GREENPLY INDUSTRIES CMP 1Y Target Rating

Rs.260 Rs.300 BUY

Rating: ◄► | Target price: ▼ | EPS: ▼

OUTLOOK REVIEW 4QFY18

ONE YEAR OUTLOOK THREE YEAR OUTLOOK
31st May 2018
BUSINESS & EARNINGS ▲ BUSINESS & EARNINGS ▲ BUILDING
Industry
 We remain positive on Greenply Industries (GIL) given completion of its MATERIAL
 We remain positive on the prospects of the organized players in plywood
major capex cycle post commissioning of its new MDF plant in AP (by June- CMP Rs.260
industry from a three year perspective given the structural shift to
18) and plywood and decorative veneer units, leading to revenue and organized players accelerating going ahead led by (1) raw material security;
earnings visibility over next two years. Target Price Rs.300
(2) increasing brand awareness; (3) superior distribution setup.
 While GIL’s plywood segment revenue growth has remained weak (2% y-o-y  GIL is focused on growing the plywood segment through better Key Stock Data
decline) in FY18, we expect plywood revenues growth to recover to 7-8%
manufacturing mix (outsourcing) and product mix(more premium/value Bloomberg MTLM
CAGR over next two years led by launch of economy plywood,
added products), leading to healthy RoCE’s, going ahead. In the MDF
commissioning of decorative veneer plant and low base. Shares o/s 123mn
business, GIL is a major player with a 40% share of the installed capacity in
 On MDF category, we expect utilizations of 40-50% in the first year of MDF the industry. We like GIL’s focus on MDF business, which will augur well
plant commissioning in AP and ramp-up to 65% by FY20E driving this Market Cap Rs. 32bn
over the long term given shift from cheaper unorganised plywood and
segment’s growth. Expect MDF margins to reduce going forward from 27- improvement in commercial construction. Post commissioning of MDF 52-wk High-Low Rs. 401-255
28% to 20-22% in next three years due to capacity addition by competitors facility in Southern India, we expect 36% contribution of MDF to overall
and higher exports from the new AP unit. 3m ADV Rs. 30mn
revenue from 30% currently which will improve the overall margins profile.
 GIL has undergone through a significant capex phase with commissioning of  Despite the significant capex incurred for MDF expansion, net debt to Index BSE500
its face veneer plant at Gabon, decorative veneer plant in Gujarat, MDF and equity to reduce to peak to 0.7x in FY18 and reduce to 0.2x by FY22E led by
plywood expansion. This entailed a total outflow of Rs.10bn. We expect the strong cash flow generation and no significant capex. Q2 Q3 Q4
benefits of this capex program to aid in strong revenue growth starting
2HFY19E. FY18 net debt to equity peaked out to 0.7x and we expect this to  Expect RoCE’s to decline to 10% in FY19E from 14% earlier and expand to Promoters 51.0 51.0 51.0
reduce to 0.5x by FY20E. 15% by FY22E led by higher utilisations at newly commissioned AP plant.
Institutions 38.5 37.2 36.0
VALUATION MULTIPLES ▼ VALUATION MULTIPLES ▼
 At CMP, stock trades at 24x FY19E and 18x FY20E EPS versus last three year  We expect similar exit multiple of 20x to sustain given market leadership, Public 10.5 11.8 13.0
average of 18-20x. While we expect current multiple to sustain given higher improving margin and return metrics profile due to higher MDF mix and
earnings momentum post completion of capex, improving return ratios and strong free cash flows. Pace of de-leveraging to be quicker post FY19E. Pledge 0.0 0.0 0.0
balance sheet/cash flows, we reduce our exit multiple from 23x earlier to
20x given lower scale of operation post demerger into MDF and plywood RESEARCH ANALYSTS
segment, arriving at our TP of Rs.300/share. Maintain BUY rating. GIRISH CHOUDHARY
KEY ESTIMATES REVISION
FINANCIAL SUMMARY girish@sparkcapital.in
FY19E FY20E
+91 44 4344 0021
Revenues EBITDA PAT EPS P/E RoE Old New Change Old New Change
Year GAURAV NAGORI
(Rs. mn) (Rs. mn) (Rs. mn) (Rs.) (x) (%) Revenues 21,972 20,890 -4.9% 26,655 25,031 -6.1%
EBITDA 3,184 2,889 -9.3% 4,115 3,594 -12.7% gaurav@sparkcapital.in
FY18 16,804 2,521 1,357 11.1 23.5 15.9% Margin % 14.5% 13.8% 15.4% 14.4% +91 44 4344 0072
PAT 1,553 1,330 -14.4% 2,002 1,796 -10.3%
FY19E 20,890 2,889 1,330 10.8 24.0 13.6% PAT margin % 7.1% 6.4% 7.5% 7.2%
EPS 12.7 10.8 -14.6% 16.3 14.6 -10.1%
FY20E 25,031 3,594 1,796 14.6 17.8 16.0%
All figures in Rs. Mn
find SPARK RESEARCH on Page 1
(SPAK <go>)
Greenply Industries Outlook Review 4QFY18 | BUY | Target Price of Rs. 300

