Greenply Industries Ltd (Q3 FY16): Result beat on all counts!!! – BUY

Greenply Industries Ltd (Q3 FY16): Result beat on all counts!!! – BUY

CMP Rs177, Target Rs252, Upside 42%

• Amid weak demand, Greenply Industries (GIL) posted a modest 7.3% growth in Q3FY16 revenue to Rs422cr, 1.2%/1.7% above our/Bloomberg consensus estimate following a 4.4% growth in plywood division and a 15.3% growth in medium density fibre (MDF) board division.
• Gross margin rose 157bps to 44.3% led by a better product mix (higher contribution of MDF to 31% in Q3FY16 as against 29% in Q3FY15). Gross margin expansion coupled with higher capacity utilisation rate of 111% (compared to 99.6% YoY) in MDF board division resulted in its best ever operating margin improved by 185bps to 15.4%.
• With higher EBITDA margin, EBITDA grew by a strong 22% to Rs65cr, 7.2%/10.6% above our/Bloomberg consensus estimates, respectively.
• Following healthy cash flow and lower debt, interest costs declined 31% to Rs7cr. PBT grew 47.1% and despite a higher tax rate of 23.6% as against 16.9% YoY (as Nagaland factory had come out of the purview of tax exemption), PAT grew by a strong 35.2% to Rs35cr, 18.4%/24.5% above our/Bloomberg consensus estimates, respectively.
• Working capital days increased by 8days YoY and 7days QoQ because of weak demand in October and November 2015 and a major portion of sales in Q3FY16 occurring in December 2015.
• There is likely to be a slow and steady growth in wallpaper segment and it is expected to be volume-driven. Currently, GIL is building a distribution network for this segment and it intends to achieve revenue of Rs4cr by FY17E and Rs200cr by FY20E from Rs2cr currently.
• We have retained Buy rating on GIL with a target price of Rs252 based on 22x/12.5x FY17E P/E and EV/EBITDA.