Greenply Industries

(Rohit Ojha) #101

Greenply revenue down 14%
Mdf fell 26%
PAT fell by 31%
EBITDA margin fell by 1.33% to 14.3% due to de growth
Gross margin expansion by 4.1% to 47.8%
Working capital cycle decreased by 9 days to 53
Ad spend 3.1%vs 2.8%

Revised top line guidance from 6-8% to 1-2%

(Furkan Alam) #103

(prabhatg1) #104

Anyone tracking this company … Fundamentally company looks good but this quarter bad result is mainly due to transport strike this quarter anyone has any info about latest development of the company

(Hector booyaa) #105

Bad result is due to decrease in Mdf volumes as competitors reduce price(century, action…etc). Greenply is about to cut prices in August by 9% to increase its market share. As per management guidance in Q1 conference call their new plant(360000 cbm) will achieve breakeven at 55% utilization, current guidence for FY19 is about 40% utilization, New plant is not expected to be profitable until FY20(only if market demand increase). Their plywood business is doing good, with usage of Gabon veener margins have gone up by 100 basis point.

(Niraj) #106

The demerger of the Laminate business in Greenlam was done in 2014 and then listed the company in 2015
An interesting article with the transaction details and small comparison with Century Ply.

Article Link - Greenply Industries Demerges Laminate Business

The group has now announced another demeger of their MDF business to another company Greenpanel this year which makes only the plywood business remaining with Greenply. The plywood business doesn’t seem to be growing at good rate.

(shreyas1705) #107

The Q1 concall indicates that Plywood and MDF have mostly become commodity business. Century was able to take away Greenply’s market share in MDF business in the blink of an eye just by keeping prices low.

How is it justified that management still wants to spend ~3.5%-4% of their revenues on advertising and sales promotions?

The management seems to be drawing ~15% of PAT as remuneration. Could someone please tell me what’s the industry standard and what’s the threshold level beyond which an investor should be cautious ?

(Bhavesh) #108

MDF is certainly a commodity business- B2B and low ROCE now that there is so much oversupply. But I feel plywood is high ROCE business with some brand value. Hence, advertising justified for it.

(zygo23554) #109

When all looks lost the only solace for stock pickers is in the numbers :slight_smile:

Plywood is a rather large category, upwards of 15,000 Cr per year. The best players do a post advertising and BTL EBITDA of around 11-13% and price out the smaller players that way. This is largely an unorganized market, Greenply has approx 10% market share in the overall market - give or take a few %. What this means is that there is scope of multi year growth by squeezing off market share gains (GST or no GST) from the unorganized segment. The pace at which this happens can be frustrating but eventually one can bet that this will happen. From Plywood category alone, Greenply made an EBIT of 100+ Cr last year

MDF is a growing segment and a largely import substitution game for anyone who has chosen to put up capacity. The market size in India is aprox 1800-2000 Cr with very few large players (Greenply, Century Ply and now Action) who are all targeting to substitute the rather large proportion of imports that India ends up doing right now. For FY18 the EBITDA margin on MDF was in excess of 23% for Greenply. At the rate at which pricing is coming under pressure this number has to fall but the management can run at an EBITDA that is 60% of the historical number they have done and keep their share of the market. Price of MDF is 50% of plywood and logistics becomes an important factor, one cannot produce in North India and sell at the same lower price in South India. Though the category pricing will remain under pressure, this is nowhere close to being a loss making proposition for any player any time soon.

With the carnage one has seen in this stock price, Greenply is now available at a valuation less than 1500 Cr for the Plywood and MDF businesses put together - this would have been unthinkable even 6 months ago.

Anyone holding/tracking this stock needs to take a hard, objective view of the numbers before jumping the gun. It is not easy to keep one’s wits when a stock has fallen from a high of 380 to 110 in a matter of 10 months

(zygo23554) #110

After doing a sanity check on the numbers and inputs from the Q2 conf call, here is what the situation looks like to me -

FY19 Plywood business likely to do between 1350-1400 Cr sales
EBIT of 9.5-10% doable over the medium term in plywood, at a PBT level it works out to around 120 Cr
At a tax rate of 33%, PAT purely from plywood business should be in the range of 80 - 85 Cr

Given the industry structure and economics of the plywood industry it would be reasonable to value the business at a TTM PE of 15 (if anything this is conservative over the medium term), hence plywood business could be valued at 1200 - 1300 Cr.

