Buy This Small-Cap Multibagger Stock For A Target Price of Rs. 563: Sharekhan

Greenpanel Industries Ltd, a small-cap company with a market capitalization of Rs 6,198.20 crore, is specialized in the wooden materials industry. The company manufactures the best Medium Density Fibreboard (MDF), Plywood, Veneers, Flooring, and Doors and is India's largest manufacturer of wood panels. On the NSE, the stock has risen from Rs 179.30 on March 12, 2021 to Rs 503.20 on March 11, 2022, 3:30 p.m. IST, which shows a multibagger return of 180.65% in a year. On a year-to-date (YTD) basis, the stock has risen 20.08 percent. In the previous six months, the stock has climbed by 63.03 percent, and in the last month, it has gained by 4.32 percent. The stock received a buy call from brokerage company Sharekhan with a target price of Rs. 563.

Investment rationale for Greenpanel Industries Limited (Greenpanel)

Sharekhan has noted "We interacted with the management of Greenpanel Industries Limited (Greenpanel). The meeting highlighted favourable demand and pricing environment continuing for MDF in Q4FY2022 along with healthy volume growth expectation for FY2023. The company has yet not finalised capacity expansion plans but may zero in on 1,80,000 cubic metres brownfield expansion in MDF at Andhra Pradesh plant with a roughly calculated Rs. 400 capex. Incremental capacity, which is likely by FY2024 end, would aid in retaining its leadership position post Century's and Greenply's expansions getting completed during FY2024."

The brokerage also said "However, large capacity additions during FY2024 may lead to lower operating profit margin (OPM) (200-250bps lower) during FY2024 and FY2025 before reverting to normal levels from FY2026, as incremental capacities get absorbed. The company's focus on increasing retail sales vis-à-vis original equipment manufacturers (OEM) and domestic sales vis-à-vis exports would aid in maximising profitability from its existing capacities in MDF."

Buy for a target price of Rs. 563

The brokerage has highlighted "Greenpanel has strong structural growth drivers along with favourable environment, led by weak imports owing to changing global sourcing, led by anti-China sentiments. Strong demand helped the company to pass on a steep rise in raw-material costs, which has shielded gross margins. The company's brownfield expansion and another anticipated round of capacity expansions would lead to healthy growth going forward."

"The company's limited capex requirement towards brownfield expansions, strong operating cash flow generation, tight working capital management, and reducing leverage would propel its return ratios over FY2021-FY2024E. The stock trades at a P/E of 18x its FY2024E earnings, which we believe is quite attractive considering over 60% CAGR in net earnings expected over FY2021-FY2024E. Hence, we retain our Buy rating with an unchanged price target (PT) of Rs. 563," said the brokerage. 

According to Sharekhan, the stock's key risk is a weak macroeconomic environment that leads to a slowdown in industry growth.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.