Buy This Small Cap Multibagger Stock For A Target Price of Rs. 578

Greenpanel Industries Ltd, a small-cap company with a market capitalization of Rs. 5,918.61 crore, operates in the wooden materials industry. Greenpanel is India's largest wood panel maker. Medium Density Fibreboard (MDF), plywood, veneers, flooring, and doors are all manufactured by the firm. The company's stock has risen from Rs 174.50 on March 4, 2021 to Rs 479.95 on March 3, 2022, at 3:30 p.m. IST on the NSE, signifying a multibagger return of +305.45 (175.04%) in one year. On a year-to-date (YTD) basis, the stock has risen by +60.90 (14.53 percent), and in the previous six months, it has risen by +212.30 (79.32 percent). In the previous month, the stock has lost -35.05 (-6.81 percent) and gained +16.40 (3.54 percent) in the last five days. The domestic brokerage firm ICICI Securities has placed a buy call on the stock with a target price of Rs. 578.

Investment rationale for Greenpanel Industries (GREENP) as per the brokerage

ICICI Securities has claimed that "GREENP has, in the ongoing quarter (Q4FY22), expanded its MDF capacity by ~20% to 6,60,000 CBM through de-bottlenecking, the benefit of which will be seen going ahead. This capacity enhancement will thus enable the company to witness volume CAGR of 20% over FY21-24E driven by increased demand from ready-made furniture market, which has seen a pick-up post the pandemic and also replacement of low-end plywood as a better substitute. Also, as no major MDF capacity addition is expected in FY23 (besides that of Century Plyboard brownfield expansion of ~1,20,000 CBM in Q2FY23), we believe GREENP will be a beneficiary of the growing demand as it will have surplus capacities to meet it. We expect the company's MDF segment to report revenue CAGR of 30% and plywood to witness CAGR of 15.4% over FY21-24E."

According to the brokerage "GREENP's blended operating margins are expected to expand over FY21-24 by ~530bps to 25.7% (9MFY22 reported OPM of 25.3%) on better utilisation of MDF capacities (from ~70% in FY21 to 100% in FY24E) resulting in operating leverage and passing on of raw material cost increase to customers. This will enable EBIDTA/PAT CAGR of 37%/ 59% over FY21-24E. GREENP's net-debt has reduced by ~Rs2.3bn in 9MFY22 to ~Rs1.44bn due to improved profitability with high volumes and free cashflow generation. With demand scenario continuing to be strong and no additional significant capex along with continued working capital discipline, GREENP will turn net-debt free by H1FY23. The RoE of GREENP is also expected to improve by ~13.2ppt from 11.6% in FY21 to 24.8% in FY24E led by improved profitability, better capacity utilisation and continued working capital control."

Buy for a target price of Rs. 578

As per the brokerage "GREENP is the demerged entity of Greenply Industries (MTLM IN), carved out primarily to house the latter's MDF business. The company was demerged in Jul'19 and listed on 23 Oct 2019. It is the largest MDF player in the country with an installed capacity of 660,000cbm, spread across two facilities in Uttarakhand and Andhra Pradesh."

"GREENP is a play on the growing shift of market towards MDF in India and is expected to witness revenue/EBIDTA CAGR of 27%/37% over FY21-24E with improving balance sheet and return ratios. We like GREENP for its leadership position in the fastest growing segment of the wood panel market and maintain BUY with Mar'23 unchanged target price of Rs578, set at a PER of 22x FY24E (~35% discount to target PER of CPBI which has a comprehensive wood panel product portfolio and is in-line with Greenply Industries' target PER)," the brokerage has noted.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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.