Buy Greenply Industries, target price Rs 113: ICICI Securities

ICICI Securities has given a buy rating to Greenply Industries with a target price of Rs 113. The share price moved up by 1.55 per cent from its previous close of Rs 84.10. The stock’s last traded price is Rs 85.40.

According to the brokerage, Greenply Industries has reported lower-than-expected PBT (before onetime exceptional at item) at Rs 190.5 million against I-Sec estimate of Rs 211 million), down 49 per cent year on year in Q4FY20 largely due to higher-than-anticipated decline in its standalone EBITDA margin.

The company lost Rs 600 million revenue due to Covid-19 led lockdown witnessed at the end of Mar’20, which led to 13.6 per cent decline in standalone revenue. Its Gabon subsidiary, however, reported flat revenue year on year at Rs 475 million. Consolidated EBITDA margin disappointed at 8.7 per cent against I-Sec estimate of 10.3 per cent), down 360 bps year on year, due to gross margin contraction of 100bps year on year and operating deleverage.

Investment Rationale

While demand recovery (ex-Gabon) is likely to be on gradual basis, the brokerage expects margins to recover faster led by its cost-saving initiatives and stable input costs.

Considering Q4FY20 performance, the brokerage has cut its revenue/ PAT estimates by 0 per cent/4.9 per cent and 1.9 per cent/4 per cent for FY21E/FY22E, respectively. It expects Greenply Industries to report revenue and PAT CAGRs of -3.9 per cent and -11.1 per cent, respectively, over FY20-FY22E. Given the sharp correction in the stock price and firm double-digit RoCEs, the brokerage maintains a buy rating with a revised target price of Rs 113 (earlier Rs 118), valuing the stock at 18 times FY22E earnings.

Changes in Estimates


Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 344.70 crore, down -.37 per cent from last quarter sales of Rs 345.98 crore and down -12.01 per cent from last year's same quarter sales of Rs 391.75 crore. The company reported net profit after tax of Rs -22.09 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 52.01 per cent stake in the company as of March 31, 2020, while FIIs held 10.82 per cent, DIIs 22.88 per cent and public & others 14.28 per cent.