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Target: ₹171
CMP: ₹145.65
We initiate coverage on Greenply Industries with a BUY rating and a target price of ₹171.
Greenply is a proxy play on rising real estate sales in India as it is second largest plywood company in India and is on the verge of commissioning a 240,000 cbm Medium-density fibreboard (MDF) plant in Vadodara, Gujarat with a capex of ₹540 crore.
We expect the plant to gradually ramp up production during FY24. The plant has revenue potential of ₹600-650 crore at its peak utilisation and will be commissioned by Q4-FY23. We expect plant to gradually ramp up during FY24 and expect 65 per cent utilisation in FY25 leading to strong growth in overall sales.
Post this expansion, we forecast Greenply’s sales/EBITDA/net profit to grow at a CAGR of 18 per cent/45 per cent/35 per cent, respectively, over FY23-25.
With this plant, the company will complete its major capex cycle. Hence, we expect its free cashflows to remain strong over FY24-25 and net debt is likely to fall sharply during the same period. Further, leverage is likely to come off gradually.
We value the stock at PER of 12x (lower than 8-yr average PER of 25x) FY25EEPS to derive a target price of ₹171.
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