the old players to capture a higher market share in the growing market. Being an old company as well as a strong brand name, Greenply has naturally benefited from this, which supported its quarterly numbers.

In its largest segment, i.e. Plywood and Allied Products, it has seen sales rising by 14% to Rs 210 crore. The Laminates segment has also reported a year on year growth of 24% to Rs 174 crore, while the revenues of MDFs have increased by 42% to Rs 94 crore. The following table indicates how the three business segments have fared during the quarter:

Greenply saw its raw material costs increasing by 15% in the quarter, which is at a slower rate compared to its 21% growth in revenues. During the Dec 2011 quarter, it had incurred a forex loss of Rs 6 crore but during the quarter under review, this loss was reduced to a negligible amount, which has lifted its EBITDA margins. Overall, the company has reported EBITDA margins of 13.30% as compared to 10.37% reported a year earlier.

Another positive in this quarter is that its interest expenses have decreased by 7.39% to Rs 15 crore. The interest coverage ratio has also increased to 3.6x from that of 1.9x reported in the Dec 2011 quarter. The high growth during the quarter has helped improve this ratio.

The company has been running its capacities at a 100% utilisation rate, which itself indicated the likelihood of handsome results. It added MDF as a new business vertical in 2011, which clearly reflects strong performance. Greenply is now in the process of setting up a new MDF plant (currently in land acquisition phase). It has also announced that it will expand its laminates capacities to meet the higher demand for the products.

The stock is currently trading at 11x its TTM EPS of Rs 39. Following a sharp run up in Jan 2013, the stock looks expensive at its CMP of Rs 440 apiece. We advise investors to a buy this stock at a price below Rs 415 for better future returns.