PCG Research | Urban Infrastructure

Result Update

Greenply Industries

GREENPLY INDUSTRIES
On a firm footing

INR 315

BUY
January 23, 2008

Greenply Industries (GIL) Q3FY08 results were in line with our expectations. Net sales were up by 40% Y-o-Y at INR 1.5 bn, and EBITDA and net profit were up by 47% and 50% Y-oY at INR 211 mn and INR 98 mn, respectively. We are revising our FY09 estimates to incorporate revenues from the bathroom cubicle business as well as expansion of the laminates unit in Himachal Pradesh. Revenues and net profit for FY09E have been revised upwards by ~5% and 2%, respectively. Further upside to our estimates for FY09 would be better-than-anticipated growth in realisations and volumes as well as improvement in working capital cycle, which we have not included. We thus remain positive on GILs prospects, given the strong demand for interior infrastructure products. We maintain our BUY recommendation. Key highlights Net sales up by 40% Y-o-Y at INR 1.5 bn. Volume and realisation growth aided rise in net sales. Realisations for laminates and decorative veneer divisions were up 10% and 11% Y-o-Y respectively. Expanded capacities from Uttaranchal unit drove plywood volumes up by 51% Y-o-Y. The plywood division contributed 55% of revenues at INR 898 mn, compared to 49% in the same quarter previous year.
Reuters : : GRPL.BO MTLM IN Prakash Kapadia +91-22-4097 9843 prakash.kapadia@edelcap.com Grishma Shah +91-22-4097 9842 grishma.shah@edelcap.com

Laminates and allied products contributed 45% of revenues at INR 729 mn, compared to 51% during the same quarter previous year. Strong growth in EBITDA and net profit; margins subdued EBITDA grew at 47% Y-o-Y at INR 211 mn whereas net profit grew at 50% Y-o-Y at INR 98 mn. Despite a strong growth in EBITDA and profit, margins where under pressure on the back of higher than anticipated marketing and staff costs. GIL is increasing its marketing team to widen its distribution network across India for its entire product basket benefits of which we believe would be visible in FY09E.

Bloomberg

Market Data 52-week range (INR) Share in issue (mn) M cap (INR bn/USD mn) Avg. Daily Vol. BSE (000) : : : : 419 / 101 17.0 5.4 / 135.8 31.8

Share Holding Pattern (%) Promoters MFs, FIs & Banks FIIs Others : : : : 54.9 8.2 10.4 2.5

Financials Year to March Revenues (INR mn) EBITDA (INR mn) Net profit (INR mn) EPS (INR) P/E
* consolidated

Q3FY08 1,525 211 98 5.8

Q3FY07 1,089 144 66 4.0

%change Q2FY08 %change 40.1 1,484 2.8 46.7 216 (2.6) 49.7 112 (12.0) 45.0 6.7 (13.9)

FY07* 4,406 463 226 13.7 22.9

FY08E* 5,467 776 408 24.0 13.1

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Greenply Industries

Capex plans: Laminates unit to be on stream by Q2FY10E; MDF yet to be finalized GIL has announced plans to venture into MDF manufacturing as well as increase its laminates capacity. The MDF plant will come up at its existing unit at Uttaranchal, whereas the laminates facility will be set up in Himachal Pradesh. We have not assumed MDF expansion in our estimates as we are awaiting further clarity. The Himachal unit will have a capacity of ~ 2.03 mn sheets. Expansion will be done at a cost of INR 700 mn and will be funded through a mix of debt and internal accruals with majority of capex to be completed in FY09E. We expect the laminates unit to be on stream by Q2FY10E. The company plans to use laminates from this unit for its bathroom cubicle business as well as sell them in the market. Upgrading FY09 estimates: Incorporating new business as well as expansion plans We are upgrading our FY09 revenue and profit estimates by ~5% and 2%, respectively, to incorporate revenues and profits from the bathroom cubicle business as well as expansion at the Himachal unit. We expect GIL to install ~3,500 units in FY09E fetching revenues of ~ INR 99 mn. For FY09E, GIL will be importing most of the material from Malaysia, Taiwan, and China, and do the assembling in India, whereas post Q2FY10E GIL intends to replace imports with laminates from the Himachal unit. The targeted customers will be malls, airports, lounges, corporates, among others. Outlook and valuations: Going strong; maintain BUY We expect GILs revenue and profit to grow at CAGR of 14% and 31%, respectively, during FY07-09E. We have not incorporated the proposed capacity expansion plans for MDF in our estimates as we are waiting clarity on funding, cost, and size of the project. Our numbers will be revised once details of the capex plans are available. At CMP of INR 315, the stock is trading at 13.1x FY08E EPS of INR 24.0 and 10.6x FY09E EPS of INR 29.8. We maintain our BUY recommendation.

