Strong performance on fast ramp-up of MDF plant
EBITDA beat estimates (+6%) in Q3 on quick ramp-up of MDF plant in a challenging environment
Management outlook upbeat on MDF but cautious on plywood margins;
divestment of Gabon stake a positive step
Maintain BUY with unchanged TP of Rs 300 on strong earnings growth prospects and reasonable valuations
Q3 ahead of estimates: MTLM beat our estimates for Q3FY24 (revenue: +7%, EBITDA: +6%, adj. PAT: +19%) due to better-than-expected ramp-up of the MDF unit. Overall, revenue/EBITDA grew by 45%/75% YoY for the quarter.
Key highlights: Despite an 11% YoY rise in volumes, plywood EBITDA fell by 14% due to a sharp increase in timber prices and higher brand spends (+50bps YoY to 4.5%). In MDF, MTLM has been able to speedily ramp up its new plant, raising the operating rate from 52% in Q2FY24 to 70% in Q3. Further, MDF realisations improved 6% QoQ even in a challenging environment as value-added products started to contribute (9% of the mix).
Plywood margin guided to soften, MDF to rise: Management is targeting plywood volume growth of 8-10% but believes margins may come under pressure over the next two quarters due to elevated timber prices (likely to start moderating from FY26). For MDF, management aims to raise the quarterly sales volume run-rate from 41,928cbm in Q3 to 50,000cbn in FY25 and improve segment EBITDA margin from 13.2% in Q3 to 18-21% by Q1FY25. The furniture hardware business is due to become operational by end-Jun’24. MTLM plans to spend Rs 400mn in FY25 to increase MDF capacity by 25% to 1,000cbm and add equipment to make more value-added products.
Gabon divestment likely to be EPS-accretive: MTLM plans to sell a 51% stake in Gabon operations in Q4FY24 for ~Rs 150mn. We believe this would be an EPS accretive step as Gabon was making losses and the sale would also result in a reduction of net debt (from Rs 7.3bn in Q3FY24 to Rs 5.2bn in Q4FY24).
Maintain BUY: We maintain our BUY rating on the stock with an unchanged TP of Rs 300 as we see strong earnings growth prospects (EPS estimated to grow at 26% CAGR over FY23-FY26) and improving return ratios (ROE projected to improve from 13.9% in FY23 to 17.7% in FY26). Valuations too look reasonable as the stock is trading at 24.8x on 1Y forward P/E vs. its 5Y average of 23.9x. We largely maintain our forecasts and retain our target P/E multiple of 25x on Sep’25E EPS.
Click here to download Greenply Industries – Q3FY24 Result Review 2Feb24 by BOB Caps Research
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