BoB Capital Gives Buy Call To Greenpanel Industries Ltd Stock On Robust Growth Outlook

Leading brokerage firm in its latest report has given a buy rating to the stock of Greenpanel Industries Ltd for a potential gain of 25%. The stock is expected to achieve the target price of Rs 595 apiece as per Bob's calculation on various factors. The company is well placed to capitalise on near-term MDF demand traction, with strong guidance of 15-18%/15% volume growth in FY23/FY24.

Bob Capital retains revenue/EBITDA/PAT CAGR estimates at ~13%/11%/15% over FY22-FY24 backed by better MDF (Medium Density Fiberboard) utilisation and operating leverage.

1. Stock Outlook

The current market price of the stock is Rs 475.25 apiece on NSE. The target price is Rs 595 and the stock is expected to give a return of 25%. The stock has achieved the 52-week high of Rs 625 apiece and 52-week low at Rs 215 apiece.

Current Market Price	Target Price	Potential Gain475
475.25	595	25%

2. MDF volume growth

Management expects MDF volume growth of 15-18% in FY23 and 15% in FY24. The company is poised to capitalise on steady near-term demand growth from the rising acceptance of MDF in India's readymade furniture market and the absence of major capacity additions in the industry during FY23 (beyond Rushil Décor's 240,000cbm expansion which has already been absorbed and CPBI's upcoming 130,000cbm addition in H1FY23).

EBITDA margin is guided at 31-32% for FY23 vs. 31% in FY22.

3. Brownfield expansion

The company plans to expand MDF capacity at its Andhra Pradesh plant by a tentative 180,000-240,000cbm and is in talks with vendors to finalise the capacity and capex in a month's time. The expansion is scheduled to come onstream by Q4FY24 or Q1FY25. GREENP expects the plant to reach ~60% capacity utilisation in FY25 and generate revenue of approximately Rs 4bn, rising to Rs 5.5bn in FY26.

Per management, this new capacity will generate revenue to the tune of Rs 7bn at optimal utilisation, targeted in FY27.

4. Plywood margin

In order to counter higher raw material costs, GREENP took a 3% price hike in Jun'22. The company expects to have sale volumes of 10mn sqm in FY23 with a revenue potential of Rs 3bn, rising to 10.8mn sqm and Rs 3.2bn-3.3bn respectively in FY24. Management believes plywood operating margins will remain steady in the range of 10-11%.

5. Valuations

According to BoB Capital, "We expect ROCE (Return on Capital Employed) to rise 200bps to 22.2% over FY22-FY24 led by better utilisation, sharp profit improvement, higher FCF generation and subsequent debt reduction. We continue to model for a revenue/EBITDA/PAT CAGR of approximately 13%/11%/15% over FY22-FY24. The stock is currently trading at 18.4x FY24E EPS and looks attractive in the wake of the recent correction. We upgrade our rating from HOLD to BUY while retaining our TP at Rs 595, based on 23x FY24E EPS - a 34% discount to CPBI."

6. About Greenpanel Industries Ltd

Greenpanel is India's largest manufacturer of wood panels. Its state-of-the-art manufacturing plants in Uttarakhand and Andhra Pradesh manufacture top-quality Medium Density Fibreboard (MDF), plywood, decorative veneers, flooring and doors, as per the official website of the company. The market capitalization is Rs 5,827 crore.

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets Ltd. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.