After various quarters of muted/decline in volumes, Greenply Industries (MTLM) has lastly returned to development (with a bang: higher double-digit development) – that is the insight from our conversations with several plywood dealers (pan-India). With the (current) sharp improvement in working capital management (top to powerful balance sheet strengthening) and sudden recovery in secondary genuine estate industry post Covid, we anticipate development momentum to sustain in close to-to-medium term.
With sharp recovery in development, we estimate plywood Ebitda margin to strengthen to 13.6% by FY23 (vs management guidance of 14.6%). At 13.8x FY23e earnings, we think, rerating is inevitable thinking about robust development and margin outlook amid anticipated sharp improvement in RoCEs (30%+) by FY23e. Maintain Buy.
Industry tailwind most likely to sustain in close to term: We think the wood panel sector is the most significant beneficiary in terms of the current opening up of the inherent demand. This is largely attributed to the (current) powerful traction witnessed in the secondary genuine-estate industry post Covid. This, coupled with sustained demand from tier 2/3/4 markets and most likely pent-up renovation demand post Covid, is anticipated to increase volume development of prime plywood players in the close to term.
Expect 20%+ volume CAGR in plywood volumes more than FY21-FY23. We anticipate company’s plywood volumes to exhibit a 20%+ volume CAGR more than the next 2 years. While Gabon operation is most likely to realize normalcy when the pandemic scenario eases, we are creating in a conservative 17% income CAGR for its Gabon company more than the next 2 years. We, as a result, anticipate MTLM’s general revenues to exhibit 21.4% CAGR more than FY21-FY23e.
Consolidated Ebitda margin to strengthen by 290bps more than FY21-FY23. MTLM reported its consolidated Ebitda margin at 12.3% in Q3FY21. We anticipate MTLM’s consolidated Ebitda margin to strengthen by 290bps from 10.7% in FY21 to 13.6% in FY23, led by the current cost hike, item mix improvement, price optimisation and operating leverage.
RoCE to strengthen sharply: Expected improvement in profitability, stricter working capital management and quickly enhancing FCF from operations may perhaps drive sharp debt reduction more than the next 2 years, which in turn will drive RoCE larger by 1,300bps to 30.2% in FY23e.