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In FY20, the company’s consolidated revenue grew by 1% YoY. In 1QFY21, the company lost revenues due to Covid-19 and the demand is still subdued. While the demand is expected to gradually improve, we expect the company’s revenue to decline in FY21. In FY22, we expect the demand to witness robust growth from demand revival and low base. EBITDA margins are also expected to remain weak in FY21 before rebounding in FY22. We have revised our estimates lower and cut our target price. We retain BUY on the stock with revised price target of Rs117 (earlier Rs124). We have valued the stock at a PE of 15x on FY22E earnings.
Management highlighted that the current demand scenario is subdued and expect the situation to persist in the near term. For FY20, the company expects the plywood business revenue to grow by 4-4.5%. For FY21, we expect growth to be driven by ramp-up in decorative veneer, PVC and low end plywood segment coupled with expanded capacity at Gabon. Cost cutting measures and increased share of Gabon in revenue (Gabon subsidiary enjoys higher margins) is expected to support EBITDA margin for the company. Given weak demand situation, we lower our FY20E and FY21E estimates. We also introduce FY22 earnings estimate. We revise our target price to Rs177 (earlier Rs172) and rate the stock as BUY (earlier ADD). We value the stock at a PE of 18x (in line with PE assigned to Centuryply) on FY22E earnings (earlier valued at 18x on FY21E earnings).
Management expects company’s revenue in 2HFY20 to grow by 8-10% YoY (translating into FY20 revenue growth of 7-8%). Company expects growth to be driven by plywood industry shift from unorganized to organized segment, additional capacity at Gabon and ramp-up in new product like PVC and decorative veneer. Greenply reported YoY improvement in EBITDA margin in 1HFY20 supported by lower raw material prices. Post result, management indicated that raw material prices continue to remain subdued. Further operating leverage benefit and higher revenue share of Gabon (EBITDA margin is higher at ~17-18%) is expected to support EBITDA margin in 2HFY20. We expect company’s earnings to grow at CAGR of 21% over FY19-FY21E. We maintain ADD rating on the stock with unchanged price target of Rs172. We value the stock at a PE of 18x (unchanged) on FY21E earnings.
Management expects company’s revenue in 2HFY20 to grow by 8-10% YoY (translating into FY20 revenue growth of 7-8%). Company expects that ramp-up in decorative veneer, PVC and low end plywood segment coupled with expanded capacity at Gabon to drive improvement in revenue in 2HFY20. Management indicated that raw material prices continue to remain subdued. Further expected higher revenue will present operating leverage benefit. Revenue growth at Gabon is expected to be high (given new capacity) and Gabon plant EBITDA margin is higher at ~17-18%. We revise our estimates to factor in Greenply’s performance in 2QFY20 and de-merger of few business in another company. We revise our target price to Rs172 (earlier Rs187) and retain ADD rating on the stock. We value the stock at a PE of 18x on FY21E earnings.
GIL moving towards an asset-light business model by targeting growth through outsourcing remains the silver lining for the company. However, with the domestic plywood business growing at a muted rate, GIL is expected to derive growth largely from exports business in Gabon, which should be watched, due to dynamics in the international market. Hence, we maintain HOLD recommendation on the stock with a TP of Rs 160/share.
We remain positive on GIL on a medium to long term basis as the share of organised plywood players is set to expand with increasing compliance towards e-way bill, higher brand aspirations & GIL’s strong brand recall. However, due to MDF supply glut in domestic market, MDF prices could take some time to stabilise. Also, while MDF margins are expected to stabilise at ~17% in the interim, they are still below our initial expectations of 20-25%. We rollover our valuation on FY21E estimates & maintain HOLD recommendation on the stock with a TP of Rs 175/share (~13x FY21E EPS).
SOURCE: Data from D'Market via Quandl. Intraday data delayed 15 minutes.
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