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Greenply Industries: Riding the wave… - Views on News from Equitymaster
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Greenply Industries: Riding the wave…
Feb 6, 2008

Performance summary
  • Topline grew by 40% YoY, exceeding the organised interior industry growth rate owing to improved efficiency and growth across its offerings.
  • Operating profit reported 47% YoY growth, backed by strong demand for the products and better realisations.

  • In line with operating profits, net profits reported a robust growth of almost 50% YoY.

Financial performance snapshot
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 998 1,392 39.5% 2,816 3,908 38.8%
Expenditure 855 1,182 38.3% 2,487 3,314 33.3%
Operating profit (EBITDA) 143 210 46.8% 329 595 80.5%
EBITDA margin (%) 14.4% 15.1%   11.7% 15.2%  
Other income 0 3 1836.1% 6 43 564.8%
Interest 39 46 16.8% 89 137 55.3%
Depreciation 24 36 51.1% 60 98 64.5%
Profit before tax/(loss) 81 132 63.2% 188 402 114.2%
Tax 15 34 120.9% 30 101 242.6%
Net profit 65 98 49.8% 158 301 90.2%
Net margin (%) 6.6% 7.0%   5.6% 7.7%  
No of shares (m)         16.6  
Diluted EPS (Rs)*         22.1  
P/E (times)         13.2  
*trailing twelve month earnings

What has driven performance in 3QFY08?
  • Improved utilisation rates and better realisations have aided the 40% YoY growth in topline during 3QFY08. The plywood division of the company operated at almost 92% capacity utilisation levels clocking 21% YoY growth in volumes. On the other hand, on expanded capacity the laminate division operated at 88% capacity utilisation levels. Plywood division reported 60% YoY growth in earnings before interest and tax in 3QFY08, while laminates and allied products grew by a whopping 125% YoY.

    Segmental information
    EBIT (Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Plywood & Allied Products 106 170 60.3% 226 479 112.6%
    PBIT margin (%) 18.2% 19.0%   14.4% 19.6%  
    Laminates & Allied Products 58 131 125.3% 190 378 99.5%
    PBIT margin (%) 9.6% 18.0%   10.5% 17.5%  

  • The marked improvement in operating profits is the result of firm prices of various products offered by the company and higher demand. While operating profits reported healthy growth of almost 47% YoY, the expansion in EBITDA margin was marginal (0.7%). Operating costs grew almost in line with the topline growth, as the company is expanding its capacity and reach and is working on an outsourcing model (for intermediary products) to boost topline.

  • The company is concentrating more on the final outcome (finished products) and for the same is partially sourcing intermediary goods owing to which traded goods cost scaled up. Further, the company is increasing its marketing verticals, distribution and reach following the FMCG companies’ model to cater to customers’ requisite demands. This has led to the 0.5% expansion in employee costs (as percentage of sales). Also, during the quarter under review advertisement spend has increased considerably due to the company’s initiatives to enhance market share.

    Cost break up
    (% of sales) 3QFY07 3QFY08 9mFY07 9mFY08
    Increase/decrease in stock in trade -5.5% 0.2% -2.6% -1.6%
    Raw materials consumed 66.5% 53.0% 64.5% 56.8%
    Purchase of Finished goods 0.1% 4.3% 0.3% 2.4%
    Staff cost 7.3% 7.8% 7.1% 7.2%
    Administrative & selling expenses 12.5% 15.4% 14.0% 15.3%
    Other expenditure 4.7% 4.2% 5.0% 4.6%

  • The company being a net importer has benefited immensely on account of rupee appreciation, which has been reflected by the robust growth in other income. Despite this, net margins have expanded by 0.4%, a tad lower compared to operating margins as interest and depreciation costs were on higher side owing to its expansion plans (organic and inorganic growth). Though the company enjoys tax holidays, the effective tax rate has increased from 18.8% in 3QFY07 to 25.5% in 3QFY08 resulting in a rise in the tax outgo.

What to expect?
At the current price of Rs 291, the stock is trading at a price to earnings multiple of 13.2 times its trailing twelve months earnings. Considering the growth opportunities in the interior infrastructure industry, strong presence across India and slew of strides made by the company, we expect the company to grow in line with the industry. However, considering the limited supply of raw materials and dominance of the unorganised sector, maintaining and improving margins would be a key challenge, which in turn will impact returns to the shareholders.

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