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Greenply Industries: Robust performance…

Nov 30, 2007

Performance summary
  • Topline grew by 40% YoY owing to improved physical performance and high demand for the products.
  • Operating profit reported 131% YoY growth, mainly on account of robust topline growth and improved realisations.
  • Led by growth in operating profits and higher other income, net profits witnessed 135% YoY growth during 2QFY08.
  • Even if one excludes other income, net margins have expanded by 2.2% instead of 3.4% as interest and depreciation charges witnessed a jump on account of expansion plans.

Financial performance snapshot
(Rs m) 2QFY07 2QFY08 Change 1HFY07 1HFY08 Change
Net sales 972 1,356 39.5% 1,818 2,516 38.4%
Expenditure 878 1,140 29.8% 1,632 2,132 30.6%
Operating profit (EBITDA) 94 216 130.9% 186 384 106.5%
EBITDA margin (%) 9.6% 15.9%   10.2% 15.3%  
Other income 4 23 470.5% 6 40 535.9%
Interest 23 49 117.9% 49 92 85.8%
Depreciation 19 33 77.6% 36 62 73.3%
Profit before tax/(loss) 56 156.40 178.3% 107 270 152.7%
Tax 9 45 414.9% 14 68 370.9%
Net profit 48 112 135.3% 93 203 118.7%
Net margin (%) 4.9% 8.2%   5.1% 8.1%  
No of shares (m)         16.6  
Diluted EPS (Rs)*         20.3  
P/E (times)         15.6  
*trailing twelve month earnings

What is the company’s business?
Greenply Industries is the largest integrated manufacturer of interior infrastructure products in India. The company was integrated as a saw mill unit in 1984 and over a period of time has emerged as a preferred manufacturer of all products related to interior infrastructure. The company has a pan India presences with 24 branches across the country with a strong dealer/distributors/sub dealers and retailers network of more than 7,000. The company’s plywood business accounts for nearly 52% of the total revenues with the rest being contributed by the laminates and veneer & decorative segment. The company exports laminated products to 18 countries such as, Thailand, Indonesia, Taiwan, Canada, Baharain, Hongkong, Malaysia, Singapore, Kenya, Dubai, Russia, Syria, USA, Australia, Mexico, Saudi Arabia, China and Israel. Exports contributed to around 22% of the total laminates turnover during FY07.

What has driven performance in 2QFY08?
Robust topline growth: The organised interior sector is growing at the rate of almost 25% to 30%, while the company has fared relatively better clocking almost 40% YoY growth during 2QFY08 owing to improved utilisation rates and improved realisations. Plywood & allied products that constitute almost 51% to 52% of the company’s total revenues reported 95% capacity utilisation. On account of higher utilisation, the production stood at 4.46 sq m mt achieving almost 42% YoY growth. The laminate division on expanded capacity of 5.34 m sheets operated at almost 96% utilisation rate. The production of this divison increased by 18% YoY as it produced almost 1.4 m sheets during the quarter. The robust growth is not only achieved on account of higher utilisation rate or expanded capacity but also due to improved product mix, which led to improved realisations. The average realisation for laminates and decowood improved by almost 12% YoY and 17% YoY respectively. Thus owing to the overall good show, the company has fared well above industry growth rate.

Segmental information
(Rs m) 2QFY07 2QFY08 Change 1HFY07 1HFY08 Change
Plywood & Allied Products 65 160 147.2% 119 309 159.1%
PBIT margin (%) 12.2% 19.0%   12.1% 19.9%  
Laminates & Allied Products 62 140 126.1% 132 247 88.0%
PBIT margin (%) 9.8% 18.2%   10.9% 17.2%  

Favoured by rupee appreciation: The company is a net importer i.e. exports laminates and imports raw materials such as kraft and design paper, phenol etc which are major inputs for laminates. Thus, the rupee appreciation has benefited the company by arresting the increase in cost of operation. Further, as mentioned earlier, robust topline growth led by improved realisations and improved physical performance has led to an almost 131% YoY growth in operating profits. The improved product mix has enabled the company to supply value added products like particle board and decorative veneer, which fetch better margins. The company’s foray into particle board production not only resulted into improved profitability but also enabled the company to bring down costs, as by-products from plywood constitute 50% of its cost. Thus, all these factors have led to the 6.3% expansion in EBITDA margins during 2QFY08.

Cost break up
(% of sales) 2QFY07 2QFY08 1HFY07 1HFY08
Increase/decrease in stock in trade -0.5% -1.5% -1.0% -2.6%
Raw materials consumed 62.8% 58.6% 63.3% 59.0%
Purchase of Finished goods 0.5% 1.5% 0.3% 1.4%
Staff cost 7.1% 6.6% 7.1% 6.9%
Administrative & selling expenses 14.5% 14.0% 14.8% 15.2%
Other expenditure 5.9% 4.9% 5.2% 4.9%

Flows to the bottomline: In line with the operating profit growth, net profits have registered 135% YoY growth during 2QFY08. An impressive show at the operating level and higher other income resulted into a 3.4% expansion in net margins. Even if one excludes other income, the net profit has doubled during the 2QFY08, despite a big jump in finance and depreciation charges, which was due to the company’s expansion programme.

What to expect?
Going forward, as the incremental demand for office space in India is expected to exceed 85 m sq ft by 2008, number of malls is expected to go up to 350 and demand for residential units is expected to be around 22.5 m by the end of the 11th plan, the sector is expected to continue to clock a growth rate of 15% p.a. The company on account of its initiatives, brand building and pan India presence expects to grow at around 35% in the next 3 to 4 years.

At the current price of Rs 317, the stock is trading at a price to earnings multiple of 16 times its trailing twelve months earnings. Considering the opportunities, strong presence across India and slew of strides made by the company, we expect the company to grow in line with the industry. However, the key challenges would be on the raw material front, dominance of the unorganised sector and maintaining and improving margins going forward.

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