Stock To Buy: This Small Cap Stock Gave 977.87% In Less Than 3 Years, Shares Can Surge

BoB Capital Markets, a leading brokerage firm, in its recent report published on Greenpanel Industries Ltd. has given a buy call to the stock of the company for a target price of Rs 595 apiece. Considering the estimated target price by the brokerage, the stock could surge 37% if the stock of the company is purchased at the current market price.

Greenpanel Industries Ltd. is a small cap Construction materials company, a Building material sector company. The brokerage firm interacted with Greenpanel Industries CFO V Venkatramani to gain a perspective on the company's growth prospects and sector outlook.

Stock Outlook

The current market price of Greenpanel Industries Ltd. stock is Rs 436 apiece. The stock hit the 52-week low at Rs 264 apiece on September 08, 2021, and the 52 week high at Rs 625.70 apiece on April 29, 2022. The ROE of the stock is 25.26%. It has a market cap of Rs 5,346.55 crore. 
 

Returns On Investment

The stock in the past 1 week has given 3.15% negative return. Whereas, over the past 1 and 3 months, the stock gave a negative return of 2.57% and 8.46%, respectively. In terms of returns, the stocks of the company perform well in the past 1 year and gave a positive return of 46.3%. It was listed in October 2019 and since then it has given a whooping 977.87% returns.

Brownfield expansion planned at AP plant

Greenpanel Industries plans to expand MDF (medium-density fibreboard) capacity at its Andhra Pradesh plant by 231,000cbm at a capex of Rs 6bn, comprising ~Rs 2.3bn of low-cost foreign debt and internal accruals. The plant will manufacture thin MDF (30-40% of the market), and commercial production is scheduled to start by Q2FY25. Management expects the new capacity to generate revenue of Rs 7.7bn-8bn at optimal utilisation, targeted in FY27. MDF capacity will rise to 891,000cbm post expansion.

"Over cautious" on raw-material price movement

Management has guided for 26-27% EBITDA margins in 9MFY23 for MDF (33.3% in Q1) as it anticipates higher chemical prices (crude derivative) to put 300bps of gross margin pressure. Per management, chemical prices have not increased since the start of CY22, and the ability to take price hikes will depend on demand. In the plywood business, timber prices have risen by 6-8% in Q2FY23, putting pressure on segment EBITDA margins (11.5% in Q1). Nevertheless, management expects plywood margins to hold in the 11-11.5% range for FY23.

MDF export realisation down 5-6% vs. Q1

Due to lower demand from the Middle East amid festivals, geopolitical tensions which delayed shipments and the global economic slowdown, management expects MDF export volumes to remain flattish or grow in low single digits in FY23 compared to FY22 (122,512cbm). Export realisation has also fallen by 5-6% compared to Q1 (Rs 23,941/cbm).

Maintain BUY

Despite a strong Q1FY23, stock performance has remained lacklustre owing to management's "over-cautious" guidance.  Greenpanel Industries is trading at 17x FY24E EPS. "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. We like the company for its a leadership position in the MDF market, improving balance sheet and commendable improvement in working capital discipline and return ratios," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets. 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.