JM-BM
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Transcript of JM-BM
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Samir [email protected]
Tel: (91 22) 66303070
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JM Financial Institutional Securities Limited 1 December 20
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Building Materials – Wood Panel Sector 1 December 20
JM Financial Institutional Securities Limited Page
Table of Contents
Contents Page No.
Leaders will continue to rule the growing industry 3
Key Charts 4
Valuation comp 5
Investment summary 6Strong financials of leaders 7
India wood panel industry in exhibits 8
Companies Section
Century Plyboards, CPBI IN (HOLD, TP 200) – Structural story intact, wait for dips to BUY 19
# Debate 1- Will revenue growth slowdown 21
# Debate 2- Will it sustain industry leading profitability 27
# Debate 3- Is valuation peaking 29
Financials in exhibits 30
Company Details 34
Greenply Industries, MTLM IN (BUY, TP 1,150, upside of 24%) – MDF to be the growth engine 39
# Debate 1- Is MDF really catching up 41
# Debate 2- Will MDF EBITDA be more than plywood 46
# Debate 3- Is valuation cheap 48
Financials in exhibits 49
Company Details 53
Greenlam Industries, GRLM IN (BUY, TP 550, upside of 27%) - Fueled for growth 57
# Debate 1- Revenue potential from the capex done 59
# Debate 2- Will company outpace peers’ profit growth 64
# Debate 3- Valuations vs. high growth 65
Financials in exhibits 66
Company Details 70
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JM Financial Institutional Securities Limited
Leaders will continue to rule the growing industryWe initiate coverage on industry leaders in the wood panel sector –
Centuryply, Greenply and Greenlam. We believe sector revenue will continue
to witness healthy growth and industry leaders will remain biggestbeneficiaries of the structural story as they capitalize on established brands
and distribution network. GST implementation will be an additional uptick
for organized players as it would narrow pricing discount to unorganized,
forming more than 50% of the total industry of c.
250bn.
We prefer Greenply and Greenlam and are constrained by valuations on
Centuryply. Both Centuryply/Greenply would be impacted by FY16
slowdown in plywood business (expect pick-up in FY17/18) and are
incurring substantial capex on new Medium Density Fibre boards (MDF) unit,
expected to be operational by FY17/19. Greenply’s MDF business is growing
strongly, while Centuryply is not present in MDF currently. Greenply is
expected to deliver higher FY15-18E PBT CAGR of 22% vs 15% for Centuryply
and is trading at c.25-30% discount to Centuryply on FY17/18 P/E. We
initiate with a BUY on Greenply, TP 1,150, c.24% upside; and HOLD onCenturyply. Greenlam is expected deliver superior earnings growth of c.40%
over FY15-18E. Greenlam’s capex is completed and growth would be driven
by steady laminate business and revenues from new businesses. We value it
at 17x 1-yr forward EPS to arrive at a TP of 550 (Mar’17), c.27% upside.
Industry demand driven by favorable demographics and govt.’s focus: We
expect wood panel industry revenues (consisting of plywood, MDF, particle
board, laminate and veneer) to witness healthy growth. We note that demand
of mid-segment products/brands is growing at faster rate. Industry should
continue to grow with: (1) favorable Indian demographics supported by rising
middle-aged working population, and (2) increased focus of govt. on projects
like ‘Housing for All’ and ‘Smart Cities’.
Industry leaders to benefit from structural growth: We believe industry
leaders – Centuryply (plywood & laminate), Greenply (plywood & MDF) and
Greenlam (laminate) – will be the biggest beneficiaries of this structural
growth as they capitalize on established brands/distribution network.
Increasing income levels is expected to drive demand for branded/premium
products - shift in demand from huge unorganized market/up-trading. GST
implementation will be an additional uptick.
In plywood/MDF we like Greenply over Centuryply at current valuations:
For Centuryply and Greenply, we expect FY15-18 PBT CAGR of c.15%/22%.
Both are incurring substantial capex on MDF unit, expected to be operational
from FY17/19. Lower growth for Centuryply is driven by higher base of FY15
and expected slowdown in plywood business in FY16. The stock’s current
FY17/18 P/E multiple of 22.1x/19x constrains us to a HOLD rating; we value
it at 20x 1-yr forward EPS to arrive at a TP of ` 200 (Mar’17). Greenplyearnings, though impacted by FY16 plywood slowdown, are driven by revenue
growth and margin expansion of the MDF business. We value the stock at 17x1-yr forward EPS to arrive at a TP of ` 1,150 (Mar’17), 24% upside.
We like Greenlam in laminate: We expect Greenlam’s FY15-18 EPS CAGR of
c.40% driven by (1) steady growth in existing laminate business; (2)
additional revenue from new businesses; and (3) reduction in interest cost
with capex being over. The stock is trading at FY17/18 P/E of 15.6x/11.6x.We value the company at 17x 1-yr forward EPS to arrive at a TP of ` 550
(Mar’17), c.27% upside from current levels.
Samir [email protected]
Tel: (91 22) 663030
Recommendations
CompanyM/Cap
(US$ mn) RecoTP ( )
Mar-17Ups
Centuryply 711 HOLD 200 4
Greenply 373 BUY 1,150 24
Greenlam 175 BUY 550 2
Growth CompanyFY15-18E ( %)
Revenue EBITDA
Centuryply 13.8% 16.5% 14
Greenply 9.2% 15.1% 15
Greenlam 18.3% 23.2% 39
Profitability and debt Company(FY18)
EBITDA % RoE%ND/E
(x)W
da
Centuryply 17.1 31 0.7 1
Greenply 14.9 21 0.5
Greenlam 12.4 22 0.5
Stock PerformanceCompany 1M 3M
Centuryply 12% 33%
Greenply 1% 5%
Greelam 10% 18%
P/ECompany FY16 FY17 F
Centuryply 24.7 21.2 1
Greenply 18.5 15.4 1
Greelam 31.3 19.8 1
Building Materials – Wood Panel Sector
1 December 2015
India | Building Materials | Initiating Coverage
JM Financial Research is also availableon: Bloomberg - JMFR <GO>,Thomson Publisher & Reuters,S&P Capital IQ and FactSet
Please see Appendix I at the end of threport for Important Disclosures andDisclaimers and Research AnalystCertification.
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Building Materials – Wood Panel Sector 1 December 20
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Key Charts
Exhibit 1.Building Material Industry – Leaders will continue to rule the growing industry
We prefer Greenply and Greenlam and are constrained by valuations on Centuryply
MDF and laminate to grow at a higher rate than plywood Leaders revenue to grow at a higher rate than industry
Unorganized markets presents a huge opportunity Leaders with established brands
Established distribution channel of leaders Already established market shares of leaders
Higher PBT growth offered by Greenply and Greenlam Cheaper valuations of Greenply and Greenlam
Source: Company, Bloomberg, JM Financial.
1012
20
6 5 57 6
15
8 85
Total WoodPanel
Plywood MDF ParticleBoard
Laminates Veneer
Industry growth (%) FY10-15 FY15-18E
7%
14%
9%
18%
Wood panelindustry
Centuryply Greenply Greenlam
FY15-18E revenue cagr
30%
70%
40%
65% 60%
70% 60%
35% 40%30%
Plywood MDF PB Laminates Veneer
Organized Unorganized Imports
14,500
10,000
12,000
Centuryply Greenply Greelam
Approx number of end touch points
25%
11%
26%
29%
31%
Plywood MDF Laminates
Centuryply Greenply Greenlam
16% 15%
23%
15%
22%
47%
Centuryply Greenply Greenlam
FY15-18E cagr EBITDA PBT
21.2
15.4
19.819.0
13.6 13.7
Centuryply Greenply Greenlam
P/EFY17 FY18
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Valuation comp
Exhibit 2. Building Materials Valuations
Company RecoM/Cap
(US$ mn)CMP ( ) TP ( ) Upside (%)
TargetP/E (x)
Revenue Gr(%) FY15-
18E
EBITDA Gr(%) FY15-
18E
EPS Gr (FY15-1
Kajaria BUY 1,251 945 1,100 16.4 25.0 15.8% 24.5% 26.
Prism HOLD 740 88 110 24.7 22.3 11.5% 37.9% N
Somany BUY 250 386 500 29.6 20.0 17.2% 30.3% 34.
Cera HOLD 424 1,957 2,450 25.2 25.0 21.9% 23.8% 25.
HSIL BUY 384 319 400 25.4 20.0 8.6% 9.3% 26.
Centuryply HOLD 711 192 200 4.1 20.0 13.8% 16.5% 14.
Greenply BUY 373 926 1,150 24.2 17.0 9.2% 15.1% 15.
Greenlam BUY 175 435 550 26.5 17.0 18.3% 23.2% 39.
Company PE (x) PBV (x) EV/EBITDA (x)
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY1
Kajaria 32.7 25.4 20.4 8.2 6.8 6.0 17.2 13.6 11
Prism 77.7 18.6 12.1 3.8 3.2 2.6 13.2 8.4 6
Somany 25.1 16.9 13.2 4.9 4.0 3.3 12.8 9.4 7
Cera 32.4 24.0 19.0 6.1 5.0 4.1 18.5 13.9 11
HSIL 19.7 15.6 13.2 1.6 1.5 1.4 8.1 6.9 6
Centuryply 24.7 21.2 19.0 8.4 6.5 5.3 16.5 14.8 12
Greenply 18.5 15.4 13.6 3.8 3.1 2.6 10.5 9.0 8Greenlam 31.3 19.8 13.7 4.1 3.4 2.7 11.5 9.0 7
Company EBITDA % RoE (%) RoCE (%)
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY1
Kajaria 18.3 19.4 20.1 27.7 29.2 31.0 22.7 24.9 27
Prism 8.1 10.9 11.8 5.0 18.8 23.8 7.4 12.4 15
Somany 7.3 8.8 9.6 21.2 26.2 27.3 13.7 16.6 17
Cera 14.2 14.9 15.0 20.4 22.8 23.6 17.6 20.4 21
HSIL 16.2 17.1 17.1 8.5 10.0 10.9 6.7 8.2 9
Centuryply 17.5 17.4 17.1 38.5 34.6 30.8 22.0 20.2 19
Greenply 13.1 14.4 14.9 22.5 22.1 20.8 16.6 17.4 16
Greenlam 11.9 12.2 12.4 13.8 18.6 22.1 13.8 18.6 22
Company Net-debt/Equity (x) FCFE ( bn) FY15 ( bn)
FY16E FY17E FY18E FY16E FY17E FY18E Revenue EBITDA EPS
Kajaria 0.3 0.2 0.1 0.1 2.2 2.2 21.9 3.5
Prism 1.7 1.4 1.0 0.4 1.4 3.0 56.5 3.5
Somany 0.7 0.7 0.5 -0.3 -0.4 0.5 15.4 1.1
Cera 0.0 0.0 -0.1 0.1 0.3 0.5 8.2 1.2
HSIL 0.4 0.3 0.2 2.0 1.0 1.5 19.8 3.3
Centuryply 1.1 1.0 0.7 -0.1 -0.5 1.4 15.6 2.5
Greenply 0.4 0.3 0.5 0.8 0.4 -2.0 15.6 2.0
Greenlam 1.1 0.8 0.5 -0.1 0.4 0.6 8.4 0.9
Source: Company, Bloomberg, JM Financial.