Greenply Industries

Financials snapshot Year to March Net revenues Raw materials Staff costs Purchase of finished goods Admin. & selling expenses Other expenditure Total expenditure EBITDA Interest Depreciation Other income Profit before tax Tax Profit after tax Net profit Equity capital No. of shares (mn) EPS (INR) P/E (x) as % of net revenues Raw material Staff costs Purchase of finished goods Admin. & selling expenses Other expenditure EBITDA Net profit Tax rate
*Consolidated

(INR mn) Q3FY08 1,525 740 108 60 215 192 1,315 211 46 36 3 132 33 98 98 85 17.0 5.8 Q3FY07 %change 1,089 609 72 1 124 137 945 144 39 24 0 81 15 66 66 82 16.5 4.0 Q2FY08 %change 1,484 775 90 20 190 193 1,267 216 49 33 23 156 45 112 112 83 16.6 6.7 FY07* 4,406 2,358 298 120 956 212 3,943 463 118 87 8 266 40 226 226 82 16.4 13.7 22.9 FY08E* 5,467 3,171 355 0 902 262 4,690 776 153 128 48 543 136 408 408 85 17.0 24.0 13.1 FY09E* 6,548 3,716 409 98 1,048 314 5,586 963 182 155 23 648 143 506 506 85 17.0 29.8 10.6

40.1 21.5 49.1 4,216.4 72.6 39.4 39.1 46.7 16.8 51.5 1,836.1 62.9 120.2 49.7 49.7 3.2 3.2 45.0

2.8 (4.4) 20.2 200.5 13.2 (1.0) 3.7 (2.6) (7.6) 7.3 (87.9) (15.6) (24.8) (12.0) (12.0) 2.3 2.3 (13.9)

48.5 7.1 4.0 14.1 12.6 13.8 6.5 25.4

56.0 6.6 0.1 11.4 12.6 13.2 6.0 18.8

52.2 6.0 1.4 12.8 13.0 14.6 7.5 28.5

53.5 6.8 2.7 21.7 4.8 10.5 5.1 15.2

58.0 6.5 16.5 4.8 14.2 7.5 25.0

56.8 6.3 1.5 16.0 4.8 14.7 7.7 22.0

Greenply Industries

Company Description
GIL, incorporated in 1984, is now Indias largest interior infrastructure company. GIL is a market leader in organized plywood and laminates in India with a market share of ~25% and ~15%, respectively. The company has units located at West Bengal, Nagaland, Rajasthan, and Uttaranchal for manufacturing plywood, decorative veneers, laminates, and particle boards. Recently it has also acquired two Gujarat based plywood units. GIL has a presence with 24 marketing offices, a 217 member marketing team, 1,700 authorized distributors and dealers, and 5,400 sub-dealers in India and an export presence in 18 countries across the globe.

Investment Theme
One of the largest organized players in the interior infrastructure space, GIL has, over the past two years, grown at 52% CAGR in terms of profit. The improvement in margins has been aided by the companys shifting from low-margins products like sawn timber to value-added products like decorative veneers. GIL has increased its plywood capacity by 25%, that of laminates by 35%, and pre-lam particleboard capacity by 160% over FY05-07. With the renovation cycle for furniture reducing from 12-15 years to three-four years and a booming housing market we believe the demand side indicators are fairly strong to support 20-25% Y-o-Y industry growth for the next three years, which augurs well for GIL.

Key Risks
Any slowdown in the economy. Fluctuations in raw material pricestimber, phenol, and paper. A change in government policies pertaining to timber procurement/production.

Greenply Industries

Financial Statements
Income statement Year to March Net sales Total revenues Raw material cost Purchase of finished/trad. goods Employee cost Manufacturing expenses Selling, admin. & other expenses Total operating expenses EBITDA Depreciation EBIT Interest expense Other income Profit before tax Provision for tax Profit after tax Net Profit Earnings per share Shares outstanding Dividend (INR/share) Common size metrics as % on revenues Year to March Operating expenses Depreciation EBITDA margins Net profit margins Growth metrics (%) Year to March Revenues EBITDA PBT Net profit EPS FY05 NA NA NA NA NA FY06 61.9 72.4 114.6 166.5 0.5 FY07 57.6 56.8 61.1 60.5 31.1 FY08E 24.1 67.8 104.0 80.4 74.6 FY09E 19.8 24.0 19.3 24.1 24.1 FY05 90.1 2.4 9.9 3.1 FY06 89.4 2.3 10.6 5.0 FY07 89.5 2.0 10.5 5.1 FY08E 85.8 2.3 14.2 7.5 FY09E 85.3 2.4 14.7 7.7 FY05 1,726 1,726 1,100 39 66 70 280 1,555 171 42 130 61 9 77 24 53 53 10.4 5.1 2.5 FY06 2,795 2,795 1,613 8 147 135 598 2,500 295 63 232 76 10 165 25 141 141 10.5 13.4 2.0 FY07 4,406 4,406 2,358 120 298 212 956 3,943 463 87 376 118 8 266 40 226 226 13.7 16.4 2.5 FY08E 5,467 5,467 3,171 0 355 262 902 4,690 776 128 648 153 48 543 136 408 408 24.0 17.0 2.5 (INR mn) FY09E 6,548 6,548 3,716 98 409 314 1,048 5,586 963 155 808 182 23 648 143 506 506 29.8 17.0 2.5

