Stock Backed By Super-Savvy Investors Has 54% Upside: Experts

Greenply Industry’s credentials as a winning stock are established by the fact that it has attracted the crème de la crème of investors.

While Westbridge Capital a.k.a. Jwalamukhi Investment Holdings rules the roost with a massive holding of 31,04,859 shares (12.87%), Ashish Dhawan of ChrysCapital comes second with a holding of 2269488 shares (9.40%). Prashant Jain’s HDFC MF comes third with 21,05,517 shares (8.72%) and Vallabh Bhanshali of Enam Fame and his entire family (Mangal, Meenu, Roopchand, Akash Bhanshali) come fourth. Sudhir Valia of Sun Pharma fame (he is the brother-in-law of Billionaire Dilip Sanghavi) comes fifth in the rankings.

In an earlier piece, I have explained in detail why the ace investors are making a beeline for Greenply Industries. Apparently, the demerger of the laminates division from Greenply into Greenlam Industries Ltd augers well for Greenply as its return ratios are expected to shoot up and result in a re-rating. It is also believed that Greenply is in the perfect position to exploit the huge demand for plywood, MDF etc that is expected to arise from NAMO’s 100-cities, housing-for-all and urbanization programmes.

More support for this thesis is now provided by Ruchita Maheshwari of IIFL. Ruchita Maheshwari has pointed out, with reference to detailed facts and figures, that Greenply has transformed its business model from a high working capital requirement, subdued RoCE model to one with efficient working capital management and healthy return ratios. She also points out that the company has improved its margin by 64bps to 13.1% in FY15 and working capital cycle from 17.6% in FY14 to 17.2% in FY15 (post demerger). She also emphasizes that Greenply has strong dealer network and brand equity in the plywood market.

Ruchita Maheshwari adds that Greenply is well geared to take advantage of the huge demand expected for MDF products. She has summed up her advice in the following cogent words:

“Greenply Industries (GIL) is a leading interior infrastructure company and manufactures Plywood/ Medium‐density fibreboard (MDF) with an installed capacity of 32.4mn sqm/0.18mn cbm, respectively. GIL is betting big on the increase in usage of MDF on account of wide acceptance/awareness of readymade furniture. To drive growth, GIL will set up a new plant in Andhra Pradesh by mid‐FY19 with a capex of Rs6.0b ‐ Rs6.5bn with an installed capacity of 0.36mn cbm. GIL is also foraying into new product categories like natural veneer, and trading in wall paper. GIL, under Greenterior brand, has given guidance of garnering Rs500cr revenue in the next five years, starting with wallpaper trading. We expect revenue/PAT CAGR of 11.5%/16.4%, respectively, healthy operating cash flow of Rs3.6bn leading to a fall in D/E from 0.69x in FY15 to 0.46x in FY17E, improvement in ex‐cash working capital to 15.4% in FY17E from 17.2% in FY15, improvement in pre‐tax RoCE by 314bps to 23.4% and increase in operating margin by 106bps over FY15‐FY17E, leading to a re‐rating of GIL’s valuations. We recommend BUY rating with a TP of Rs1,327 based on 22x PE and 12.6x EV/EBITDA FY17E.”

The target price of Rs. 1,327 predicted by Ruchita Maheshwari is a whopping 54% upside from the CMP of Rs. 864.

Dhiral Shah of GEPL has expressed the same confidence about Greenply’s prospects though he is somewhat conservative in his target price. His advice is as follows:

“At CMP of Rs910, Greenply Industries trades at 18 x its FY16E EPS. With GST implementation going ahead & robust product portfolio, company revenue & margins to improve in future. Management has guided for 10-12% revenue growth in FY16. We believe stock to trade at 21x its FY16E EPS of Rs51.1. We assign a BUY rating on the stock with a target price of Rs1,070, which implies 18% upside from current level.”

At this stage, if you are inclined to bite into a building products stock, you must also consider Uniply Industries, a micro-cap engaged in the manufacture of plywood. Despite its puny size, Uniply has won the confidence of three of the best stock pickers in the Country, Radhakishan Damani, Ramesh Damani and Vallabh Bhanshali. That gives you an idea of the potential of the stock!