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Investment summary
Centuryply (HOLD, TP 200) – Structural story intact, wait for dips to BUY:
Centuryply is joint number one player with Greenply in plywood and third
largest in laminate. Strong at execution: (1) it delivered revenue/PAT growth
of more than 20%/25% over the last decade; (2) it was quick to capitalize on
face veneer business in FY15 leading to revenue/PAT growth of c.22%/125%;
(3) it has established strong brand/distribution channel with largely retail
sales. With sufficient capacity to grow without incurring any immediate capex,
company has decided to enter MDF business to ensure future growth. Webelieve FY15-18E revenue/EBITDA growth would be led by laminate which has
been delivering more than 20% volume growth since last year. Company is
expected to maintain RoEs of c.30% with net-debt/equity of 0.7x by FY18. We
expect company to deliver FY15-18E revenue/EBITDA/EPS CAGR of
14%/16%/14% driven by expected slowdown in FY16 in plywood segment,
albeit on a higher base of FY15 and higher interest cost on back of new
expansion of MDF unit. We value stock at 20x 1yr-forward EPS; TP of ` 200
(Mar’17). Initiate with HOLD. GST implementation and early ramp up of MDF
unit would provide additional uptick.
Greenply (BUY, TP 1,150, upside of 24%) – MDF to be the growth engine:
Greenply is the number one player in plywood and MDF market with an
established pan-India brand and distribution network. Besides growingsteadily in the established plywood business, MDF is expected to contribute
c.30% to revenues and over 50% to company’s EBITDA by end of FY16 (in 5 -6
years since the company entered MDF). FY15-18E MDF revenue CAGR is
expected at c.15% on increasing acceptability of the product. Company plans
to treble capacity to 0.54cbm by FY19 by adding a unit in Andhra Pradesh.
Plywood segment is expected to be impacted by weak near term demand (7%
FY15-18E revenue CAGR), though the mid-segment outsourced Ecotek brand
should continue to grow. We expect company to deliver FY15-18E
revenue/EBITDA/PBT CAGR of 9%/15%/22%. We value stock at 17x 1yr-
forward EPS; TP of ` 1,150 (Mar’17). Initiate with a BUY. GST implementation
and early ramp up of MDF unit would provide an additional uptick.
Greenlam (BUY, TP 550, upside of 27%) - Fueled for growth: Greenlam is
structurally well placed to deliver strong growth with extremely strong
established distribution network and brand, even internationally. Greenlam is
a largest laminate player in Asia and third largest in the world. Company is in
a sweet spot with all the growth capex completed. It has incurred a total
capex of ` 1.6bn in FY14-1HFY16 with potential to generate revenues of ` 5-
6bn (FY15 total revenue at ` 8.5bn). Expansions included capacities of 2mn
sheets laminate, 2msm melamine faced chipboard (part of laminate), 120k
units factory finishes doors (part of veneer) and 1msm engineered wood
flooring (part of veneer). We expect expansions to drive company’s growth –
laminate segment revenue/EBITDA is expected to witness 16%/22% and
veneer 36%/27% CAGR for FY15-18E. Though veneer’s revenue share would
increase by c.50% in next three years, laminate would still be c.80% of the
revenues by FY18. We expect the company to deliver revenue/EBITDA/EPSCAGR of 18/23/39% over FY15-18E. Currently the stock is trading at FY17/18
P/E of 19.8/13.7x. We value the company at 17x 1-yr forward EPS to arrive at
a TP of ` 550 (Mar’17), c.27% upside from current levels. GST implementation
would provide an additional uptick.
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Strong financials of leaders
Exhibit 3. Building Material Industry – Company financials
Greenlam to deliver higher growth
FY15 revenues10-14% revenue growth expected for Centuryply/Greenply;
over 15% for Greenlam
100-150ps margin expansions expected Greenply/Greenlam to deliver higher FY15-18E PBT cagr
Healthy return ratios Improving leverage ratios
OCF/EBITDA reflecting working capital efficiency Working capital days
Source: Company, JM Financial.
15.6 15.6
8.4
Centuryply Greenply Greelam
FY15 revenue (Rs bn)17.6%
9.1%
11.8%
13.8%
9.2%
18.3%
Centuryply Greenply Greelam
FY13-15E (% change)
FY15-18E (% change)
16.0
13.2
11.0
17.1
14.9
12.4
Centuryply Greenply Greelam
FY15 EBITDA (%) FY18 EBITDA (%)
16% 15%
23%
15%
22%
47%
Centuryply Greenply Greenlam
FY15-18E cagr EBITDA PBT
44
25
13
30
21 23
Centuryply Greenply Greelam
FY15 RoE (%) FY18 RoE (%)1.2
0.6
1.2
0.7
0.5 0.5
Centuryply Greenply Greelam
FY 15 net-debt/Equity FY 18 net-debt/Equity
55.2
91.6
169.0
Centuryply Greenply Greelam
FY15 OCF/EBITDA123
52 56
Centuryply Greenply Greelam
FY 15 working capital days
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Building Materials – Wood Panel Sector 1 December 20
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India wood panel industry in exhibits
Exhibit 4. India wood panel market – Snapshot
Growth drivers – housing, unorganized market, increasing replacement demand,
value-added products, GSTUnits Plywood MDF PB Laminates Veneer Total
Size FY15 ` mn 150 15 20 42 20 247
% of total industry 61 6 8 17 8
FY10-15 growth % 12 20 6 5 5 10Expected FY15-18E % 6 15 8 8 5 7
Organized % 30.0 70.0 40.0 65.0 60.0 41.6
Unorganized % 70.0 0.0 60.0 35.0 40.0 56.6
Imports % 0.0 30.0 0.0 0.0 0.0 1.8
Residential % 70.0 20.0 10.0 35.0 70.0 56.2
Commercial % 30.0 80.0 90.0 45.0 30.0 40.4
Export % 0.0 0.0 0.0 20.0 0.0 3.4
New Demand % 85.0 99.0 98.0 80.0 85.0 86.1
Replacement % 15.0 2.0 5.0 20.0 15.0 14.3
Source: Company, Media reports, Industry Sources, JM Financial.
Exhibit 5. India wood panel market – Industry Size and growth
c.`250bn industry to grow by c.6.5% FY15-18E cagr; MDF growth expected to be higher than plywoodbn FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY10-15 FY15-18
PlywoodSize 96 107 120 132 150 152 164 178 11.7 5Growth % 11.5 11.5 11.5 10.5 13.5 1.5 8.0 8.0
MDFSize 6 8 10 12 15 17 20 23 20.1 15Growth % 0.2 26.0 26.0 26.0 24.5 15.0 15.0 15.0
Particle BoardSize 16 17 18 19 20 22 23 25 5.5 8Growth % 4.5 5.3 5.3 5.3 7.4 8.0 8.0 8.0
LaminateSize 35 36 38 40 42 45 49 52 4.9 7Growth % 5.0 5.0 5.0 5.0 4.5 7.5 7.5 7.5
VeneersSize 16 17 18 19 20 21 22 23 5.0 5Growth % 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
TotalSize 169 185 203 222 247 257 278 301 9.6 6Growth % 8.4 9.5 9.6 9.2 11.2 4.1 8.1 8.2
Source: Company, Media reports, Industry Sources, JM Financial.
Exhibit 6. India wood panel market – Product price points
With GST the pricing difference with unorganized market would narrowPricing Snapshot Plywood MDF PB Laminates
Size 19mm *8*4 19mm *8*4 19mm *8*4 1mm *8*4
Unit /sq. ft /sq. ft /sq. ft /Per sheet
Greenply 100-130 35-45 NA NA
Centuryply 100-130 NA NA 1000-1,800
Greelam NA NA NA 1000-1,800
Other branded 85-100 33-42 25-35 NA
Unorganized 65-85 NA 22-32 NA
Imported NA 32-40 22-32 NA
Source: Company, JM Financial.
Note: For plywood both Greenply and Centuryply sell their mid-segment brands at 15-20% lower prices as compared to
the average premium plywood above.
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Building Materials – Wood Panel Sector 1 December 20
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Exhibit 7. India wood panel market – Growth Drivers
Focus on housing schemes by govt. like Housing for All & Smart Cities to fuel demand
Housing Shortage Favorable Indian demographics (rising working age population)
Interest rates at peak, a decline to fuel housing demand With better than GDP growth, expect latent demand to come back
Source: Company, JM Financial.
15.2017.60
23.30 22.90 23.0024.71
18.78
1961 1971 1981 1991 2001 2007 2012
Urban housing shoratge (mn)
FY01
FY12
35.4
29.1
57.7
62.6
6.9
8.3
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2.0
3.0
4.0
5.06.0
7.0
8.0
9.0
10.0
11.0
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8.1 8.2
3.0
4.0
5.0
6.0
7.08.0
9.0
10.0
11.0
12.0
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
GDP growth % Sector growth %
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Building Materials – Wood Panel Sector 1 December 20
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Exhibit 8. India wood panel market – Organized player to benefit more
Organized player to benefit increasing number of people aspire to have better homes/branded products
Rising disposable income, more people becoming aspirational Increasing Urbanization
Organized market share to increase Established distribution
Established brands GST would be an additional trigger
GST benefit
(1) Total tax paid now is c.26%. Any rate of GST below 26% woulbe beneficial. GST is expected to be at c.20-24%
(2) India will become one market, no octroi and other taxes. would decrease transportation days and the freight charges.
(3) Narrow the price differential with unorganized players bc.10% at 24% GST rate.
Source: Company, JM Financial.
20.3
15.1
11.7 12.0 12.8 13.1
3.0
8.0
13.0
18.0
23.0
FY10 FY11 FY12 FY13 FY14 FY15
Per Capita Income growth (%)
FY01 FY11 FY20E
72.2 68.854.8
27.8 31.245.2
Rural Urban
30
70
40
65 60
70 60
35 4030
Plywood MDF PB Laminates Veneer
Organized Unorganized Imports14,500
10,000
12,000
Centuryply Greenply Greelam
Approx number of end touch points
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Building Materials – Wood Panel Sector 1 December 20
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Plywood Industry
Exhibit 9. India plywood sector – Industry Size and growth
c. ` 150bn industry, expected to witness c.7.5% FY15-18E CAGR (organized market to grow at a higher rate)bn FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY10-15 FY15-18
PlywoodSize 96 107 120 132 150 152 164 178 11.7 5Growth % 11.5 11.5 11.5 10.5 13.5 1.5 8.0 8.0
Source: Company, JM Financial
Exhibit 10.India plywood sector
c.70% being unorganized; Centuryply and Greenply having c.50% of the organized market (other are regional players)
c.70% is unorganized market Duopoly organized market (revenue market share)
c.70% demand is residential Replacement mainly from new construtions
Centuryply/Greenply continue to grow faster vs. Industry Superior margin profile of Centuryply and Greenply
Source: Company, JM Financial.