Current market cap of < 1700 Cr means that the entire MDF business is being valued at less than 450 Cr, question being how should this been seen

MDF market in India is approx 1800-2000 per annum growing at 15%, almost 1/3rd being imported

Key players and their capacities in MDF are -

Greenply - 540,000 CBM
Action Tesa - 510,000 CBM
Centuryply - 200,000 CBM
Another 100,000 to 150,000 CBM coming from some smaller players

Total capacity installed = 1,300,000 CBM

At current realization of approx 24,000 per CBM (as per Q2 numbers), installed capacity in MDF across players in India is approx 3100 - 3200 Cr. This is almost 1.6 times the current industry size in India, if one adjusts for the imports, the supply glut is more than 2X the current domestic production. If MDF industry keeps growing at say 15-18 % per annum, it will take 3 years for the market size to grow to be able to absorb all the capacity already in place.

Realizations in India are almost 10% higher in thick MDF segment and 25% higher in the thin MDF segment compared to export realizations (one can check the international prices of MDF easily, for a good quality variant the per CBM rate is approx USD 275).

Now what does all of this gyan mean -

  1. MDF EBITDA margins will most likely way lower than than the 25% level which Greenply has traditionally operated at at least for the next 3 years. Management is talking of a 20% EBITDA level but one can discount that by 4-5% to be conservative. So 15-16% EBITDA margins are more likely assuming capacity utilization can be maintained upwards of 60% - which is a challenge in the domestic market

  2. All the 3 large players will increasingly look to scale exports rapidly to keep utilization levels higher, margins will be way lower in export market but profitability can be achieved

  3. As the large players sweat their assets more and turn EBIT positive, competitive intensity in domestic market may come down over a period of 12-18 months.

Over the medium term Greenply will be the largest and lowest cost player in the MDF segment, the next 2 years will be tough (which explains why stock price has corrected so much) but over the medium term as capacity utilization crosses 50%, EBITDA margins should be closer to 15%+

So looking at just the MDF business, one will get a 500 Cr topline for FY20 at an EBITDA margin of 15%, business can grow at 15% over the medium term. The forex losses that company has seen over past 6-9 M should stabilize as the INR finds its feet. Interest expense by itself is actually not high since cost of borrowing from European banks is way lower, it is the MTM impact of the borrowing that has hit finance cost badly over past few Q’s

Given this context, the call has to be - is the MDF business (given the near term economics) worth at least 400 Cr? It will be interesting to see what the individual businesses trade at once the demerger is effected

(shreyas1705) #111

Greenply’s management has shown interest in being suppliers of MDF for IKEA in the past. I am contemplating the possibility of this materializing.

I am assuming IKEA to have it operations in South India predominantly. Since logistics plays an important role in the operating margins, I believe that Greenply should be a better contender than Century as Greenply has its MDF plant in Chittor, AP while Century’s plant is in Hoshiarpur, Punjab. However, I am not able to know the MDF plant location for Action Tesa, which has the second largest MDF production capacity in India.

Request the fellow VPers to help me in the same and the above analysis which I believe could be a game changer for MDF players.

(Hitesh) #112

i have a query they are demerging the MDF biz , what is the record date for same when the shareholder gets separated biz shares , i am not able to search the record date , is it april 1 2018 , but no where mentione in the document and interview also

(Ketan) #113

Why the assumption that Ikea will be doing business in south India? Their next store to open is Mumbai. Next target seems to be Delhi (noida).

(shreyas1705) #114

My assumption was that the demand for ready-made furniture in South India is higher than that in the North and hence IKEA would want to set up its outlets in the South. But, in the Q3 concall the management confirmed that IKEA is looking to source its MDF supplies through imports for now, so a lost opportunity for regional players.

On a different note, as the management said it’s still 6-8 quarters away before we see optimal utilization of MDF capacity. Although the valuation looks attractive at the current level, the higher interest expenses and pressure on the margins are going to prolong the recovery. Expect the share price to move side ways till FY20.

Disclosure: Not invested