MDF Manufacturer Stock Announces Rs. 600 Cr Capex Outlay, Buy For 21% Upside: Sharekhan

Top brokerage firm Sharekhan recommends investors to buy the stocks of Greenpanel Industries Ltd. The company announced 231,000 cbm brownfield MDF capacity expansion in Andhra Pradesh at a CAPEX outlay of Rs. 600 crores. The unit is expected to commence production from Q2FY 2025.

Stock To Buy: Target Price, Current Market Price

The Current Market Price (CMP) of Greenpanel Industries Ltd. is Rs. 514. Sharekhan has estimated a Target Price for the stock at Rs. 620. This stock has the potential to give 20.62% return, in the upcoming 1 year. This is a mid-cap stock with a market capitalization of around Rs. 5,404 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 514
Target Price	Rs. 620
Potential 1 year return	20.62%
52 week high share price	Rs. 625.70
52 week low share price	Rs. 222

Consolidated operating profit/ net profit was up 92%/ 161% y-o-y at Rs. 131.5 crore/ Rs. 77.6 crore. Consolidated revenues grew by 50.5% y-o-y to Rs. 464 crore led by a 35% y-o-y jump in MDF realisations. Plywood volumes rose by 43% y-o-y, while realisations improved by 9% y-o-y. Consolidated OPM at 28.3% increased by 612 bps y-o-y.

Positively, domestic MDF revenues grew by 64% y-o-y to Rs. 328 crores led by a 26% y-o-y rise in volumes and 30% y-o-y rise in realisations. Additionally, net debt fell by Rs. 77 crores q-o-q leading to a net cash surplus of Rs. 17 crore.

Sharekhan: Why Should You Buy This Stock?

About the advantages of the stock, Sharekhan said, "We retain a Buy on Greenpanel Industries Limited (Greenpanel) with a revised target price of Rs. 620, lowering our valuation multiple to factor in near-term cost inflation and capacity addition headwinds. The company reported a healthy beat on consolidated revenues and operating margins for Q1FY2023. Greenpanel has strong structural growth drivers and a favourable demand environment led by weak imports owing to multiple issues. Strong demand helped the company pass on a steep rise in raw material costs, which along with product mix has led to margin expansion in the MDF division. The company's brownfield expansion would lead to healthy growth going forward. The company's strong operating cash flow generation, tight working capital management and reducing leverage would propel its return ratios over FY2022-FY2024E."

However, weak macroeconomic environment leading to a lull in the industry growth trend is the key risk.

Company portfolio: Greenpanel Industries Ltd.

Greenpanel Industries Ltd (GREENP) is India's largest MDF manufacturer with plants in Uttarakhand and Andhra Pradesh (with a combined MDF capacity of 5,40,000 cbm/annum; plywood capacity at 10.5 mn sqm). The company's product portfolio also comprises block boards, veneers, wood floors and doors. The company is also the 3rd largest MDF manufacturer in Asia and 5th largest MDF manufacturer in the world. It has 1400 Distributors, and 7,000 Retailers and is serviced by 15 branches for pan-India distribution. The management has recently lowered its MDF volume growth guidance for FY2023 to 10-11% y-o-y (earlier 15-18% y-o-y) while conservatively trimming down MDF OPM estimate to 26-27% for balance quarters in FY2023 assuming a rise in chemical prices along with the inability to pass on the rise in costs.

Disclaimer

The above stock was 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.