Why Are Savvy Investors Making A Bee-Line For GreenPly Industries?

Greenply Industries has become very popular amongst savvy investors after it announced the demerger of the laminates division into another company called ‘Greenlam Industries Ltd’. The demerger makes sense because the laminates business has lower return ratios and a higher working capital cycle as compared to the plywood/ MDF business. When Greenply was saddled with both business, its D/E ratio and working capital cycle was high while the return ratios and cash flow were weak. The demerger is value accretive for shareholders of Greenply because its D/E ratio will reduce and RoCE will improve substantially.

Nirmal Bang has quantified the benefits of the demerger as follows:

(i) Pre de-merger, the D/E ratio was 1.3x in FY14. Post de-merger, the D/E ratio stands at 0.7x;

(ii) The FY14 working capital cycle has improved to 51 days post de-merger as against 74 days earlier;

(iii) As the laminate’s division has the lowest RoCE among the three business divisions at 12.4%, Greenply had reported a RoCE of 13.2% in FY14. Post de-merger, the RoCE has improved to 16.2%.

Prashant Jain of HDFC MF saw this coming quite early. He increased the fund’s stake in Greenply to 7.38% in June 2014.

Sudhir Valia, promoter of the behemoth Sun Pharma, bought a stake of 727,975 shares of Greenply Industries on 24th February 2015 through his investment company Lakshdeep Investments & Finance.

Westbridge Capital a.k.a Jwalamukhi Investment Holdings has also been floored by Greenply’s charms.

Westbridge already holds a chunk of 23,76,884 shares of Greenply comprising 9.85% of the equity.

Westbridge has now, according to a SAST disclosure, bought a further stake of 7,27,975 shares. Its’ total holding is 31,04,859 shares, comprising 12.86% of Greenply’s equity capital.

Jignesh Kamani of Nirmal Bang has recommended a buy with a target price of Rs. 1,407, an upside of 46% from the CMP of Rs. 974. he points out that Greenply has a healthy balance sheet with strong return ratios.

ICICI-Direct has also issued a Management Meet Note in which it expects Greenply to outpace industry growth due to increased demand for MDF, structural shift in the industry due to Myanmar ban, GST development and GIL’s strong brand recall & wide distribution network.

There is also an investors’ presentation and Q3+FY15 report which projects an attractive picture of the Company’s prospects.

So, it does look like the savvy investors are on the right path to make mega gains from Greenply Industries.