Organized,30%
Unorganized,70%
Centuryply,25%
Greenply,26%
Archidply,6%
Sarda, 5%
Uniply, 2%
Kitply, 1%
National, 1%
Others, 35%
Residential,70%
Commercial,30%
Newconstruction,85%
ReplacementDemand,
15%
11.7%
17.5% 17.4%
5.8%
9.9%
7.3%
Industry Growth Centuryply Greenply
Plywood revenue growthFY10-15
FY15-18E
17.6
9.17.9
3.2
10.7
-6.8
0.2
Centuryply Greenply Archidply Sarda Uniply Kitply National
EBITDA margins (%)
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Other details
Plywood is a sheet material manufactured from thin layers of wood
veneer (face veneer on top and bottom with core veneer in between) that are
glued together.
Raw-material is the major cost in plywood industry, forming about 55-60% of
revenue. Of the raw-material (1) c.80% is cost of face/core veneer - c.50% (face
veneer) is sourced from Myanmar, Africa etc. and c.30% (core veneer) is
sourced locally; (2) balance 20% is adhesives which is easily available.
In Apr’14 Myanmar govt. imposed a ban on export of raw timber, which
necessitated Indian manufacturers to establish timber processing units in
Myanmar. The Myanmar ban led to increased focus on raw-material security
by company’s like Centuryply and Greenply that have established timber
processing units in Myanmar. Centuryply would be having c.104,000cbm
peeling capacity (sells surplus raw-material to other manuafacturers) by FY16
vs. 12,600cbm for Greenply (used majorly for captive consumption).
We note that the mid-segment plywood demand for companies (like Sainik for
Centuryply and Ecotek for Greenply) is growing at a much faster rate.
Besides continued slowdown in real estate constrution activities, sector faces
risk from increased acceptance of MDF and change in regulations of countries
from where face veneer is imported.
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MDF market
Exhibit 11. India MDF sector – Industry Size and growth
c. ` 15bn industry, expected to witness c.15% FY15-18E CAGRbn FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY10-15 FY15-18
PlywoodSize 6 8 10 12 15 17 20 23 20.1 15Growth % 0.2 26.0 26.0 26.0 24.5 15.0 15.0 15.0
Source: Company, JM Financial
Exhibit 12.India MDF sector
MDF forms c.8% of the panel market in India vs. c.65% globally; Greenply is the leader in the sector
No unorganized market, c.33% imports Greenply is the largest player (sales volume share)
More driven by commercial demand Usage is increasing gradually
Globally 65% panel market is MDF, India c.10% currently Greenply’s amongst the most profitable players
Source: Company, JM Financial.
Organized,70%
Imports, 30%
Mangalam,5%
Shirdi, 2%
Action, 20%
Green, 29%
RushilDécor, 11%
Imported,33%
Residential,20%
Commercial,
80% Newconstruction,
99.0%
ReplacementDemand,
2.0%
10%
65%
India Market Share Global Market Share
MDF (as % of wood panel market)
18.8
8.4
-27.8
Greenply Rushil Décor Mangalam Timber
FY15 MDF EBIT margins (%)
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Building Materials – Wood Panel Sector 1 December 20
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Other details
MDF is engineered wood made from wood wastes fibres glued together using
heat, resin and pressure.
Only Greenply, Action Tesa and Rushil Décor have been able to establish
themselves in the market. Shirdi Industries and Managalam timber are
masking losses while Bajaj Hindustan and Nuchem have closed down. We note
that high capex acts as an entry barrier for the industry. c. ` 3bn is required to
set up a typical plant of c.400cbm/day.
We note that MDF is expected to grow faster than plywood on: (1) increased
acceptance by carpenters and architects; (2) cannibalizing demand of
unorganized plywood industry; (3) good value proposition for a consumer
considering the price and durability parameters.
c.33% of MDF volumes are imported in India. Anti-dumping duty on plain MDF
boards, which lapsed in Feb’15, has been imposed again in Oct’15.
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Building Materials – Wood Panel Sector 1 December 20
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Laminates market
Exhibit 13. India Laminates sector – Industry Size and growth
c. ` 42bn industry, expected to grow by 6%bn FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY10-15 FY15-18
PlywoodSize 35 36 38 40 42 45 49 52 4.9 7Growth % 5.0 5.0 5.0 5.0 4.5 7.5 7.5 7.5
Source: Company, JM Financial
Exhibit 14.India Laminates sectorc.35% being unorganized; Greenlam is the largest player with c.30% market share
c.35% is unorganized market Greenlam is the largest player c.30% revenue share
Exports forming c.20% of the demand 80% demand from new projects
Source: Company, JM Financial.
Other details
Laminates are a thin sheet of decorative surface material used as a surface
covering on top of a substrate like plywood, MDF or a particle board.
The export market for laminate is c.US$7bn. Greenlam has c.40% share of
India’s laminate export of c. ` 8bn.
In the laminate business raw-materials cost is the key cost forming c.50% of
the sales. Paper and chemicals form c.60% and c.40% of the total raw-material
cost. c.70% of the raw-material is either imported or is import linked. 50% of
the paper cost consists of design paper (used to give designs to the laminate)
which is imported. Remaining 50% of paper cost is towards tissue paper (used
to give a protective covering) and kraft paper (used to give thickness). Some
craft paper is also imported. All chemicals costs are linked to crude cost.
Melamine and Phenol Formaldehyde are the chemicals which are mainly used
in the laminate. Companies like Greenlam have a natural hedge on imported
raw-materials as c.50% of the laminate is exported.
Organized,65%
Unorganized,35%
Greenlam,31%
Merino, 26%
Centuryply,11%
Stylam, 8%
Royal Touch,7%
RushilDécor, 7% Others,
10%
Residential,35%
Commercial,
45%
Exports, 20%
Newconstruction,
80%
ReplacementDemand,
20%
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Manufacturing processes
Exhibit 15. Manufacturing process of plywood
Source: Company, JM Financial
STORING OF LOGS
(Logs are stored in pond)
Blocking
(Logs are cut in required size)
DEBARKING
(Barks of the Blocks are removed)
TENDERISER MACHINE
(Tenderisedto make stress free)
VENEER CLIPPING
(Veneer clipped as per required size)
PEELING
(Blocks are peeled for Veneer )
DRYING
(Dried to remove moisture)
VENEER SORTING
(Veneer sorted for grading)
GLUE MIXTURE
PRE PRESS
(Assembled packs are pressed in Cold Press
under high pressure before final pressure)
ASSEMBLING
(of Face Veneers, Glued Core, Filler again
Glued Core and then Face Veneer)
GLUE SPREADER
(Pasting glue on either side of core)
HOT PRESS
Pre-pressed pack goes to Hot Press for final
pressing under pressure and temperature
TRIMMING
(Pressed Sheets are cut into final s ize)
WIDE BELT SANDER
(Sanding of plywood sheets)
FINISHING & GRADING
(Visual checking)
DRYING CHAMBER
Drying the treated sheets with required
moisture content
PRESERVATIVE TREATMENT
(chemical treatment with high retention)
QUALITY CHECKING
(Sorting out defective sheets)
LABORATORY TESTING
(Random samples drawn for testing at lab)
GRADING & STAMPING
After grading and checking, embossing &
stamping is done (Proper checking of
stamped materials)
DESPATCH
(Plywoods are ready for market despatch)
BUNDLING & PACKING
(Stamped sheets are bundled & packed)
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Building Materials – Wood Panel Sector 1 December 20
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Exhibit 16. Manufacturing process of MDF
Source: Company, JM Financial
Exhibit 17. Manufacturing process ofl min te
Source: Company, JM Financial
M.F.RESIN
Edge Trimming
Marking
Treating to
Required
Parameters
Cutting
Spotting
Assembly
Pressing
Sanding
Pack Making
P.F.RESIN
Treating to
Required
Parameters
Cutting
Pack Making
Packing Dispatch
Phenol
Formaldehyde
Catalyst
Kraft Paper
Melamine
Formaldehyde
Catalyst
Design Paper/
Tissue Paper
Q.C.Inspection
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Building Materials – Wood Panel Sector 1 December 20
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Notes
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JM Financial Institutional Securities Limited
Structural story intact, wait for dips to BUYCenturyply is joint number one player with Greenply in plywood and thirdlargest in laminate. Strong at execution: (1) it delivered revenue/PAT growthof more than 20%/25% over the last decade; (2) it was quick to capitalize onface veneer business in FY15 leading to revenue/PAT growth of c.22%/125%;(3) it has established strong brand/distribution channel with largely retailsales. With sufficient capacity to grow without incurring any immediatecapex, company has decided to enter MDF business to ensure future growth.We believe FY15-18E revenue/EBITDA growth would be led by laminatewhich has been delivering more than 20% volume growth since last year.Company is expected to maintain RoEs of c.30% with net-debt/equity of 0.7xby FY18. We expect company to deliver FY15-18E revenue/EBITDA/EPS CAGRof 14%/16%/14% driven by expected slowdown in FY16 in plywood segment,albeit on a higher base of FY15 and higher interest cost on back of newexpansion of MDF unit. We value stock at 20x 1yr-forward EPS; TP of 200(Mar’17). Initiate with HOLD. GST implementation and early ramp up of MDFunit would provide additional uptick.
Intelligent capex plans; Laminates to lead FY15-18E growth: Company is a
joint number one with Greenply in plywood and third largest in laminate. Withsufficient capacity in these segments, it decided to enter MDF business andexpand face veneer capacity to ensure future growth. Laminate revenue isexpected to see 22% CAGR (c.24% volume growth in FY15) vs. company’sFY15-18E CAGR of c.14%. Plywood segment is expected to pick-up post FY16,though Sainik’s (mid-segment brand) volumes should continue to grow.
Establishment of Myanmar, Laos units noteworthy; Plywood EBITDAmargins at peak: Company’s extremely strong execution in timelyestablishment of timber processing units at Myanmar and Laos to build a longterm security of raw-material and higher profits from sale of surplus raw-material led to c.400bps EBITDA margin expansion for the plywood segmentin FY15. Plywood EBITDA grew more than 50% in FY15 – is at a high base withmargin peaking. For FY15-18E we expect EBITDA growth to be driven byLaminates segment with higher revenue growth and margin expansion.
Laminates is expected to deliver more than 40% EBITDA growth vs. company’sEBITDA CAGR of c.16% for FY15-18E. Company is expected to maintain RoEsof c.30% with net-debt/equity of 0.7x by FY18.
Initiate with HOLD: Company’s P/E has re-rated with FY15revenue/EBITDA/EPS CAGR at 22/69/125%. Currently stock is trading atFY17/18 P/E of 21.2/19x. We expect FY15-18E revenue/EBITDA/EPS CAGR of14%/16%/14% driven by slowdown in plywood, albeit on FY15 higher base andhigher interest cost on MDF expansion. We value stock at 20x 1-yr forwardEPS to arrive at TP of ` 200 (Mar’17). Initiate with a HOLD.
