Buy This Small Cap Building Material Sector Stock, Shares Can Give Up To 57% Returns, Says Anand Rathi

Anand Rathi, a leading brokerage firm, has placed a buy call on Greenlam Industries Limited for robust potential gains of up to 57% with a target price of Rs 501 per share. Greenlam is a small-cap Building Material sector company, engaged in the business of manufacturing laminates, decorative veneers and allied products. It has a market cap of Rs 4,076.46 crore.

Greenlam's Q2 revenue, EBITDA and PAT grew respectively 14%, 17% and 41% y/y to Rs5,180m, Rs537m and Rs292m, 4.3%/6.4% ahead of ARe revenue/PAT. Slight relief in input costs and from the product-mix change expanded the gross margin 104bps y/y to 44.6%. Higher other operating expenses restricted the EBITDA margin expansion to 10.4%. PAT grew a significant 41% y/y, led by higher other income and lower tax expense.

CMP, 52-Week Low/High, & Returns

The current market price (CMP) of Greenlam's stock is Rs 320.90 per share on NSE, trading 0.34% down as compared to its previous close of Rs 322 per share. The stock on 14 December 2021 recorded its 52-week high level at Rs 1,997.40. Whereas, its 52 week low was recorded on 25 May 2022 at Rs 279.80.

The stock in 1 month has given 2.2% positive returns, whereas, in the past 3 months, it gave 8.56% negative returns. In the past 1 year, it gave 12.84% positive returns. In the past 3 and 5 years, the stock gave 64.03% and 54.48% positive returns to shareholders, respectively. It has delivered decent returns over the past 5 years.

Capacity constraints in Laminates alleviated

The acquired laminate capacity (3.4m sheets) commenced production. Utilisation was lower due to enhanced capacity and lower off-take. Sales volumes were down 10% y/y and realisation rose 27% y/y, lifting revenue 14% y/y. The margin improved 68bps y/y to 12.1%, but q/q was 28bps lower.

Veneers

Utilisation improves, losses mount. Capacity utilisation improved 476bps y/y, resulting in 14.7% and 14.3%% y/y increases in production and sales volumes respectively. Realisations improved 6% y/y. This led to revenue increasing 18.5% y/y, which however could not curb losses doubling to Rs32m.

 

Project commissioning to enhance growth trajectory

The ramp-up of the Prantij, Gujarat, laminate plant (from 3.4 to 5.4m sheets) would be complete by Q4 FY23. The plywood projects in Tamil Nadu (Q4 FY23) and the laminate/particle board projects in Andhra Pradesh (Q4 FY23/Q4 FY24) are in full swing and commissioning is likely to be as scheduled.

Valuations- Outlook intact, maintaining a Buy

Anand Rathi in the report has said, "We revisit our FY23/FY24 figures and incorporate FY25e. We expect 28%/32% revenue/earnings CAGRs over FY22-24. We are upbeat about the company and maintain our Buy recommendation on it, with a higher target price of Rs.501 based on 30x FY25e earnings (earlier Rs472 based on 33x FY24e earnings)."

According to the brokerage, the key risks to the buy call are Demand slowdown, keener competition and cost pressures.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. 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.