Q1FY24 Review: Greenlam Inds: Mixed quarter; margin outlook healthy

31 Jul 2023 , 12:46 PM

In Q1, Greenlam Industries (GRLM) reported 10% YoY revenue growth and 31% PAT growth, marginally below estimates. Laminates segment volumes were impacted negatively due to the Biparjoy cyclone in Gujarat, leading to weaker exports. Superior product mix and moderating input costs aided margins YoY, although they were down QoQ on higher costs of the new Plywood segment. Analysts of IIFL Capital Services cut their FY24/25 EPS estimates by 5/10%, and build EPS Cagr of >20% over FY23-25, driven by the completion of GRLM’s Rs10bn capex programme. At 32x FY25 EPS, valuation is rich; analysts of IIFL Capital Services downgrade GRLM to REDUCE with TP of Rs445. 

Mixed Q1 performance:

GRLM reported revenue growth of 10% YoY/ down 4% QoQ (3% below IIFL estimates). Laminates volumes were up 6% YoY, down 11% QoQ. At 89%, capacity utilisation was lower (vs 96% QoQ) due to enhanced capacity, which increased to 21mn sheets in Q1 vs 19mn QoQ. Laminates realisations improved 4.7% YoY, on better product mix. This, combined with input cost moderation, drove consolidated Ebitda margins to 12.5% (+180bps YoY) — 100bps above analysts of IIFL Capital Services estimates. Laminates segment (92% of revenue) reported 14.8% margins, +240bps YoY. 

Moderation in raw material costs: 

Mgmt highlighted that so far, input costs have been stable for Q2. Despite competitive pressures, GRLM has not taken any meaningful price cut, so margins should remain buoyant. In Q1, GRLM suffered revenue loss as exports got impacted due to Biparjoy cyclone in Gujarat. The extent of demand deferment to Q2FY24 was ~Rs200mn. The Plywood segment started commercial production in June, leading to Rs7.8mn sales (Ebitda loss of Rs40mn). Mgmt expects capacity utilisation to reach 50% by end FY24. 

Capex coming on board to improve return ratios over FY23-25: 

Brownfield laminate and greenfield particle board capacity expansion is on track for commencement in Q2/Q4FY24 respectively. Out of the total envisaged capex of Rs10bn, GRLM has already spent Rs5bn. Net debt increased by Rs2.1bn QoQ in Q1 to Rs5.3bn, due to capex nearing completion. Analysts of IIFL Capital Services cut FY24/25 numbers by 5-10%, downgrade their recommendation to REDUCE with a revised TP of Rs445 (32x FY25 EPS).