Exhibit 1.Centuryply – Structural story intact
Samir [email protected]
Tel: (91 22) 663030
Key Data
Market cap (bn) ` 42.7 / US$ 0
Shares in issue (mn) 222
Diluted share (mn) 222
3-mon avg daily val (mn) ` 67.6/US$ 1
52-week range ` 262.0/137
Sensex/Nifty 26,146/7,9
` /US$ 66
Daily Performance
% 1M 3M 12
Absolute 9.8 25.3 12
Relative* 11.7 25.8 21
* To the BSE Sensex
Shareholding Pattern (
Sep-15 Sep-
Promoters 73.3 74
FII 10.7 5
DII 3.4 2
Public / others 12.5 17
-10-500%501015202530354045
0
50
100
150
200
250
300
Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15
Century Plyboards
Century Plyboards Relative to Sensex (RHS)
Century Plyboards| CPBI IN
1 December 2015
Price: ` 181
HOLD
12M Target: ` 200
Exhibit 1: Financial Summary ( mn)
Y/E March FY14A FY15A FY16E FY17E FY18E
Net sales 12,840 15,648 16,600 19,092 23,078
Sales growth (%) 13.5 21.9 6.1 15.0 20.9
EBITDA 1,482 2,498 2,911 3,318 3,947
EBITDA (%) 11.5 16.0 17.5 17.4 17.1
Adjusted net profit 670 1,508 1,728 2,009 2,250
EPS ( ` ) 3.0 6.8 7.8 9.0 10.1
EPS growth (%) 27.2 125.2 14.6 16.2 12.0
ROCE (%) 17.1 22.9 22.2 20.5 20.4
ROE (%) 24.8 44.4 38.5 34.6 30.8
PE (x) 63.7 28.3 24.7 21.2 19.0
Price/Book value (x) 14.6 11.0 8.4 6.5 5.3
EV/EBITDA (x) 31.7 18.8 16.4 14.7 12.2
Source: Company data, JM Financial. Note: Valuations as of 30/11/2015.
India | Building Materials | Initiating Coverage
JM Financial Research is also availableon: Bloomberg - JMFR <GO>,Thomson Publisher & Reuters,S&P Capital IQ and FactSet
Please see Appendix I at the end of threport for Important Disclosures andDisclaimers and Research AnalystCertification.
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Century Plyboards 1 December 20
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Key Charts
Exhibit 2.Centuryply – Structural story intact
Initiate with HOLD, near term weakness in plywood segment
Plywood forms more than c.70% of the revenues Plywood forms more than c.70% of the EBITDA
Total revenue growth to be slower; timid FY16 growth in plywood Laminates to lead the EBITDA growth
MDF capex to ensure future growth, impact FY17 cash flows Net-debt to equity and EBITDA comfortable
Strong return ratios Stock has re-rated in FY15
Source: Company, Bloomberg, JM Financial.
73 70 69 66
19 21 23 23
4 5 44
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of revenues Plywood Laminates CFS Others
8171 70 67
1118 20 20
13 12 11 10
-20
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of EBITDA Plywood Laminates CFS Others
17.2 17.5
23.4
13.8
9.9
21.5
0.0
5.0
10.0
15.0
20.0
25.0
Total revenue Plywood Laminates
Revenue cagr (%) FY10-15 FY15-18E
17.6 17.8 17.7 17.5
9.6
15.3 15.0 15.0
0
5
10
15
20
FY15 FY16E FY17E FY18E
Segment EBITDA margin (%)
Plywood Laminates
0.7
-5.7 -5.9 -6.2
4.4
-0.5
-4.9
13.9
4.26.4 6.7
4.6 5.3
18.520.5
0.5
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
FCFE (Rs bn) Capex (Rs bn)
0.71.0
1.5 1.6
1.21.1 1.0
0.7
2.02.2
3.43.2
1.9 1.9 1.9
1.5
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Net debt/Equity (x)
Net debt/EBITDA (x)
19% 19%
13% 16%
22% 22% 20% 20%
29%
20%19% 25%
44%39%
35%
31%
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
RoCE (%) RoE (%)
0
5
10
15
20
25
30
35
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
P/E = 22.7x Mean=18.9xMean+1SD=25.9x Mean-1SD= 11.9x
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Century Plyboards 1 December 20
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Investment Debates
# Debate 1- Will revenue growth slowdown
Centuryply has expanded plywood capacity by 40% and almost doubled the
l min te
capacity in FY10-15. Company is a leading player in both the
segments, a joint number one with Greenply in plywood (forming c.73% of
company’s FY15 revenues) and third largest in laminate (forming c.19% of
FY15 revenues). With capacity utilization levels at 75-85%, it has sufficientcapacity to grow without incurring immediate capex in current segments
and decided to enter MDF segment to ensure future growth. We believe
FY15-18E revenue growth for the company will be led by laminate segment
which has been delivering more than 20% volume growth since last year.
Laminates segment revenue is expected to witness 22% CAGR vs. company’s
CAGR of c.14%. Plywood segment is expected to pick-up post FY16, though
Sainik’s (the mid-segment affordable outsourced brand) volumes should
continue to grow by c.15%. Structurally company is well placed to continue
to deliver strong growth with large unorganized market moving to
organized, strong distribution network, strong brand and focused capex
plans to deliver future growth.
73%/19% revenues from plywood/laminate; leader in both: Centuryply is
predominantly a plywood player with 73% of the total revenues coming from
plywood, and 19% from laminate in FY15. It is a leading player in the
organized market of both lywood and laminate segment. While it is a joint
leader with Greenply with c.25% share of the organized plywood market
revenues, it is the third largest player in the organized laminate segment with
c.10% share. c.4.5% of company’s revenues came from container freight
station business which is engaged in handling shipments near Kolkata port.
Current capacity operating at 75-85% utilizations, allowing growth
without new capex: During FY10-15 Centuryply increased plywood capacity
by c.40% to 210kcbmand; has doubled laminate capacity (50% in FY13 and
50% in FY15) to 4.8mn sheets. The capacity utilization in FY15 was c.85% in
plywood and c.75% in laminate, allowing capacity to grow further withoutimmediate new capex. The strategy in plywood is to grow by outsourcing
medium-end plywood and manufacturing higher end products at own plants.
Exhibit 3.Centuryply – Revenue break-up
More than 90% of revenues come from plywood (more than 70%) and laminate
Source: Company, JM Financial.
71 73 75 73 70 69 66
16 18 18 19 21 23
23
5 5 4 4 5 4
4
0
20
40
60
80
100
120
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
% of revenuesPlywood Laminates CFS Others
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Century Plyboards 1 December 20
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Exhibit 4.Centuryply – Revenue market share and capacity
Company is a joint leader in plywood market and third largest in the laminate segment (organized market)
c.25% revenue market share of organized plywood market c.10% revenue market share of organized laminate market
209k cbm plywood capacity, operating at c.85% utilization 4.8mn sheets laminate capacity, operating at c.75% utilization
Source: Company, Industry sources, JM Financial.
Centuryply,
25%
Greenply,26%
Archidply,6%
Sarda, 5%
Uniply, 2%
Kitply, 1%
National, 1%
Others, 35% Greenlam,31%
Merino, 26%
Centuryply,11%
Stylam, 8%
Royal Touch,7%
RushilDécor, 7% Others,
10%
150 161 172
209 209 209 209 209
89 91
81
74
83 84
88
94
60
65
70
75
80
85
90
95
100
3
53
103
153
203
253
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Plywood Capacity (msm) (LHS) Capacity utilisation (%)
2.40 2.40
3.60 3.60
4.80 4.80 4.80 4.80
87
99
7882
76
88
101
114
70
80
90
100
110
120
2.00
2.50
3.00
3.50
4.00
4.50
5.00
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Laminates Capacity (mn sheets) (LHS) Capacity utilisation (%)
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Century Plyboards 1 December 20
JM Financial Institutional Securities Limited Page
Laminates segment to lead FY15-18E growth: We expect laminate segment
revenue to almost double to ` 5.5b in FY18, from ` 2.9bn in FY15. We gain
confidence from: (1) the doubling in laminate capacity in last five years (50%
in FY13 and 50% in FY15; (2) company’s plan to continue to increase SKUs by
100 every year, currently 700 SKUs; (3) volume growth of 23-24% in FY15 and
1QFY16, and (4) new particle board unit becoming operational in FY17. We
expect FY15-18E laminate revenue (including particle board revenues) to
witness 22% CAGR .
Exhibit 5. Centuryply – Laminates revenues and volumes
Laminates segment revenues to contribute significantly to company’s revenue growth profile
Company’s total revenue to grow by 14% cagr Laminates segment to lead the FY15-18 revenue growth
Laminates volume to grow by more than 15% Laminates revenue to grow by more than 22%
Source: Company, JM Financial.
8.8
11.2 11.3 12.8
15.6 16.6
19.1
23.1
23.927.5
1.1
13.5
21.9
6.1
15.0
20.9
0
5
10
15
20
25
30
0
5
10
15
20
25
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Total Revenue (Rs bn) (LHS) Growth (%)
17.2 17.5
23.4
13.8
9.9
21.5
0.0
5.0
10.0
15.0
20.0
25.0
Total revenue Plywood Laminates
Revenue cagr (%) FY10-15 FY15-18E
15.6 16.0
10.4
8.0
23.6
17.015.0
12.5
15.4
0.8
4.5 5.3 6.3 5.8
3.5 3.5
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Laminates volumes growth (%) Laminates realization growth (%)
1.4
1.8 2.0 2.4
2.9
3.5
4.4
5.338.4
26.6
13.5 16.0
24.0
20.2 26.118.4
0
5
1015
20
25
30
35
40
45
0
1
2
3
4
5
6
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Laminates (Rs bn) Growth (%)
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Century Plyboards 1 December 20
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FY16 to be weak for plywood; affordable segment to continue to grow:
For plywood we expect FY16 to be muted due to weak demand, and build in
recovery in FY17/18E. Within plywood, company’s mid-segment affordable
Sainik brand (outsourced manufacturing) volumes should continue to grow by
c.15%. We expect FY15-18E plywood revenue to see c.10%.
Exhibit 6. Centuryply – Plywood revenues and volumes
Plywood segment to gain traction post FY16
Plywood revenues to be flattish for FY16 Volumes weak in FY16
Plywood volumes to pick up in FY17/18E Sainik volumes (affordable mid-segment brand) to continue to gro
Source: Company, JM Financial.
Capex on track to sustain future growth: Centuryply would be incurring (1)
` 600mn on the particle board unit (revenue to be included in Laminates
segment); (2) ` 300mn for the peeling unit in Laos & Myanmar in FY16 which
will enable company to sell increased volumes of profitable face veneers; (3)
` 2.6bn capex over FY16/17E to establish a new MDF unit (600cbm/day) and
(4) capex of c. ` 300mn on new office building in Kolkata ( ` 200-250mn already
done).
Structural drivers intact for the company
(1) Large unorganized market: 70% of the plywood market is still
unorganized vs. c.10% a decade ago, offering the organized players a huge
landscape to grow with favorable Indian demographics and increasing
preference for branded products. We note that Centuryply delivered plywood
revenue CAGR of c.24% for FY06-15 vs. industry growth of c.10%.
