Buy This Multibagger Small Cap Building Materials Sector Stock, Shares Can Surge 63%: ICICI Securities

ICICI Securities is bullish on Greenpanel Industries Ltd. (GREENP). GREENP is a small call cap Building material Sector company enagged in the plywood boards and laminates works. It has a market cap of Rs 4,976.22 crore. The brokerage has rated "Buy" with an target price of Rs 662 apiece. Considering the estimated target price by the brokerage, the stock is likely to jump 63% in 12 months.

Stock Outlook & Returns

The Current Market Price (CMP) is Rs 407.50 apiece on NSE. The 52-week low is Rs 303.20 apiece recorded on 29 September 2021, and the 52-week high is Rs 625.70 apiece, recorded on 29 April 2022.
 
Stock in the past 1 week moved down by 6.63% and in the past 1 month by 7.45%, respectively. However, over the past 1 year, it has given 29.29% positive return. It was listed on the exchange in October 2019 and since then it has delivered multibagger 914.59% returns.
 

Domestic MDF demand remains healthy

From our interaction with dealers and industry participants, we learn that domestic demand for MDF continues to grow in double-digits during the current quarter despite a high base YoY. The increased acceptance of readymade furniture and pick-up in housing and office market continue to drive demand for the industry. We model GREENP to witness a MDF volume CAGR of 14% (domestic volume CAGR of 18% vs 34% during FY19-FY22) during FY22-FY24E. We have factored-in flat export volumes over FY22-FY24E (vs 41.8% CAGR in FY19- FY22) due to slowdown in international markets. Exports accounted for 24.7% of MDF volumes and 17.5% of MDF revenues for GREENP in FY22. We expect the company to witness a revenue CAGR of 15.6% during FY22-FY24E with MDF domestic realisation of Rs30,217/SCM in FY24E (vs Rs33,346/SCM in Q1FY23).

MDF margins to shrink YoY/QoQ due to higher raw material costs

GREENP's MDF operating margins are expected to shrink ~245bps YoY to 27.9% in FY23E due to higher raw material costs. As per dealers, there has been no MDF price hikes taken by any large player in the ongoing quarter. "We believe companies in this segment will not take any price hike in the near future too as their margins are still high compared to historical perspective (~25-27%) despite higher raw material costs. This no-price-hike strategy shields the company from adverse volume impact due to the inflationary environment. We believe our MDF margin estimates of 27.9%/26.7% for FY23E/FY24E (vs 30.3% in FY22) have upside risks as raw material prices may soften going forward," the brokerage said.

Attractive valuations

According to the brokerage firm, "GREENP trades at a P/E of 14.9x FY24E, which is attractive given the strong growth prospects, high return ratios, robust balance sheet and industry leadership position. Maintain BUY with an unchanged Mar'23E target price of Rs 662."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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 making any investment decision.