This Small Cap Building Material Sector Stock Grew 706.52% In 3 Yrs, Buy For 64% Gains: BoB Capital

BoB Capital Markets is bullish on Greenpanel Industries Limited (GREENP), given a "Buy" rating for a target price of Rs 595/share. According to the given target price, the stock could give up to 64% positive returns if you buy the stock at the currnet market price. GREENP is a building material sector Large cap company engaged in the manufacturing of plywood, medium-density fibre boards (MDF) and allied products. The brokerage recently interacted with GREENP CFO V Venkatramani to gain a perspective on the company's growth prospects and sector outlook. Below are the Key takeaways:

Stock Overview - CMP, 52 Week Low/High, Returns & Market Cap

On NSE, the stock's Current Market Price (CMP) is Rs 364.95/share, fallen 2.55% from its previous close. It recorded its 52 week high on 29 April 2022 at Rs 625.70 and 52 week low on 22 November 2022 at Rs 330.40, respectively. It has a market capitalisation of Rs 4,475.2 crore. 

The stock has fallen 5.61% in a week, 4.2% in 1 month, and 17.22% in 3 months, respectively. It has fallen 4.06% in the past 1 year. In 3 years it has given a whooping 706.52% multibagger returns. Since its listing on 23 October 2019, it has given 802.22% multibagger returns to shareholders on initial investments.

 

Rise in MDF imports

MDF imports have risen during the last couple of months as (i) Vietnam, Malaysia and Indonesia flooded the global market with plain MDF supplies following a decline in their furniture exports to the US & Europe, and (ii) ocean freight has fallen to US$ 600/cbm vs. US$ 1,450-1,500 during Covid and US$ 850 pre-Covid.

MDF imports into India were in the range of 2,000-3,000cbm per month from April to August, which has swelled to 13,600cbm and 17,800cbm in September and October respectively and could be at similar or higher levels in November. Per management, GREENP is comfortable with imports below 20,000cbm per month and will prefer to maintain pricing, instead taking a hit on volumes if needed.

MDF export volumes picking up

Management expects to post MDF export volumes of ~30,000cbm in Q3FY23 vs. 26,736cbm in Q2FY23 and ~21,000cbm in Q3FY22. Guidance for domestic MDF volume growth is now at 7-8% (earlier 12%) and export volume growth at 8-10% (earlier flat) in FY23, implying a blended increase of 7-8% for the year. EBITDA margin is expected to be similar to Q2 levels of 30% for FY23 (with stability over Dec-Mar'23) and at 27-28% in the long term.

Shutdown of Singapore arm

Due to accumulated losses in the subsidiary (Rs 310mn), onerous documentation and bank charges, GREENP has shut down its Singapore operations, the full impact of which will be visible on the P&L in Q3FY23. Going forward, its Singapore office will be limited to procuring orders from export countries.

Maintain BUY

GREENP is trading at ~15x FY24E EPS which is attractive given GREENP's strong growth prospects, leadership position in MDF, and an improving balance sheet and return ratios. "Management expects Q3 to be a dull quarter given increasing MDF imports and a lull in plywood demand, but is hopeful of demand recovery in Q4. We continue to value GREENP at 23x FY24E EPS (a 34% discount to CPBI) and retain BUY rating with TP of Rs 595," 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.