Quarterly Financial Statement

Standalone Financial results
Overall revenue declined
3% on a y-o-y basis to Y-o-Y
Rs. mn \ Period Mar-18 Mar-17 Dec-17 Q-o-Q Growth
Rs. 4.4bn. Plywood Growth
segment (73% of total Revenues 4,371 4,486 -2.6% 3,993 9.5%
revenues) revenue
remained flat y-o-y Raw material 2,413 2,361 2.2% 2,204 9.5%
whereas MDF segment
(25% of total revenues) Purchased goods 769 633 21.5% 674 14.1%
revenue declined 12% y-
Employee costs 418 426 -1.8% 491 -14.9%
o-y.
Effective tax rate Other expenditure 1,001 1,058 -5.4% 829 20.8%
declined to 29% from
31% last year. EBITDA 632 679 -6.8% 547 15.7%

Margins% 14.5% 15.1% 13.7%

Other income 13 15 -14.3% 10 24.3%

Interest 75 (34) -320.5% (54) -237.8%

Plywood volumes grew
5% y-o-y and MDF Depreciation 111 121 -7.6% 104 6.7%
volumes declined 24% y-
o-y. Average realizations PBT 459 607 -24.4% 507 -9.4%
for Plywood declined
6%; MDF remained PBT margins % 10.5% 13.5% 12.7%
flattish y-o-y. Tax 132 188 146

Effective tax rate 28.9% 31.0% 28.8%

Reported PAT 326 419 -22.1% 361 -9.5%

Margins 7.5% 9.3% 9.0%

EPS (Rs.) 2.66 3.41 -22.1% 2.9 -9.5%

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 Greenply Industries Outlook Review 4QFY18 | BUY | Target Price of Rs. 300

Financial Summary
Abridged Financial Statements
Rs. mn FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
Profit & Loss
Revenue 15,653 16,465 16,631 16,804 20,890 25,031 28,416 32,267
9,091 9,205 8,797 8,841 - - - -
EBITDA 2,060 2,409 2,469 2,521 2,889 3,594 4,140 4,761
Depreciation 471 490 485 448 649 694 782 837
EBIT 1,589 1,919 1,983 2,072 2,241 2,900 3,358 3,924
Other Income 0 96 44 38 42 50 57 65
Interest expense 359 289 118 218 509 556 484 369
Exceptional items 158 - - - - - - -
PBT 1,388 1,726 1,909 1,892 1,773 2,395 2,931 3,619
Reported PAT (after minority interest) 1,218 1,312 1,351 1,357 1,330 1,796 2,198 2,715
Adj PAT 1,061 1,312 1,351 1,357 1,330 1,796 2,198 2,715
EPS (Rs.) 9 11 11 11 11 15 18 22
Balance Sheet - - - - - - - -
Net Worth 4,840 6,135 7,870 9,151 10,392 12,099 14,209 16,835
Deferred Tax 403 -3 140 265 265 265 265 265
Total debt 3,239 2,588 4,271 6,788 6,788 6,288 5,088 3,588
Other liabilities and provisions 734 667 216 1,071 1,331 1,595 1,811 2,057
Total Networth and liabilities 9,216 9,387 12,497 17,274 18,776 20,248 21,373 22,744
Gross Fixed assets 7,164 7,511 7,625 7,852 11,513 13,719 14,719 15,719
Net fixed assets 5,330 5,304 5,013 4,830 7,842 9,354 9,572 9,735
Capital work-in-progress 139 222 3,367 7,704 5,543 4,337 4,337 4,337
Goodwill
Investments 329 377 724 764 764 764 764 764
Cash and Bank Balances 72 316 716 300 56 46 177 501
Loans & advances and other assets 1,120 944 915 1,974 2,454 2,940 3,337 3,790
Net working capital 2,226 2,224 1,762 1,703 2,118 2,807 3,186 3,618
Total assets 9,216 9,387 12,497 17,274 18,776 20,248 21,373 22,744
Capital Employed 10,295 8,401 10,432 14,040 16,560 17,784 18,843 19,860
Invested Capital (CE - cash - CWIP) 9,661 8,026 8,121 7,996 9,758 12,793 14,394 15,185
Net Debt 3,167 2,272 3,555 6,488 6,732 6,242 4,912 3,087
Cash Flows
Cash flows from Operations (Pre-tax) 2,041 2,461 2,139 2,414 2,297 2,733 3,635 4,187
Cash flows from Operations (post-tax) 1,871 2,047 1,580 1,879 1,854 2,134 2,902 3,282
Capex -934 -642 -2,329 -4,563 -1,500 -1,000 -1,000 -1,000
Free cashflows 937 1,405 (749) (2,685) 354 1,134 1,902 2,282
Free cashflows (post interest costs) 578 1,213 (823) (2,865) (113) 629 1,476 1,978
Cash flows from Investing -1,042 -683 -2,635 -4,603 -1,500 -1,000 -1,000 -1,000
Cash flows from Financing -823 -1,114 1,425 2,211 -598 -1,144 -1,772 -1,957
Total cash & liquid investments 72 316 716 300 56 46 177 501
Source: Spark Capital

