Greenlam Inds: Multiple tailwinds to drive growth

2 Nov 2023 , 01:29 AM

Greenlam Industries (GRLM) hosted its analyst meet, where it reiterated target of tripling revenues over FY21-27, and >20% revenue growth guidance for each of FY24/25. The core Laminates business is witnessing strong growth and healthy margin outlook which bodes well for its recent capacity expansion. GRLM is also expanding into the Particle Boards, a relatively new segment, largely to capture market share from a sizeable unorganised market. Analysts of IIFL Capital Services build ~22% revenue Cagr over FY23-26ii and PAT Cagr of 28%; upgrade to ADD with target price of Rs575. 

Strong outlook in core Laminates business: 

GRLM reported volume growth of 16/11% for Q2/H1FY24 driven by strong demand in Domestic segment. Ebitda margins have been steadily improving, to 16.4% in Q2, and are expected to sustain at current levels. GRLM has added ~60% to its capacity over last 1.5 years with acquisition of facility in Prantij (and later expanded it) and commencement of production (3.5mn sheets) at the greenfield project at Naidupeta, Andhra Pradesh in Sept-end. This expansion will be focussed on larger sized laminates and exports markets driving higher realisations and margins. However, GRLM’s Veneers and allied segment (~9% of revenues) weak utilisation continue to be a drag on overall profitability, and analysts of IIFL Capital Services see the improvement to be gradual. 

Foray into new segments to expand addressable market: 

GRLM’s foray into Particleboard (Rs50bn market, >80% pre-lam boards) is aimed at capitalising on GRLM’s presence in laminates and filling the void due to absence of organised players in this segment. The recent capex increase from Rs6bn to Rs7.75bn is negative for RoCEs, but the project will still be accretive. Plywood production saw its first full quarter of production in Q2 and achieved healthy gross margins; the breakeven is expected by Q4. 

Strong earnings growth; upgrade to ADD: 

GRLM’s >Rs10bn capex programme is now nearing completion, the net debt is expected to peak by end-FY24. This will enable GRLM to expand its addressable market from Rs140bn (before expansion) to Rs490bn. Analysts of IIFL Capital Services build revenue cagr of ~22% over FY23-26 driven by commencement and stabilisation of new capacities. Valuations at CMP at imply 36.5x FY25 earnings, analysts of IIFL Capital Services upgrade to ADD with a revised TP of Rs575/share.