India’s top wood panel firms including Greenply Industries, Greenpanel Industries, and Century Plyboards (India) reported a mixed set of financial results for the quarter ended March 31, 2023. Shares of these companies have underperformed the benchmark equity index during the past one year.
With a rally of 4.45 per cent, Century Plyboards (India) emerged as the top gainer in the list. The scrip rose to Rs 579.95 on Friday from Rs 555.20 a year earlier. Greenpanel Industries and Greenply Industries plunged 30.62 per cent and 9.99 per cent, respectively, during the same period. On the other hand, the BSE Sensex advanced 13 per cent during that period.
However, ICICI Securities is optimistic about the wood panel segment driven by a continued uptick in real estate, growing consumer preference for organised players and reasonable valuations. “We have a ‘Buy’ rating on all the stocks under our coverage. We continue to prefer Greenpanel Industries and Century Plyboards in the wood panel industry led by their leadership position in their core categories,” the brokerage said in a report.
Of late, Century Plyboards (India) (CPBI) posted 29.48 per cent YoY growth in net profit at Rs 114.66 crore in Q4FY23. The company’s gross sales increased 7.15 per cent YoY to Rs 965.45 crore during the quarter under review. The bottom line of Greenpanel Industries and Greenply Industries declined 14.48 per cent YoY and 61.80 per cent YoY during the January-March quarter.
Brokerage YES Securities has a ‘Buy’ rating on Greenply Industries (GPIL) with a target price of Rs 250, indicating an upside of over 50 per cent from the current market price.
“GPIL is embarking on a strong growth trajectory wherein we reckon plywood biz to grow by 6 per cent over FY23-FY25 with margins coming in at 10.5 per cent in FY24 and FY25 respectively. MDF will boost performance from FY24 and we expect revenue from this segment to come in at Rs 270 crore and Rs 390 crore in FY24 and FY25, respectively. With major capex behind and debt likely to get repaid from FY24 and ROE and ROCE to improve to 20 per cent and 26 per cent respectively by FY25, we believe GPIL is available at lucrative valuations,” YES Securities said.
Systematix Institutional Equities is positive on Greenpanel Industries with a target price of Rs 439. Shares of the company traded at Rs 330 on June 9.
“We like Greenpanel for its market leadership in the fast-growing MDF industry (finding support from the rising acceptance, strong demand revival in housing units and readymade furniture) and robust financials,” Systematix Institutional Equities said in a report.
In Q4FY23, Greenpanel Industries witnessed an MDF revenue decline of 1 per cent YoY (4-year CAGR of 31.9 per cent) as blended realisation declined 10.2 per cent YoY (due to a higher share of exports which has lower realisation), while blended volume grew 10.2 per cent YoY (driven by 89.1 per cent YoY growth in exports; domestic volume declined 7.4 per cent YoY). CPBI’s MDF revenue also declined 1.1 per cent YoY (4-year CAGR of 20.6 per cent) as volume declined 2.8 per cent YoY (4-year CAGR of 7.2%) and realisation increased 1.5 per cent YoY.
As per government data, MDF import volume increased around 234 per cent and 41 per cent YoY and QoQ in Q4FY23, respectively, while realisation fell 37 per cent and 12 per cent YoY and QoQ, respectively. Thailand (35 per cent), Vietnam (30 per cent) and Malaysia (19 per cent) were the top contributors to import volume in Q4FY24.
Per industry participants, furniture demand in the US and Europe was subdued in the past few quarters, resulting in MDF exports from Southeast Asian countries being diverted to other regions (including India). The average monthly run-rate of imports in Q4FY23 (21,944 MT per month) was near the pre-Covid levels of FY19 (22,525 MT per month), which is expected to pose near-term demand and pricing headwinds for domestic players (as landed cost of imports is 20 per cent lower than domestic brands).
“MDF prices in international markets have seen an increase of 7–8 per cent so far in Q1FY24, which, if sustained, may result in lower imports in domestic markets going ahead. For FY24, CPBI has guided for 30 per cent YoY volume growth (enabled by capacity expansion) and 20 per cent EBITDA margin, while Greenpanel has guided for 12-15 per cent YoY volume growth (with a continued focus on driving export volume growth) and 23-25 per cent margins,” ICICI Securities said.
Nuvama maintained a ‘Buy’ rating on CPBI last month with a target price of Rs 675. Shares of the company traded at Rs 579 on June 9. “CPBI’s expansion plans across all segments are on track. Despite near-term demand and margin headwinds (due to higher inflation and rising timber prices), we expect the margin to stabilise in FY24, as timely price hikes and falling chemical prices should aid the margin. We are optimistic about its long-term growth prospects due to its diverse product portfolio, extensive distribution, and strong brand,” Nuvama said in a report.