7.27.9 8.3
9.6
11.5 11.7
13.2
15.241.6
9.4
4.5
16.6
18.9
1.9
12.8
15.4
0
5
10
15
20
25
30
35
40
45
0
2
4
6
8
10
12
14
16
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Plywood (Rs bn) Growth (%)
174197 191
221 234 241
264
294
42
40
43 44
49 4950
52
0
50
100
150
200
250
300
350
35
40
45
50
55
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Plywood volumes ('000 cbm)
Plywood realization ('000 Rs/cbm)
21.9
13.6
-3.0
15.7
5.7
2.9
9.511.5
16.1
-3.7
7.7
0.8
12.5
-1.0
3.0 3.5
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Plywood volumes growth (%) Plywood realization growth (%)
23.5
42.5
8.0
14.0 15.012.7
17.1 18.0 18.7 19.3
FY14 FY15 FY16E FY17E FY18E
Sainik plywood volumes growth (%) % of total volumes
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Century Plyboards 1 December 20
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(2) Strong sales and distribution channel: Company has strong pan-India
distribution network. It has 35 marketing offices/depots, 6 regional
distribution centers and over 14,500 channel partners. Centuryply plans to
expand distribution network by deeper penetration into smaller towns.
Currently c.90% of company’s sales is through retail channels.
Exhibit 7. Centuryply – Structural drivers in place for the company
Large unorganized market, strong sales and distribution channel, strong brand and largely retail sales
Unorganized market continue be c.70% of the total plywood market Company has delivered much higher growth than industry growth
Continues to grow the dealer channel; 14,500 sales points 90% of the sales through retail channel
Centuryply have built strong brands over time Company continues spend on branding and promotion
Source: Company, JM Financial.
Organized,30%
Unorganized,70%
11.7%
17.5%
5.8%
9.9%
Industry Growth Centuryply
Plywood revenue growthFY10-15
FY15-18E
1,424 1,500
406 426
186 18633 355 6
FY14 FY15
Plyboards dealers Laminates dealers
Decorative Veneers dealers Branch Offices/ Sales Depots
Regional distribution Centers
Retail, 90%
Institutional,10%
3.4
3.74.1
2.4
3.2
3.93.5
4.9
3.2
4.9
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Selling expenses (% of Net Sales)
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Century Plyboards 1 December 20
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(3) Strong brands: Centuryply has built a strong brand over last 28 years and
continues to invest c.3-4% of revenues towards brand building. Strong brands
have been built across categories (plywood, laminate, veneers etc.) and across
segments (high to mid segment). In the past, company’s brand has been
endorsed by celebrities like Nawab Pataudi (late cricketer), Sharmila Tagore,
Sharukh Khan, Amitabh Bachan and Nana Patekar.
(4) Largely retail sales: Company sells c.90% of goods to retailers directly as
plywood and laminate are mainly used by the end-users for building furniture,
rather than builders.
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# Debate 2- Will it sustain industry leading profitability
Company deserves credit for its extremely strong execution on timely
establishing timber processing units in Myanmar (in FY15) and continuous
expansion of capacity in Myanmar and Laos to build a long term security of
raw-material and higher profits from sale of surplus raw-material. Timely
execution led to c.400bps EBITDA margin expansion for the plywood
segment in FY15. We note EBITDA margin was c.850bps more than that for
Greenply. We estimate company to have more than thrice the capacity of
raw-material by FY16 end, than required for captive consumption. Plywood
EBITDA grew by more than 50% in FY15. EBITDA margin for the segment
seems at peak. For FY15-18E we believe EBITDA growth will be driven by
Laminates segment with higher revenue growth and margin expansion in
sight. Laminates margin expanded by c.550bps in 1HFY16. We expect EBITDA
margins to be stable at c.17-17.5%. We note that, though plywood would
continue to form c.70% of the company’s EBITDA, Laminates is expected to
deliver higher EBITDA growth (c.40%). We expect company’s EBITDA to
witness c.16% FY15-18E CAGR.
Myanmar a blessing in disguise: We note that raw-material is the major cost
in plywood industry, forming about 55-60% of revenue. Of the raw-material
(1) c.80% is cost of face/core veneer - c.50% is sourced from Myanmar, Africa
etc. and c.30% is sourced locally, and (2) balance 20% is adhesives which is
easily available. The Myanmar ban led to (1) company’s increased focus on
raw-material security; (2) reduced logistic costs as processed veneer is
exported from Myanmar vs. raw timber logs earlier; (3) enabled higher
profitability from sale of surplus face veneer to domestic manufacturers.
Company creating a long term raw-material security: In Apr’14 Myanmar
govt. imposed a ban on export of raw timber, which necessitated the Indian
manufacturers to establish timber processing units in Myanmar. Centuryply
established timber processing unit in Myanmar in 1HFY15 and continues to
expand capacity in Myanmar and through new units in Laos and Indonesia,
unlike Greenply (capacity sufficient for captive consumption). Company’s
capacity was 32,000cbm in Myanmar in FY15 and is expected to be
1,04,000cbm capacity by end of FY16 (40,000 at Myanmar and 64,000cbm at
Laos). With this company would be having more than thrice the capacity of
face veneer required for captive consumption.
Not much difference in plywood EBITDA margins with Greenply till FY14;
c.850bps more than Green in FY15: We note that in FY14 Centuryply’s
plywood segment EBITDA margin was c.200bps more than that for Greenply.
FY15 was an inflexion point wherein Centuryply’s margin was c.850bps more
than Greenply led mainly by efficient sourcing of face veneer (as discussed
above) which helped the company’s top-line and bottom-line: (1) sale of
surplus scarce face veneer to domestic manufacturers at a highly profitable
price; (2) lesser raw-material cost. Also, there was forex gain vs. loss in FY14.
Expect margins to soften: Company exited FY15 with EBITDA margins at
19.4% (4QFY15). 1HFY16 margin was 17.3%. We expect margins to soften in
FY16 on back of dip in realizations of face veneer due to weakness in
plywood demand and with few local manufacturers establishing timber
processing plant in Myanmar.
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Century Plyboards 1 December 20
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Laminates margin to trend upwards with better utilization levels: With
strong volume growth in the Laminate business, we believe margins could
expand further with higher capacity utilization. We note that the margins
expanded by c.550bps in 1HFY16 on lower raw-material cost which forms
c.55-60% of revenues. We have included particle board EBITDA in the
Laminates segment for the purpose of our calculation.
Laminates EBITDA expected to deliver higher growth: We note that though
plywood would continue to form c.70% of the company’s EBITDA, Laminates
segment is expected to deliver more than 40% EBITDA growth on back ofhigher revenue growth and EBITDA margin expansion. We expect company’s
FY15-18E EBITDA to witness c.16% CAGR.
Exhibit 8. Centuryply – EBITDA
EBITDA for the businesses at peak; sustainability is the key
EBITDA margins peaked in 1QFY16 FY15 Centuryply plywood’s EBITDA% was 850bps more than Greenply’s
Laminates margin c.260bps more than Greenlam in 1HFY16 EBITDA to grow by 13.5% FY15-18E cagr
Laminates segment EBITDA to grow faster Plywood to continue to form the bulk of EBITDA
Source: Company, JM Financial.
11.112.4
10.011.5
16.0
18.016.7
17.5 17.4 17.1
13.6
17.6
10.3
9.1
FY14 FY15
Centuryply EBITDA % Greenply EBITDA%
9.4 10.1
15.0
12.4
Centuryply EBITDA % Greenlam EBITDA %
FY15 1HFY16
1.0
1.41.1
1.5
2.52.9
3.3
3.9
17.2
41.9
-18.6
31.4
68.5
16.514.0 18.9
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
EBITDA (Rs bn) Growth (%)
16.5
9.7
40.8
0.0
5.0
10.0
15.0
20.0
25.0
30.035.0
40.0
45.0
Total Plywood Laminates
EBIDA FY15-18E cagr (%)
Total Plywood Laminates
8171 70 67
1118 20 20
13 12 11 10
-20
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of EBITDA Plywood Laminates CFS Others
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# Debate 3- Is valuation peaking
We note that company’s P/E has re-rated in past two years with FY13-15
revenue/EBITDA/EPS CAGR at 18%/49%/69% driven by (a) higher volumes from
expanded capacity; (b) price hikes taken by the company; (c) lower price of
raw-materials (procured from Mynamar). Currently the stock is trading at
FY17/18 P/E of 21.2x/19x.
We expect company to deliver revenue/EBITDA/EPS CAGR of 14%/16%/14%.
The slower growth is mainly driven by the expected slowdown in FY16 in
plywood segment and higher interest cost on back of new expansion of MDF
unit. We value stock at 20x 1-yr forward to arrive at TP of ` 200 (Mar’17).
Initiate with HOLD.
Exhibit 9.Centuryply – Valuation Charts
We value the company at 20x 1-yr forward P/E to arrive at TP of ` 200
Current 1-yr forward P/E is 22.7x Current 1-yr forward P/BV is 7.3x
Current 1-yr forward EV/E of 15.2x FY15-18 Revenue/EBITDA and PAT Cagr
Source: Company, Bloomberg, JM Financial.
Exhibit 10.Centuryply – Valuation Ratios
Trading FY17/18 P/E of 21.2/19x
Valuation Ratios FY14 FY15 FY16E FY17E FY18EPER (x) 63.7 28.3 24.7 21.2 19.0
EV/EBITDA (x) 32.0 19.0 16.5 14.8 12.3
Price to book value (x) 14.6 11.0 8.4 6.5 5.3
Source: Company, Bloomberg, JM Financial.
0
5
10
15
20
25
30
35
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
P/E = 22.7x Mean=18.9xMean+1SD=25.9x Mean-1SD= 11.9x
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
P/BV = 7.3x Mean=6.5xMean+1SD=8.8x Mean-1SD=4.2x
0.0
5.0
10.0
15.0
20.0
25.0
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
EV/EBITDA = 15.2x Mean=13.0x
Mean+1SD=17.1x Mean-1SD=8.9x
14% 16%16%
28%
14%
35%
FY15-18E FY14-18E
Revenue cagr EBITDA cagr PAT cagr
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Century Plyboards 1 December 20
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Exhibit 12. Centuryply – Key AssumptionsFY14 FY15 FY16E FY17E FY18E
Plywood
Capacity (cbm) 209,456 209,456 209,456 209,456 209,456Capacity Utilisation (%) 74.5 83.3 83.9 88.1 94.5Sales (cbm) 176,211 196,816 199,054 213,896 234,631Growth (%) 13.9 11.7 1.1 7.5 9.7
Laminated Sheets
Capacity (mn sheets) 3.6 4.8 4.8 4.8 4.8Capacity Utilisation (%) 81.9 76.2 87.8 100.9 113.5Sales (mn sheets) 2.9 3.6 4.2 4.8 5.5
Growth (%) 8.0 23.6 17.0 15.0 12.5
Source: Company, JM Financial.