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 Greenply Industries Outlook Review 4QFY18 | BUY | Target Price of Rs. 300

Financial Summary
Growth and Ratios
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY21E
Key variables (sector specific)
Plywood revenues 11,523 11,654 11,680 11,479 12,646 14,258 15,998 17,949
MDF revenues 4,088 4,761 4,767 4,717 7,745 10,173 11,699 13,453

Growth ratios
Revenue 5.2% 1.0% 1.0% 24.3% 19.8% 13.5% 13.6%
EBITDA 16.9% 2.5% 2.1% 14.6% 24.4% 15.2% 15.0%
Adj PAT 23.7% 3.0% 0.5% -2.0% 35.0% 22.4% 23.5%
Margin ratios
EBITDA 13.2% 14.6% 14.8% 15.0% 13.8% 14.4% 14.6% 14.8%
Adj PAT 6.8% 8.0% 8.1% 8.1% 6.4% 7.2% 7.7% 8.4%
Performance ratios
Pre-tax OCF/EBITDA 99.1% 102.2% 86.6% 95.8% 79.5% 76.0% 87.8% 87.9%
OCF/IC (%) 19% 26% 19% 23% 19% 17% 20% 22%
RoE (%) 20% 24% 19% 16% 14% 16% 17% 17%
RoCE (%) 14% 18% 14% 11% 10% 12% 14% 15%
RoCE (Pre-tax) 15% 22% 22% 17% 15% 17% 19% 21%
RoIC (Pre-tax) 15% 22% 25% 26% 25% 26% 25% 27%
Fixed asset turnover (x) 2.9 3.1 3.2 3.4 3.3 2.9 3.0 3.3
Total asset turnover (x) 1.7 1.8 1.5 1.1 1.2 1.3 1.4 1.5
Financial stability ratios
Net Debt to Equity (x) 0.7 0.4 0.5 0.7 0.6 0.5 0.3 0.2
Net Debt to EBITDA (x) 1.5 0.9 1.4 2.6 2.3 1.7 1.2 0.6
Interest cover (x) 5 7 13 9 4 4 6 9
Cash conversion days 52 49 39 37 37 41 41 41
Working capital days 61 55 54 57 57 61 61 61
Valuation metrics
Fully Diluted Shares (mn) 121 121 123 123 123 123 123 123
Market cap (Rs.mn) 31,981 31,981 32,496 32,496 32,496 32,496 32,496 32,496
P/E (x) 30.2 24.4 24.1 23.9 24.4 18.1 14.8 12.0
P/OCF(x) 17.4 15.9 20.6 17.3 17.5 15.2 11.2 9.9
EV (Rs.mn) (ex-CWIP) 35,524 34,545 32,684 31,281 33,685 34,401 33,071 31,246
EV/ EBITDA (x) 17.2 14.3 13.2 12.4 11.7 9.6 8.0 6.6
EV/ OCF(x) 19.0 16.9 20.7 16.7 18.2 16.1 11.4 9.5
FCF Yield 2% 4% -3% -9% 0% 2% 4% 6%
Price to BV (x) 6.6 5.2 4.1 3.6 3.1 2.7 2.3 1.9
Dividend pay-out (%) 6% 6% 5% 5% 6% 4% 3% 3%
Dividend yield (%) 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%

