Greenply Industries - Promising mid cap for future growth

Greenply Industries is set to put up a good show in FY10 as one of its units will go on stream in July-August ’09.The stock looks promising for investors with a horizon of 12-18 months

GREENPLY INDUSTRIES is a Rs 700-crore company which is primarily engaged in the manufacture of plywood and other value-added products used in interior infrastructure such as laminates and medium density fibre (MDF). The company has five plants across the country and also caters to overseas markets like North America, West Asia and South-East Asia.
Greenply’s focus is slowly shifting towards expanding its MDF capacity, which is used in decorative laminates in the western markets. The company’s sales have witnessed a compound annual growth rate (CAGR) of more than 30% over the past three years due to Greenply’s strong presence in valueadded products.
The company’s business segments comprise plywood, laminates, decorative wood panels and MDF. It derives maximum revenue of 55-60% from the plywood business. Currently, there are licensing restrictions in the plywood market, aimed at conservation of forests. Greenply is now trying to change its revenue mix and has been aggressively expanding in laminates, decorative panels/particle boards.

Its latest foray has been in the MDF segment, where it is expanding its capacity by 1.8 lakh cubic metres per annum at a cost of Rs 250 crore in Rudrapur, Uttarakhand. The project is likely to be completed by Q3 FY10. This will reduce the company’s dependence on imported raw materials.
Following the completion of this project, the company’s market share in MDF used in the country is estimated to rise to nearly 50%.

Greenply is also in the process of setting up a unit in Himachal Pradesh, which will become operational by the second quarter of the next financial year. However, the company may have to raise fresh funds for both these projects.

Greenply ended Q1 FY09 on a robust note, by reporting net sales of Rs 171.6 crore, up 43% from the corresponding quarter of the previous year.
The company’s exports sales comprised around 25% of its aggregate sales. Due to the import of chemicals and a few other crucial raw materials used in value-added products, the company posted a foreign exchange (forex) fluctuation loss of Rs 6.5 crore in Q1 FY09. In the comparative quarter of FY08, it had gained Rs 1.4 crore on account of such forex fluctuations.
Since then, the company has started paying for its imports in terms of the euro, which is relatively more stable than the dollar. This is expected to reduce Greenply’s forex losses significantly from Q2 FY09 onwards.

Despite the setback on account of mark-tomarket losses, the company ended Q1 FY09 with a net profit of around 7 crore, on an equity base of Rs 8.5 crore. This translates into earnings per share (EPS) of Rs 4.09 (face value Rs 5 per share).

The company’s management expects net sales to grow by around 20% in FY09 to cross the Rs 700-crore mark. Bulk of the growth is expected to come in the second half of the year and Greenply’s net profit is expected to rise by 35% during this period.
Assuming a slight deterioration in operating margin, the company can end FY09 with an EPS of around Rs 32. However, FY10 is likely to be much better, since one of the company’s units will go on stream in July-August next year. At Rs 150-155, the stock looks promising for investors with a horizon of 12-18 months.

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