The Hindu Business Line : Greenply Industries: Buy

GREENPLY Industries (Rs 92) is likely to emerge as one of the prime beneficiaries of the ongoing construction boom in the country. An investment can be considered with a one to two-year perspective. The stock trades at about eight times its annualised earnings per share. If it maintains the growth impetus and margin expansion evident in recent quarters, the valuation levels are likely to become more attractive. As a small-cap stock, it could be subject to a higher degree of volatility. Investors who hold through such periods of volatility are likely to be rewarded, as the business prospects appear bright.

The company makes plywood, decorative laminates and particleboards that are used to make modular furniture. It has an edge over peers in the location of its plywood plant in Nagaland, which has adequate supply of timber. Most other players depend on import of timber from neighbouring countries. An additional advantage of recent vintage is the 100-per cent exemption from excise duty for 10 years commencing from 2005 for the output from the Nagaland plant. The recent acquisition of plywood manufacturer Worthy Plywood is likely to boost growth over the next couple of years. Greenply Industries plans to double its capacity by setting up a greenfield unit, which will also enjoy tax incentives, in Uttaranchal by mid-2006.

The principal risks to our recommendation are an unexpected contraction in the construction-sector activity and a sizeable rise in equity to fund expansion plans. There could be modest equity expansion if the company sticks to its policy of using debt to grow its business.

Vidya Bala

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