Exhibit 13. Centuryply – Segmental financialsmn FY14 FY15 FY16E FY17E FY18E
Net Sales
Plywood 9,648 11,471 11,685 13,181 15,214Laminates 2,367 2,935 3,527 4,446 5,266CFS 543 703 773 850 935Others 282 539 615 615 1,663Total 12,840 15,648 16,600 19,092 23,078Net Sales growth (%)
Plywood 19 2 13 15Laminates 24 20 26 18CFS 29 10 10 10Total 22 6 15 21
EBITDA
Plywood 1,309 2,017 2,080 2,333 2,663Laminates 220 283 538 667 790CFS 232 319 336 361 398Others -279 -121 -43 -43 97Total 1,482 2,498 2,911 3,318 3,947EBITDA %
Plywood 13.6 17.6 17.8 17.7 17.5Laminates 9.3 9.6 15.3 15.0 15.0CFS 42.7 45.4 43.5 42.5 42.5Total 11.5 16.0 17.5 17.4 17.1EBITDA growth (%)
Plywood 54 3 12 14Laminates 29 90 24 18CFS 38 5 7 10Total 69 17 14 19
Source: Company, JM Financial
Exhibit 14. Centuryply – Income Statement
Income Statement FY14 FY15 FY16E FY17E FY18Emn
Net Sales 12,840 15,648 16,600 19,092 23,078Other operating income 0 0 0 0 0Total revenues 12,840 15,648 16,600 19,092 23,078Total operating costs 11,358 13,150 13,689 15,774 19,132EBITDA 1,482 2,498 2,911 3,318 3,947Depreciation 332 448 426 491 688Other income 95 181 25 29 35EBIT 1,245 2,231 2,510 2,856 3,293Interest 551 433 476 479 582PBT 693 1,798 2,033 2,377 2,711Tax 24 290 305 368 461Adjusted PAT 670 1,508 1,728 2,009 2,250E/O items 0 0 0 0 0Reported PAT 670 1,508 1,728 2,009 2,250
Adjusted EPS 3.0 6.8 7.8 9.0 10.1
Cash EPS ( `
) 4.5 8.8 9.7 11.3 13.2Shares outstanding (mn) 222 222 222 222 222
Growth rates (%)Revenue 13.5 21.9 6.1 15.0 20.9EBITDA 31.4 68.5 16.5 14.0 18.9Adjusted EPS 27.2 125.2 14.6 16.2 12.02-year forward Revenue CAGR (%) 13.7 10.5 17.92-year forward EBITDA CAGR (%) 40.1 15.2 16.42-year forward EPS CAGR (%) 60.6 15.4 14.1
Margins (%)EBITDA 11.5 16.0 17.5 17.4 17.1EBIT 9.7 14.3 15.1 15.0 14.3PAT 5.2 9.6 10.4 10.5 9.7
Effective tax rate (%) 3.4 16.1 15.0 15.5 17.0
Source: Company, JM Financial.
Capacity addition’ s done in plywood and
laminate; current utilization levels give
enough space to grow
Growth to be led by Laminates
FY15-18E Revenue/EBITDA/EPS CAGR of
14%/16%/14%
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Exhibit 15. Centuryply – Balance SheetBalance Sheet FY14 FY15 FY16E FY17E FY18E
` mn
Share capital 223 223 223 223 223
Reserves & Surplus 2,692 3,653 4,876 6,297 7,889
Shareholders' funds 2,914 3,876 5,098 6,520 8,111Secured loans 1,633 1,275 1,275 1,275 1,275
Unsecured loans 3,279 3,744 4,294 5,594 4,794
Total debt 4,912 5,019 5,569 6,869 6,069Deferred Tax Liab -5 -70 -60 -60 -60
Total sources of funds 7,821 8,824 10,607 13,328 14,120
Fixed assets 2,307 2,316 3,740 5,299 4,661Gross block 3,744 4,159 5,109 5,559 8,209
Less: Acc. Depreciation 1,624 2,070 2,496 2,986 3,675
Net block 2,120 2,089 2,613 2,572 4,534CWIP 188 227 1,127 2,727 127
Investments 379 451 451 451 451
Liquid Investments 22 5 5 5 5Current assets 6,480 7,662 8,119 9,536 11,375
Stocks + WIP 2,927 3,200 3,395 3,905 4,720
Sundry debtors 2,046 2,719 2,885 3,318 4,010
Cash/bank 180 170 171 396 326Loans and advances 1,115 1,459 1,548 1,780 2,152
Other current assets 212 113 120 138 167
Current liabilities 1,345 1,605 1,703 1,958 2,367Creditors 745 652 692 796 962
Other liabilities 282 527 559 643 777
Provisions 318 426 452 519 628Total Application of funds 7,821 8,824 10,607 13,328 14,120
Gearing and profitability ratios (%) Net-debt ( ` mn) 4,710 4,843 5,392 6,468 5,737
Net-debt/Equity 1.6 1.2 1.1 1.0 0.7Net-debt/EBITDA 3.2 1.9 1.9 1.9 1.5
Interest coverage ratio 2.9 6.2 6.2 7.0 6.8
RoAE 24.8 44.4 38.5 34.6 30.8RoACE 16.0 22.5 22.0 20.2 19.9
Fixed Asset T/O (Sales/Avg. GB) 3.7 4.0 3.6 3.6 3.4
WC Cycle (days) 120 123 123 123 123Dividend Yield (%) 0.5 1.0 1.0 1.2 1.3
FCF Yield (%) -1.4 1.0 -0.1 -1.1 3.3
Source: Company, JM Financial.
Exhibit 16. Centuryply – Cash flowCashflow FY14 FY15 FY16E FY17E FY18E
mn
Profits before tax 693 1,798 2,033 2,377 2,711
Depr/amort/non-cash items 278 409 401 462 654
Interest income 551 433 476 479 582Chg in working capital -1,104 -918 -358 -937 -1,500
Taxes paid -112 -344 -305 -368 -461
CF from operations 306 1,378 2,248 2,012 1,986
Fixed asset capex -460 -533 -1,850 -2,050 -50(Purchase)/Sale ofassets/investments
2 0 0 0 0
Interest/dividend received -75 -92 25 29 35CF from investments -533 -624 -1,825 -2,021 -15
Equity raised 0 0 0 0 0
Debt raised / (repaid) 224 121 550 1,300 -800
Interest paid -558 -425 -476 -479 -582Dividends paid -57 -460 -505 -588 -658
Others 0 0 0 0 0CF from financing -391 -764 -432 234 -2,040
Change in cash for year -617 -10 -9 224 -69Beginning cash 797 180 170 161 386
Closing cash 180 170 161 386 316
FCFE -786 329 -54 -488 1,389
Source: Company, JM Financial.
Debt to peak out in FY17, with net-
debt/equity at 1x
FY17 FCFE negative on back of capex on M
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Quarterly Financials
Exhibit 17. Centuryply – Quarterly financials
2QFY16 revenue was grew 8.5% for the company; EBITDA margins declined 130bps QoQmn 2QFY16 2QFY15 %YoY 1QFY16 %QoQ FY15 FY14 %Yo
Net Sales(excluding excise) 4,391 4,048 8.5 3,680 19.3 15,525 12,760 21
Other Operating Income 31 22 29 123 79
Total Revenues 4,422 4,070 8.6 3,709 19.2 15,648 12,840 21
Expenditure 3,684 3,432 7.3 3,042 21.1 13,006 11,415 13
EBITDA 738 638 15.7 668 10.6 2,643 1,425 85% margin 16.7 15.7 102 bps 18.0 -130 bps 16.9 11.1 579 bp
Other income 5 15 -66.9 3 47.3 37 151 -75
Interest 135 124 8.3 123 9.8 433 551 -21
Depreciation 107 109 -1.6 101 6.6 448 332 34
PBT 501 420 19.4 448 12.0 1,798 693 159
Tax 39 62 -37.7 51 -23.7 290 24 1,125
% tax rate 7.7 14.8 11.3 16.1 3.4
PAT (Adjusted) 463 358 29.3 397 16.5 1,508 669 125
Extraordinary items 0 0 0 0 0
PAT (Reported) 463 358 29.3 397 16.5 1,508 669 125
EPS ( ` ) 2.1 1.6 29.3 1.8 16.5 6.8 3.0 125
Key Operational matrix
Sales Volume
Plywood (cbm) 54,465 52,553 3.6 43,015 26.6 196,816 176,211 11
Laminated Sheets (mn sheets) 1.1 0.9 14.9 0.9 19.3 3.6 2.9 23Average net realisation (
/cbm)
Plywood ( ` /cbm) 49,912 48,211 3.5 50,690 -1.5 50,525 46,403 8
Laminated Sheets ( ` /sheet) 723 689 5.0 702 3.0 679 639 6
Source: Company, JM Financial.
Exhibit 18.Centuryply – Quarterly segmental break-up
Plywood revenue/EBITDA grew by 6.9%/25.5% YoY; Laminates revenue/EBITDA grew by over 10%/15% YoY in 2QFY16mn 2QFY16 2QFY15 %YoY 1QFY16 %QoQ FY15 FY14 %Yo
Segment Revenue
Plywood and Allied 3,206 2,997 6.9 2,581 24.2 11,523 9,662 19
Laminate and Allied 905 804 12.5 791 14.4 2,996 2,425 23
Logistic 206 196 4.9 180 14.5 714 551 29
Others 115 73 58.3 165 -30.4 416 202 105
Total 4,431 4,070 8.9 3,716 19.2 15,648 12,840 21
Segment EBITDA
Plywood and Allied 566 451 25.5 487 16.1 2,017 1,309 54
Laminate and Allied 131 111 18.2 127 3.0 283 220 28
Logistic 82 91 -9.2 79 4.7 319 232 37
Total 774 646 19.9 668 16.0 2,597 1,739 49
Segment EBITDA %
Plywood and Allied 17.6 15.0 260 bps 18.9 -124 bps 17.5 13.5 395 b
Laminate and Allied 14.4 13.8 69 bps 16.1 -160 bps 9.4 9.1 38 b
Logistic 39.9 46.1 -618 bps 43.7 -375 bps 44.8 42.2 260 b
Total 17.5 15.9 161 bps 18.0 -49 bps 16.6 13.5 305 b
Source: Company, JM Financial.
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Company Details
Exhibit 19.Centuryply - Board of Directors
Name Designation Qualification Experience (years) Age (years)
Sajjan Bhajanka CMD (Promoter - Executive) B.Com 35 62
Hari Prasad Agarwal Vice Chairman & ED B.Com 42 67
Sanjay Agarwal MD B.Com 28 54
Prem Kumar Bhajanka MD
Vishnu Khemani MD B.Sc 37 63
Ajay Baldawa ED 62
Mangi Lal Jain Independent Director 67
Santanu Ray Independent Director 54
Samarendra Mitra Independent Director
Asit Pal Independent Director 63
Mamta Binani Independent Director 62
Source: Company, JM Financial
Exhibit 20. Centuryply – Key Personnel
Name Designation Qualification Experience (years) Age (years)
Arun Julasaria CFO FCA, FCS 25
Ajay Baldawa ED, Technical M Tech (IIT) 30
Ashutosh Jaiswal President, CFS B Sc. 30
SugataHaldar HR PGDM HR 22
Amit Gope GM - Branding MBA (XIMB) 21
Anoop Hoon President, Marketing & ODB.A (Eco);PGDM(XLRI Jamshedpur)
34 59
Navarun SenExecutiveLOB Head-Panel
PGDM 23 47
Shankho ChowdhuryExecutiveLOB Head-Decoratives
B.A. Honours 25 53
Source: Company, JM Financial
Exhibit 21.Centuryply – Shareholding Pattern
FII holding increased substantially in last 2-3 yearsMar-13 Mar-14 Mar-15 Sep-15
Promoters 72.9 72.9 73.3 73.3
FII 1.2 1.2 8.5 10.7
DII 0.0 0.0 3.3 3.4
Others 25.9 25.9 14.8 12.5
Total 100.0 100.0 100.0 100.0
Holding of more than 1%
GMO Emerging Domestic 1.77
Patton International Ltd 1.34 1.34
Brij Bhushan Agarwal 2.85 1.17
Subham Agarwal 1.27 1.27
Eskay Business Pvt Ltd 1.32
Ponni Trexim Pvt Ltd 1.23
India Capital Markets Pvt Ltd 1.07 1.88
Sheetij Agarwal 1.25
Mittu Agarwal
East India Securities Ltd 1.43
Canara/HSBC/OBC/LIC 1.39 1.24
Govt. Pension Fund Global 2.48 2.48
Source: Company, JM Financial.
