Marred by poor sales/margin and a one-off, Greenply’s Q4 FY20 was weak. On an anticipated weak FY21, the brokerage expects a bounce back only in FY22 on improved consumer sentiment for home renovation/ purchases. The face veneer backward integration in Gabon will play its role in raw material sourcing at reasonable prices even as the balance sheet remains strong. Several cost reduction steps may cushion margins.
Plywood highly depends on real-estate, for which the near-term outlook is very weak, according to the brokerage. It expects consumer sentiment to improve only gradually. Gabon is likely to do well in FY21. The Gabon operation was closed only for a week in Apr’20 and is now ramping up well with face veneer supplies to the Mid-East, Europe and India.
The management expects a rise in face-veneer volume after tripling capacities to 96,000 cubic metres in November’19.
The brokerage likes Greenply for its leading position in plywood, backward integration and strong balance-sheet. After its significant price drop, Anand Rathi upgraded the stock to a buy with a lower target of Rs 110 at 14 times FY22e P/E, From Rs 170 earlier. Domestic demand recovery and a ramp-up at Gabon are the key monitorables.
Risk: Delay in the ramp-up at Gabon.
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 344.70 crore, down -.37 per cent from last quarter sales of Rs 345.98 crore and down -12.01 per cent from last year’s same quarter sales of Rs 391.75 crore. The company reported net profit after tax of Rs -22.09 crore in the latest quarter.