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Greenply Industries: Expanding scale and reach - Views on News from Equitymaster
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Greenply Industries: Expanding scale and reach
Apr 15, 2009

We recently had a conference call with the management of Greenply Industries, the largest integrated manufacturer of interior infrastructure products, to get the company’s view on the sector, its performance and growth prospects going forward. Here are the key takeaways. Sector overview: The Rs 120 bn interior infrastructure sector is expected to grow at the rate of 10% per year over the next two to three years. The highly fragmented plywood and laminates sector is dominated by unorganized players, who account for 80% and 50% market share respectively. The organised sector is growing at the rate of 25% to 30% and is expected to continue to clock the same growth rate over the next two to three years on account of shift in consumer preference, reduction in average renovation cycle, growing population and increased instances of nuclear families, healthy corporate sector, etc.

Capex plans: The company has planned to expand its laminate manufacturing capacity from 5.3 m sheets per annum to 8.8 m sheets p.a. at an investment outlay of Rs 1.2 bn. The company is setting up MDF (medium densified fiber board) plant having capacity of 180 thousand cubic meters plant at its existing unit in Uttarakhand at a project cost of approximately Rs 2.5 bn. India imports 80% of MDF requirement due to low capacity in India. It is a versatile product with worldwide application primarily in paneling and is also used in wide range of furniture, frames, windows, doors, handicrafts items, toys, maritime applications and educational equipments. Considering the huge scope of this segment and supply shortage issues, the company had ventured into this segment. The full benefit of the outlined expansion plans of the company will start flowing in from FY11 onwards, though newly built laminate capacity would start generating revenues towards the end of FY10.

Funding: Overall the company has lined up capex to the tune of approximately Rs 3.65 bn. Of the total planned investment nearly 70% would be funded by increasing borrowings, of which nearly 70% would be in fully hedged foreign currency loans. The balance 30% capital expenditure would be funded by internal accruals and rights issue (approximately Rs 600 m).

Growth strategies: During 9mFY09, the company reported nearly 29% YoY growth in revenues on account of higher volumes backed by improved realizations. Slowing economic growth has stalled the interior infrastructure sector growth. Despite this the company was able to grow above the industry growth of 25% on account of change in product mix and improved product visibility. On the bottomline front, the company has been able to clock growth of a mere 5%. The same is the result of higher cost of operation, lower other income and higher interest and depreciation costs.

To sustain growth in line with the sector growth, the company has planned to enhance its marketing and distribution network and expand reach across geographies (domestic as well as international markets), apart from expanding scale of operation. Currently, its dealer network stands at15,000, which it plans to increase to around 20,000 in order to be able to cater to the needs of a larger customer base. Currently, the company has a presence in 45 countries and it plans increase its reach to 100 by the end of this year to boost revenues.

What to expect?
At the current price of Rs 63, the stock is trading at a price to earnings multiple of 2.8 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 stiff competition that needs to be tackled amidst slowing economic growth and volatility in input costs on account of currency fluctuations, maintaining and improving margins remains a concern, which in turn could impact returns to shareholders.

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