The revival in the residential housing and commercial real estate segments should help Greenply Industries, a large player in the home interior space.

A 30 per cent share in the organised market for plywood, a large presence in the fast-growing laminates and medium density fibre segment and recent initiatives to produce value-added products and outsource production of economic plywood work in the company’s favour. While the industry has grown 7 per cent annually in the last five years, the company has managed about 24 per cent growth in that period by increasing its reach and brand building.

At the current market price of ₹833, the stock discounts its estimated earnings of 2014-15 by 14 times. In the last five years, it has been trading in the 5-18 times band. Investors can buy this stock to reap the benefits of the growing demand for home interior products.

Greenply has three products: plywood (48 per cent of overall revenues in 2013-14), laminates (36 per cent) and medium density fibre wood. Raw material costs account for 55-58 per cent of sales. In 2013-14, the slowdown in the real estate space saw the company report moderate growth. Sales increased by 8 per cent and profits by 0.2 per cent.

However, with several measures announced for the housing sector in this year’s Budget, the numbers are likely to improve.

In 2013-14, the company’s plywood segment saw revenue grow by 10.3 per cent with a seven per cent increase in volumes. Average realisations increased on higher revenues from value-added products. In the last one year, Greenply’s plywood division has seen return on investment go up as it has started outsourcing plain plywood manufacturing.

The company is now working on increasing its presence in the value added segment by setting up engineered veneer flooring capacity and introducing pre-laminated boards.

Greenply’s medium density fibre (MDF) wood segment enjoys a high 18 per cent margin. There are no unorganised players here as setting up an MDF facility requires largecapital investment.

In 2013-14, however, the slowdown in the commercial real estate and office space hit the company hard. MDF sales dropped by 6 per cent given that a large portion of demand is from the commercial sector.

In the laminates segment, a significant portion (over 40 per cent) of revenues comes from exports.

Greenply has three overseas subsidiaries. Sales of laminates and allied products grew by 12 per cent in 2013-14; realisation increased by 9 per cent and volumes were up by about 4 per cent. The operating margin was 9.7 per cent, slightly lower than the previous year.

Laminates is a growing segment for Greenply. Last year, the company hived off this segment into a separate subsidiary and intendsto list it. Existing shareholders of the company are to get one share in the new company.

The move is favourable for investors as hiving off the laminates business into a separate company will increase the return on investment of the main business. The laminates business guzzles more capital and has a lower RoI compared with the plywood and MDF segments. The move has got shareholder approval, but the record date is yet to be announced.

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