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Exhibit 22.Centuyply – MilestonesYear Events
1987 Company was promoted by Mr. Sajjan Bhajanka and Mr. Sanjay Agarwal.
1997 Maiden IPO of CPIL.
1998CPIL introduced 100% termite and borer proof plywood with 7 years comprehensivewarranty.
2000 CPIL entered into Ferro business in a JV with Shyam Ferro.
2001CPIL entered into cement business through a 70% subsidiary Cement ManufacturingCompany Ltd. (CMCL).
2004 Started commercial production of cement.
2004 Entered Laminates business.
2004 Rights issue and bonus issue.
2007 Acquired Star Cement Meghalaya Ltd through CMCL.
2008 Splits face value from ` 10/- to ` 1/-.
2009 CFS business becomes operational
2010 Acquires 51% stake in Aegis business
2010 Sainik was introduced as a economy segment plywood brand.
2011 Entered CFS business.
2013 Ferro and Cement business was demerged to increase focus on the businesses seperately.
2013 Entered into readymade furniture business
2014 Laminates capacity was increased by 1.2mn sheets to 3.6mn sheets.
2014 Plywood capacity was increased by c.40% to 210k cbm during FY10-14.
2014 Demerged Aegis business
2015 Laminates capacity was increased by 1.2mn sheets to 4.8mn sheets.
Source: Company, JM Financial.
Exhibit 23.Centuryply – Location of manufacturing units
Source: Company, JM Financial
Bishnupur, Joka, West Bengal
Plywood: 37,036cbm
Laminates: 4.80mn sheets
Karnal, Haryana
Plywood: 36,000cbm
Bachau, Kandla, Gujarat
Plywood: 31,000cbm
Mirza, Guwahati, Assam
Plywood: 35,000cbm
Gumudipundi, Tamil Nadu
Plywood: 39,420cbm
Rooraki, Uttarakhand
Plywood: 25,000 cbm
Container Freight Stations at:
Sonai, Kolkata - 36,000TEU
Jinjira Pole, Kolkata - 1,20,000TEU
Total capacity (FY15)
- 203,000cbm Plywood
- 4.80mn sheets Laminates
- 1,56,000 TEU’s CFS
Expansions
- Veneer capacity in Myanmar
and Laos to 104,000cbm
(32,000cbm currently)
- Particle board unit in Chennai- Evaluating MDF capex
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Century Plyboards 1 December 20
JM Financial Institutional Securities Limited Page
Company background Centuryply derives c.75-80% of revenues and EBITDA from plywood,
remaining is contributed by laminate (c.20% of revenues, c.10% EBITDA) and
container freight station business (CFS).
Company is the joint leader, along with Greenply, in the plywood industry
with c.25% market share of the organized plywood industry (c.30% is
organized). Company has six plywood manufacturing capacities with a total
capacity of c.210k cbm spread across India and a unit in Myanmar to source
face veneer (required to manufacture plywood).
It has laminate capacity of 4.8mn sheets and is the third largest player (after
Greenply and Merino) in the laminate market.
CFS is at two locations near Kolkata Port. It is spread across an area of
1,00,000 square meters with capacity to handle 156,000 TEUs (c.50% of the
CFS capacity at Kolkata airport). Company has also entered into business of
trading furniture and modular kitchen.
Key investment arguments
Intelligent capex plans; Laminates to lead FY15-18E growth: With sufficient
capacity to grow without incurring immediate capex in current segments,
company has decided to enter MDF business and expand face veneer
business to ensure future growth. Laminates revenue is expected to witness22% CAGR (delivered more than 20% volume growth since last year) vs.
company’s CAGR of c.14% for FY15-18E.
Establishment of Myanmar, Laos units noteworthy; Plywood EBITDA
margins at peak: Company’s strong execution in timely establishment of
timber processing units at Myanmar and Laos has led to c.400bps EBITDA
margin expansion for the plywood segment in FY15 (c.850bps more than
Greenply’s). Plywood EBITDA grew by more than 50% in FY15 – is at a high
base with margin peaking. Laminates is expected to deliver more than 40%
EBITDA growth vs. company’s FY15-18E EBITDA CAGR of c.16%.
Key Risks
Lower sales and profitability from face veneer business. Faster pick up in MDF market, higher replacement of plywood.
Any change in regulations of the country from which face veneer is procured.
Foreign exchange fluctuation risk as company imports raw-material.
Continued slowdown in real estate construction activities.
Valuation and View
Currently stock is trading at FY17/18 P/E of 21.2x/19x. We value stock at
20x 1-yr forward EPS to arrive at TP of ` 200 (Mar’17). HOLD.
Exhibit 24.Centuryply – Key assumptionsParticulars FY14 FY15 FY16E FY17E FY18E
Sales VolumePlywood (cbm) 176,211 196,816 199,054 213,896 234,631
YoY Growth (%) 13.9 11.7 1.1 7.5 9.7
Laminated Sheets (mn sheets) 2.9 3.6 4.2 4.8 5.5
YoY Growth (%) 8.0 23.6 17.0 15.0 12.5
Average net realisation ( /cbm)Plywood ( ` /cbm) 46,403 50,501 50,355 52,151 54,248
YoY Growth (%) 1.1 8.8 -0.3 3.6 4.0
Laminated Sheets ( ` / sheet) 639 679 718 744 770
YoY Growth (%) 5.3 6.3 5.8 3.5 3.5
EBITDA %Plywood 13.6 17.6 17.8 17.7 17.5
Laminated Sheets 9.3 9.6 15.3 15.0 15.0
Source: Company, JM Financial.
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Century Plyboards 1 December 20
JM Financial Institutional Securities Limited Page
Financial Tables (Standalone)
Profit & Loss ( mn)
Y/E March FY14A FY15A FY16E FY17E FY18E
Net sales (Net of excise) 12,840 15,648 16,600 19,092 23,078
Growth (%) 13.5 21.9 6.1 15.0 20.9
Other operational income 0 0 0 0 0
Raw material (or COGS) 8,143 9,129 9,424 10,868 13,202
Personnel cost 1,514 1,933 2,051 2,359 2,851
Other expenses (or SG&A) 1,701 2,088 2,215 2,547 3,079
EBITDA 1,482 2,498 2,911 3,318 3,947
EBITDA (%) 11.5 16.0 17.5 17.4 17.1
Growth (%) 31.4 68.5 16.5 14.0 18.9
Other non-op. income 95 181 25 29 35
Depreciation and amort. 332 448 426 491 688
EBIT 1,245 2,231 2,510 2,856 3,293
Add: Net interest income -551 -433 -476 -479 -582
Pre tax profit 693 1,798 2,033 2,377 2,711
Taxes 24 290 305 368 461
Add: Extraordinary items 0 0 0 0 0
Less: Minority interest 0 0 0 0 0
Reported net profit 670 1,508 1,728 2,009 2,250
Adjusted net profit 670 1,508 1,728 2,009 2,250
Margin (%) 5.2 9.6 10.4 10.5 9.7
Diluted share cap. (mn) 222 222 222 222 222
Diluted EPS ( .) 3.0 6.8 7.8 9.0 10.1
Growth (%) 27.2 125.2 14.6 16.2 12.0
Total Dividend + Tax 260 534 505 588 658
Source: Company, JM F inancial
Balance Sheet ( mn)
Y/E March FY14A FY15A FY16E FY17E FY1
Share capital 223 223 223 223 2
Other capital 0 0 0 0
Reserves and surplus 2,692 3,653 4,876 6,297 7,8
Networth 2,914 3,876 5,098 6,520 8,1
Total loans 4,912 5,019 5,569 6,869 6,0
Minority interest 0 0 0 0
Sources of funds 7,826 8,895 10,667 13,388 14,1
Intangible assets 0 0 0 0
Fixed assets 3,744 4,159 5,109 5,559 8,2
Less: Depn. and amort. 1,624 2,070 2,496 2,986 3,6
Net block 2,120 2,089 2,613 2,572 4,5
Capital WIP 188 227 1,127 2,727 1
Investments 379 451 451 451 4
Def tax assets/- liability 5 70 60 60
Current assets 6,480 7,662 8,119 9,536 11,3
Inventories 2,927 3,200 3,395 3,905 4,7
Sundry debtors 2,046 2,719 2,885 3,318 4,0
Cash & bank balances 180 170 171 396 3
Other current assets 212 113 120 138 1
Loans & advances 1,115 1,459 1,548 1,780 2,1
Current liabilities & prov. 1,345 1,605 1,703 1,958 2,3
Current liabilities 1,027 1,179 1,251 1,439 1,7
Provisions and others 318 426 452 519 6
Net current assets 5,134 6,057 6,416 7,578 9,0
Others (net) 0 0 0 0
Application of funds 7,826 8,895 10,667 13,389 14,1
Source: Company, JM Financial
Cash flow statement ( mn)
Y/E March FY14A FY15A FY16E FY17E FY18E
Reported net profit 670 1,508 1,728 2,009 2,250
Depreciation and amort. 282 445 426 491 688
-Inc/dec in working cap. -1,048 -1,039 -320 -839 -1,342
Others 0 0 0 0 0
Cash from operations (a) -96 914 1,834 1,661 1,596
-Inc/dec in investments -223 -72 0 0 0
Capex -372 -454 -1,850 -2,050 -50
Others 96 107 -38 -99 -158
Cash flow from inv. (b) -499 -419 -1,888 -2,149 -208
Inc/-dec in capital 7 -12 0 0 0
Dividend+Tax thereon -260 -534 -505 -588 -658
Inc/-dec in loans 234 107 550 1,300 -800
Others -4 -65 10 0 0
Financial cash flow ( c ) -22 -505 55 712 -1,458
Inc/-dec in cash (a+b+c) -617 -10 1 224 -69
Opening cash balance 797 180 170 171 396
Closing cash balance 180 170 171 396 326
Source: Company, JM F inancial
Key Ratios
Y/E March FY14A FY15A FY16E FY17E FY1
BV/Share ( ` ) 13.1 17.4 22.9 29.3 36
ROCE (%) 17.1 22.9 22.2 20.5 20
ROE (%) 24.8 44.4 38.5 34.6 30
Net Debt/equity ratio (x) 1.5 1.1 1.0 0.9 0
Valuation ratios (x)
PER 63.7 28.3 24.7 21.2 19
PBV 14.6 11.0 8.4 6.5 5
EV/EBITDA 31.7 18.8 16.4 14.7 12
EV/Sales 3.7 3.0 2.9 2.6 2
Turnover ratios (no.)
