Share To Buy: Construction Material Stock Cuts Net Debt, MDF Realisations Up 28%, Buy Stock For 56% Upside

Top brokerage firm BoB Capital has given a buy rating to the stock of Greenpanel Industries Ltd. The company's domestic MDF demand remained robust, but MDF exports dropped 41% YoY, pulling down volumes by 8%. After an Rs. 420mn reduction in debt in Q2FY23, Greenpanel is net debt positive with a cash surplus of Rs. 590mn as on Sep'22.

Stock To Buy: Target Price

The Current Market Price (CMP) of Greenpanel Industries Ltd. is around Rs. 381.40. BoB Capital has estimated a Target Price for the stock at Rs. 595. This stock has the potential to give a 56.16% return, in the upcoming 12 months. It is a small-cap stock with a market capitalization of Rs. 4,686 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 381.40
Target Price	Rs. 595
Potential Upside	56.16%
52-week high share price	Rs. 625.70
52-week low share price	Rs. 350.35

Stock Valuation

According to BoB Capital, "The stock is trading at ~15x FY24E EPS which is attractive given Greenpanel's strong growth prospects, leadership position in MDF, and an improving balance sheet and return ratios. We continue to value the stock at 23x FY24E EPS (a 34% discount to peer CPBI) and retain our target price of Rs. 595 with a buy rating."

Strong Q2 Earnings

Greenpanel's consolidated Q2FY23 revenue grew 8% YoY to Rs. 4.6bn. MDF revenue grew 13.5% YoY whereas plywood fell 17%. Consolidated EBITDA margin declined to 25.5% vs. 26.8% in Q2FY22 (28.3% in Q1FY23) due to lower plywood volumes and higher cost inflation. Management has guided for revenue of Rs. 1.9bn-1.95bn in FY23. Export realisation increased 21% YoY to Rs. 22,906/cbm and domestic realisation grew 24% to Rs. 33,554/cbm.

MDF realisations

The company's blended MDF realisations increased by 28% YoY (flat QoQ) to Rs. 31,299/cbm in Q2FY23. Export realisations rose 21% YoY (-4% QoQ) to Rs. 22,906/cbm, while the domestic realisations grew 24% YoY (flat QoQ) to Rs. 33,554/cbm. Exports earned lower realisations than the domestic business owing to insignificant contribution from value-added products. Export sales of MDF totalled 26,737 cbm in Q2FY23, with a decline of 41% YoY (flat QoQ). Domestic volumes grew 4% YoY (-10% QoQ) to 95,980cbm.

Disclaimer

The above stock was picked from the brokerage report of BoB Capital. 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.