Cash flow statement Year to March Cash flow from operations Cash for working capital Net operating cash flow- A Net purchase of fixed assets Net purchase of investments Net cash flow from investing- B Proceeds from equity Proceeds from preference shares Proc./Repayments from borrowings Dividend payments Net cash flow from financing- C Net cash flow (A+B+C)
5

(INR mn) FY06 204 (118) 86 (712) (712) 164 536 (32) 667 42 FY07 313 (122) 190 (512) (1) (513) 219 (31) 252 (31) 408 85 100 (49) 107 (60) FY08E 535 (202) 333 (500) (500) 56 FY09E 661 (210) 450 (750) (750) 300 (49) 251 (49) FY09E 830 (140) 690 (250) (250) (350) (49) (399) 42

Greenply Industries

Balance sheet As on 31st March Equity capital Pref capital Reserves & surplus Shareholders funds Secured loans Unsecured loans Deferred tax liability Source of funds Gross block Depreciation Net block Capital work in progress Net fixed assets Investments Goodwill Cash, bank bal & deposits Inventory Sundry debtors Loans & advances Total current assets Sundry creditors Others Provisions Proposed dividend Others Total current liabilities Net current assets Application of funds Book value (BV) per share (INR) 20 473 414 90 998 184 25 14 6 8 223 774 1,197 78 62 845 508 173 1,587 580 34 39 21 18 653 934 1,947 49 FY05 51 31 312 395 662 113 27 1,197 711 299 412 9 421 1 FY06 67 31 562 660 1,038 200 49 1,947 1,100 420 680 332 1,012 1 1,005 1,087 1,268 212 58 2,625 1,815 462 1,353 129 1,482 1 1 147 1,143 738 260 2,288 1,024 66 57 29 28 1,146 1,141 2,625 66 FY07 82 1,417 1,502 1,368 212 58 3,140 2,444 590 1,854 1,854 1 1 87 1,418 916 260 2,680 1,270 66 61 49 12 1,397 1,284 3,140 88 FY08E 85

(INR mn) FY09E 85 1,874 1,959 1,668 212 58 3,897 3,194 745 2,449 2,449 1 1 38 1,699 1,097 260 3,094 1,521 66 61 49 12 1,648 1,446 3,897 115

Ratios Year to March ROE (%) ROCE (%) Inventory days Debtor days Fixed assets t/o Debt /Equity Valuation parameters Year to March EPS (INR) FY05 10.4 18.6 38.4 5.1 4.4 44.1 FY06 10.5 FY07 13.7 FY08E 24.0 FY09E 29.8 FY05 13.4 10.8 100 88 4.2 2.0 FY06 21.3 11.9 110 66 4.1 1.9 FY07 20.8 14.3 95 61 3.3 1.4 FY08E 27.1 20.7 95 61 2.9 1.1 FY09E 25.8 20.7 95 61 2.7 1.0

Y-o-Y growth (%)

CEPS (INR) P/E (x) Price/BV (x) EV/Sales (x) EV/EBITDA (x)

0.5
15.2 38.2 8.1 2.9 27.0

31.1
19.0 29.1 6.1 1.8 17.6

74.6
31.5 13.1 3.6 1.5 10.7

24.1
38.9 10.6 2.7 1.3 9.0

Greenply Industries

Edelweiss Securities Limited, 8th Floor, Chander Mukhi, Nariman Point, Mumbai 400 021, Board: (91-22) 4097 9797, Email: research@edelcap.com
Naresh Kothari Mohan Natarajan 2286 4246 4097 9758 Co-Head, Private Client Services Co-Head, Private Client Services

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Buy
Rating Distribution* 108

Rating Interpretation
Rating Expected to
appreciate more than 20% over a 12-month period appreciate up to 20% over a 12-month period depreciate up to 10% over a 12-month period depreciate more than 10% over a 12-month period

Accumulate
44

Reduce
16

Sell
3

Total
188

Buy Accumulate

* 12 stocks under review / 5 rating withheld

> 50bn
Market Cap (INR) 103

Between 10bn and 50 bn

66

< 10bn
19

Reduce Sell

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Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.