Source: Spark Capital

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Greenply Industries Outlook Review 4QFY18 | BUY | Target Price of Rs. 300

Crystal Ball Gazing

Play on MDF business, which will augur well over the long term given shift from cheaper unorganized plywood and improvement in commercial
construction. Company is also growing the plywood segment through outsourcing model to free up its manufacturing facilities to produce
premium/value added products

Shift to MDF from plywood to improve overall Expect ROE’s to sustain around 15-17% due to heavy
Multiples to sustain
margins. Revenue to grow by 19% CAGR in FY18E-22E investment in MDF expansion

FY14-FY17 FY18-FY22E FY14-FY17 FY18-FY22E PE multiple FY22E EPS Price target

Revenues CAGR 3% 18% RoE (%) 22% 16% 20x 22 430
EBITDA CAGR 10% 17% RoCE (%) 15% 13% 23x 22 510
EBITDA margin 14% 14% RoIC (%) 21% 26%
EPS CAGR 12% 19% Average 1 yr fwd
Total Asset Turnover (x) 1.66 1.32 PE (x) 16.5
Total WC days 53.3 59.5 EV/EBITDA (x) 10.0
Pre-tax OCF/EBITDA (%) 96% 83% Peak 1 yr fwd
Post Tax OCF as a % of IC 22% 19% PE (x) 26.9
Debt/EBITDA 1.24 1.48 EV/EBITDA (x) 15.1

TOTAL
EPS CAGR of ~20% over RETURN OF
Entry = Rs. 260@ 24x Cumulative Dividends of
FY19E-22E, exit multiple
FY19E EPS Rs.5/share
of 20x on FY22E EPS 65%

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Greenply Industries Outlook Review 4QFY18 | BUY | Target Price of Rs. 300

Spark Recommendation History

Rs. Report Date Price Target Reco.
Greenply Industries – 3 Year Price and Rating History 08/Feb/18 335 375 Buy
500
09/Nov/17 305 365 Buy
400 03/Aug/17 265 335 Buy
30/May/17 275 350 Buy
300 25/Jan/17 255 290 Buy
Price 25/Oct/16 285 315 Buy
200
27/Jul/16 250 285 Buy
Target 26/May/16 215 245 Buy
100
22/Mar/16 175 225 Buy
0 20/Jan/16 180 230 Buy
Jun-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 29/Oct/15 197 255 Buy
16/Jul/15 196 228 Buy

Absolute Rating Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon
ADD Stock expected to provide positive returns of >5% – <15% over a 1-year horizon
REDUCE Stock expected to provide returns of <5% – -10% over a 1-year horizon
SELL Stock expected to fall >10% over a 1-year horizon
Symbol Interpretation
◄► No Change | ▼ Downgrade | ▲ Upgrade

Disclosure of Interest Statement

Analyst financial interest in the company No

Group/directors ownership of the subject company covered No

Investment banking relationship with the company covered No

Spark Capital’s ownership/any other financial interest in the company covered No

Associates of Spark Capital’s ownership more than 1% in the company covered No

Any other material conflict of interest at the time of publishing the research report No

Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:
No
 Managing/co-managing public offering of securities; Investment banking/merchant banking/brokerage services; Products or services other than those above; In connection with research report

Whether Research Analyst has served as an officer, director or employee of the subject company covered No

Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No

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 Greenply Industries Outlook Review 4QFY18 | BUY | Target Price of Rs. 300

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SPARK CAPITAL ADVISORS | Board: +91.44. 4344 0000 | www.sparkcapital.in

GIRISH Digitally signed by GIRISH
CHOUDHARY
Spark Capital Advisors (India) Pvt. Ltd. is a SEBI registered Research Analyst bearing SEBI Registration No. INH200001459 CHOUDHARY Date: 2018.05.31 08:34:35
+05'30'
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