Greenpanel Industries Rating: buy; demand revival boosts outlook for bottomline

Faster-than-expected demand recovery in MDF category post Covid-19 breakout has led to GNPL sweating its capacities much faster than envisaged. Recent delays in greenfield MDF projects of CPBI and Rushil Décor have allowed the top 3 players to take a price increase of 3-4% in MDF boards w.e.f. 7th Dec (as per our checks) in all regions (except South India). While this we believe is partially driven by higher resin costs, we expect players like GNPL to witness gross margin accretion of 50-100bps from Q4FY21.

The strong demand recovery coupled with price hikes, productivity enhancement and cost control measures at MDF units, may drive significant improvement in profitability. Maintain Buy.

Earnings up 58%/24% for FY21/ FY22: We increase our revenue/ earnings estimates by 1.9%/2.6% and 58.1%/ 23.8%, respectively, for FY21/ FY22. We expect company to report revenue/PAT CAGR of 23%/ 115% over FY21-FY23e. Despite recent surge in stock price, it is available at 7.8x Sep’22 earnings. We revise TP to Rs 155 (15x Sep’22 earnings) vs Rs 100 (15xFY22 earnings) earlier.

Key beneficiary of capacity vacuum: Despite incremental capacity addition announced by a few unorganised players recently, we expect GNPL to be the biggest beneficiary of burgeoning demand for MDF (post Covid-19).

RoCEs may cross 22% in FY23e: We expect MDF category RoCEs to inch upwards of 22% by FY23 vs 5.6% witnessed in FY20. This can be driven by higher capacity utilisation, sharp improvement in profitability, higher FCF generation and debt reduction. Gross debt may see a sharp reduction to Rs 1.8 bn in FY23e. This will drive P/E multiple expansion for GNPL going forward.