This Small Cap Stock Grew 694% In Less Than 4 Years, HDFC Securities Assigns Buy For 34% Upside

HDFC Securities in its recent report on Greenpanel Industries Limited, recommends buy the stock of the company for a target price of Rs 430/share. As per the brokerage's given target price, if you buy the stock at the current market price, you would likely get a return of up to 34% on investments in 12 months of the investment period.

Greenpanel Industries is a Building material sector company. It is India's largest manufacturer of wood panels. The company has a market capitalisation of Rs 3,948.60 apiece, it is a small-cap company.

Stock Overview - CMP, 52 Week Low/High, Returns

The current market price (CMP) of Greenpanel Industries' stock is Rs 2,922.25/share on NSE. According to available data on NSE, the stock touched its 52 week high on 29 April 2022 at Rs 625.70 apiece and 52 week low on 23 December 2022 at Rs 305 apiece, respectively.

The stock has fallen 4.55% in the past 1 week, 14.02% in the past 1 month, and 23.12% in the past 3 months, respectively. The stock has given 25.12% negative return in the past 1 year. However, it has given a whopping 592.47% multibagger returns in the past 3 years. Sicne it's listing on 23 October 2019, the stock has given whooping 696.04% multibagger returns.

Market leader in the high-growth MDF segment

Greenpanel continues to maintain its No-1 position in India both as manufacturer and seller. Over the past five years (FY17-22), its MDF capacity grew at 30% CAGR to 660K CBM in FY22. The company delivered 22% sales volume CAGR, riding on 17/51% domestic/export volume CAGR. It is further expanding its south capacity by 231K CBM in FY25E, which should help it maintain its leadership position. We estimate a 11% volume CAGR for FY22-25E even on a high base.

 

Multiple levers to cushion medium-term margin

Greenpanel has a large share of VAPs (exterior grade and pre-lam MDF) and more than 80% retail sales, which drive its high realisation and strong margin profile. It is increasing its VAPs share and advertisement budget to cushion margins from the impending supply pressure expected in FY24/25E on the bunch-up of major expansions. We expect Greenpanel's consolidated EBITDA margin to cool off to 19.5% in FY25E, from the peak of 26.5% in FY22. Despite this, we expect consolidated EBITDA to grow at 1% CAGR (on a high base) from FY22-25E, supported by healthy volume growth.

Super-efficient working capital; zero balance sheet stress

Greenpanel has tightened its working capital over the past five years to become the leanest (cash conversion cycle of 16 days) among the wood companies, led by both strong debtors and inventory management. We estimate it to continue to have the leanest working capital (< 30 days). Healthy operating profit and lean working capital should meet its Capex for its MDF expansion.

 

Initiate coverage with a BUY rating

HDFC Securities said, "We like Greenpanel for its leadership positioning in the high-growth MDF, its superior margin and working capital profile. However, we remain cautious on expected medium-term margin volatility on account of supply influx (imports rebound and major capacity additions during FY24/25E). Factoring in the same and commodity nature of the product, we ascribe it a 40% lower valuation multiple vs Century Ply, leading to our target multiple of 12x Mar'25E EBITDA. We initiate coverage with a BUY rating and target price of INR 430/sh."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. 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 consult with certified experts before making any investment decision.