In just over a year, since the process of demerger started between the plywood and MDF entity of the Greenply group, the plywood business of Greenply Industries (MTLM) has now transformed into a niche and a differentiated assetlight model with the company being the first in the industry to move aggressively towards asset-light model (outsourcing of MAT plywood and entering into JVs) and enter Gabon in a big way for manufacturing and marketing of face veneers in India and globally.
While the near term macro challenges persist, the management (while on a roadshow with us in Mumbai last week) reiterated its confidence in achieving double digit topline growth and margin improvement on consolidated basis over the next 2-3 years. Maintain ‘Buy’ with an unchanged target price of Rs 206 (20xFY21E).
Amid stricter working capital discipline and sustained growth challenges in the real estate sector, the management expects mid-single digit growth in its premium/mid-plywood segment largely aided by a) market share gains with gradual increase in compliance levels and b) recent product launches in plywood segment (Club 500, Green Absolute, etc). Further, with the expected growth traction in decorative veneers, PVC sheets and low-end plywood segment (under brands ‘Jan Saathi’ and ‘Bharosa’), the management has guided for 7-9%/8-10% growth in volume/value in its standalone plywood business.
The management has set a 4-5-year vision of achieving 30% RoCEs with outsourcing likely to increase to 50% of revenues (from current 29%). We, thus, expect consolidated RoCEs to improve by 780bps to 29% by FY21, which we believe would provide scope for further rerating.