Debtor days 58 63 63 63
Inventory days 83 75 75 75
Creditor days 33 26 27 27
Source: Company, JM Financial
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Century Plyboards 1 December 20
JM Financial Institutional Securities Limited Page
Notes
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JM Financial Institutional Securities Limited
MDF to be the growth engineGreenply is the number one player in plywood and MDF market with an
established pan-India brand and distribution network. Besides growing
steadily in the established plywood business, MDF is expected to contributec.30% to revenues and over 50% to company’s EBITDA by end of FY16 (in 5 -6
years since the company entered MDF). FY15-18E MDF revenue CAGR is
expected at c.15% on increasing acceptability of the product. Company plans
to treble capacity to 0.54cbm by FY19 by adding a unit in Andhra Pradesh.
Plywood segment is expected to be impacted by weak near term demand
(7% FY15-18E revenue CAGR), though the mid-segment outsourced Ecotek
brand should continue to grow. We expect company to deliver FY15-18E
revenue/EBITDA/PBT CAGR of 9%/15%/22%. We value stock at 17x 1yr-
forward EPS; TP of 1,150 (Mar’17). Initiate with a BUY. GST implementation
and early ramp up of MDF unit would provide an additional uptick.
MDF capacity to treble by FY19, plywood to grow by outsourcing:
Greenply is number one player in plywood and MDF. In FY15 MDF contributedc.26% to company’s revenues (balance was plywood). We expect MDF to
deliver FY15-18E revenue CAGR of c.15% on (1) increasing acceptability of the
product; (2) demand from cannibalization of low-end plywood and (3)
company’s expansion in value-added products. Company plans to treble
capacity to 0.54cbm by FY19, by adding a unit in Andhra Pradesh. Plywood
segment is expected to be impacted by weak near term demand (12% FY16-
18E revenue CAGR), though the mid-segment outsourced Ecotek brand
should continue to grow for the company.
MDF to contribute more than 50% to EBITDA: The MDF business built in last
5-6 years would be contributing over 50% of EBITDA by FY16. MDF EBITDA is
expected to witness FY15-18E CAGR of more than 20% led by higher revenue
growth and margin expansion vs. plywood EBITDA by 11%. Company is
expected to maintain RoEs of over 20% with peak net-debt/equity at 0.5x and
net-debt/EBITDA at 1.4x in FY18 (majority of MDF capex is incurred).
Initiate with a BUY: Company’s P/E has re-rated in the past 4-5years led by
FY10-15 revenue/EBITDA/PBT CAGR of 25%/29%/26%. Currently stock is
trading at FY17/18 P/E of 15.4x/13.6x. We expect FY15-18E
revenue/EBITDA/PBT CAGR of 9%/15%/22%. We value stock at 17x 1-yr
forward EPS to arrive at TP of ` 1,150 (Mar’17). Initiate with a BUY.
Exhibit 1.Greenply – MDF to be the growth engine
Vicky
Samir [email protected]
Tel: (91 22) 663030
Key Data
Market cap (bn) ` 22.4 / US$ 0
Shares in issue (mn) 24
Diluted share (mn) 24
3-mon avg daily val (mn) ` 5.9/US$ 0
52-week range ` 1135.0/699
Sensex/Nifty 26,146/7,9
` /US$ 66
Daily Performance
% 1M 3M 12
Absolute -0.2 2.2 8
Relative* 1.8 2.7 17
* To the BSE Sensex
Shareholding Pattern (
Sep-15 Sep-
Promoters 55.0 55
FII 11.4 15
DII 11.9 7
Public / others 21.7 21
-50
0%
50
10
15
20
0
200
400
600
800
1000
1200
1400
Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15
Greenply Industries
Greenply Industries Relative to Sensex (RHS)
Greenply Industries| MTLM IN
1 December 2015
Price: ` 926
BUY
12M Target: ` 1,150
Exhibit 1: Financial Summary ( mn)
Y/E March FY14A FY15A FY16E FY17E FY18E
Net sales 13,900 15,606 16,310 18,253 20,393
Sales growth (%) 5.8 12.3 4.5 11.9 11.7
EBITDA 1,833 2,043 2,355 2,727 3,118
EBITDA (%) 13.2 13.1 14.4 14.9 15.3
Adjusted net profit 768 1,061 1,211 1,450 1,649
EPS ( ` ) 31.8 43.9 50.2 60.1 68.3
EPS growth (%) -6.9 38.1 14.1 19.8 13.7
ROCE (%) 15.7 17.7 17.6 18.3 16.9
ROE (%) 22.2 24.5 22.5 22.1 20.8
PE (x) 29.1 21.1 18.5 15.4 13.6
Price/Book value (x) 5.9 4.6 3.8 3.1 2.6
EV/EBITDA (x) 14.1 12.3 10.4 8.9 8.5
Source: Company data, JM Financial. Note: Valuations as of 30/11/2015.
India | Building Materials | Initiating Coverage
JM Financial Research is also availableon: Bloomberg - JMFR <GO>,Thomson Publisher & Reuters,S&P Capital IQ and FactSet
Please see Appendix I at the end of threport for Important Disclosures andDisclaimers and Research AnalystCertification.
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Key Charts
Exhibit 2.Greenply – MDF to be the growth engine
Initiate with BUY, near term weakness in plywood segment
MDF to contribute to c.30% of the revenues in FY16 MDF to contribute over 50% of the EBITDA in FY16
Margins to expand MDF to drive EBITDA growth
MDF capex to ensure future growth, impact near term cash flows Net-debt to equity and EBITDA comfortable
Healthy return ratios Current 1-yr forward P/E is 16.5x
Source: Company, Bloomberg, JM Financial.
74 70 69 70
26 30 31 30
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of revenues Plywood MDF
5243 43 46
47 57 57 54
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of EBITDA Plywood MDF
9.1 9.0 9.4 10.2
23.3
27.1 27.1 27.1
0
5
10
15
20
25
30
FY15 FY16E FY17E FY18E
Segment EBITDA margin (%)
Plywood MDF
9.3
7.3
14.615.1
11.2
20.5
Total Plywood MDF
Revenue EBITDA
0.7 0.5 0.40.8
0.4
-2.0
-0.7 -0.6-0.9 -0.8
-1.3
-3.8FY13 FY14 FY15 FY16E FY17E FY18E
FCFE (Rs bn) Capex (Rs bn)
1.2
1.0
0.6
0.40.3
0.5
2.12.0
1.5
1.0
0.8
1.4
FY13 FY14 FY15 FY16E FY17E FY18E
Net debt/Equity (x)
Net debt/EBITDA (x)
17% 17% 17% 16%
25%23%
22%
21%
FY15 FY16E FY17E FY18E
RoCE (%) RoE (%)
14
16
18
20
22
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15
P/E = 16.5x Mean=17.6xMean+1SD=19.1x Mean-1SD= 16.1x
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Investment Debates
# Debate 1- Is MDF really catching up
Greenply is a number one player in plywood and MDF with a market share of
25-30% of the domestic market revenues in both the businesses. In FY15
MDF contributed c.26% to company’s revenues (balance was plywood).
Company has patiently spent 5-6 years in MDF market to reach c.90%
utilization levels in FY15 and now plans to treble the capacity to 0.54cbm byFY19, by adding 0.36cbm unit in Andhra Pradesh. Besides being an inferior
quality product as compared to plywood which was compensated by MDF’s
lower price, the challenge faced initially by the MDF companies was low
acceptance by carpenters and architects. MDF revenues has grown by c.16%
in FY15 and we expect the company to deliver FY15-18E revenue CAGR of
c.15% on back of increasing acceptability of the product, demand from
cannibalization of low-end plywood demand and company’s expansion in
value-added products. We note that in FY18, MDF segment’s growth would
be constrained by capacity. Plywood segment is expected to be impacted by
weak near term demand (7% FY15-18E revenue CAGR, 12% for FY16-18E),
though the mid-segment outsourced Ecotek brand should continue to grow
for the company. Structurally company is well placed to continue to deliver
strong growth with large unorganized market moving to organized inplywood, increasing demand for MDF, strong distribution network, strong
brand and focused capex plans to deliver future growth.
74%/26% revenues from plywood/MDF; number one player in both: c.74%
of Greenply’s FY15 revenues came from the plywood business where
company is joint leader with Centuryply with c.25% share of the organized
market revenue; organized market being c.30% of the total market.
Remaining 26% revenues was contributed by MDF business where company is
the number one domestic player with c.30% share of the total market volume
(of which c.33% is imports). Company has the highest MDF capacity in India of
1,80,000cbm at Pantnagar, Uttarakhand.
Exhibit 3.Greenply – Revenue break-up74% revenues from plywood and 26% from MDF in FY15
Source: Company, JM Financial.
77 72 75 74 70 69 70
23 28 25 26 30 31 30
0
20
40
60
80
100
120
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
% of revenuesPlywood MDF
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 4.Greenply – Revenue market share and capacity
Company is a joint leader in plywood market and largest player in MDF (organized market)
c.25% revenue market share of organized plywood market c.30% volume market share of organized MDF market
32.4msm plywood capacity, operating at c.102% utilization 0.18cbm MDF capacity, operating at c.90% utilization
Source: Industry Sources, Company, JM Financial.
Capacities reaching peak utilizations; New MDF plant to come in FY19: We
note that FY15 capacity utilization levels for plywood and MDF plants stood at
c.102% and c.90% respectively. With peaking of the capacity in plywood,company has adopted the strategy to grow by outsourcing the lower end
products. Company is already outsourcing c.30% of the volumes and 20% by
value, and is targeting to increase it upto 30% by value over coming 2-3 years.
In MDF there is no outsourcing done as it is a fully organized market and
company is already in the process of laying a new 0.36cbm (double the
present capacity) MDF unit in AP (including 20-25MW power plant for captive
purpose) which should be operational in FY19. Company has already
purchased 106 acres of land. South is an important market for the company
which contributed c.30% to FY15 MDF revenues. We note that FY18 revenue
growth may be impacted by capacity constraint in MDF.
Centuryply,25%
Greenply,26%
Archidply,6%
Sarda, 5%
Uniply, 2%
Kitply, 1%
National, 1%
Others, 35%
Mangalam,5%
Shirdi, 2%
Action, 20%
Green, 29%
RushilDécor, 11%
Imported,33%
24.9
28.4
32.4 32.4 32.4 32.4 32.4 32.4119
113
121
107 10299
103 108
60
70
80
90
100
110
120
130
3.0
8.0
13.0
18.0
23.0
28.0
33.0
38.0
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Plywood Capacity (msm) (LHS) Capacity utilisation (%)
0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18
15
6588
76
90103
116 121
0
20
40
60
80
100
120
140
0.00
0.05
0.10
0.15
0.20
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
MDF Capacity (mn cbm) (LHS) Capacity utilisation (%)
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
MDF is fastest growing segment; plywood a bit slow: MDF plant was
started by Greenply in FY11 and it took around five years for the company to
reach c.90% utilization levels (in FY15). Besides being an inferior quality
product as compared to plywood which was compensated by its lower price,
the challenges faced by MDF companies were (1) low acceptance by
carpenters as it required different skill sets to make MDF furniture as
compared to plywood; (2) low acceptance by architects as it reduces the
billing amount and hence the commission earned on the billing amount. We
believe, MDF is the fastest growing segment in the panel boards industry and
there is a long way for MDF to grow in India. For FY15-18E, we expect
company’s MDF revenues to witness 15% CAGR vs. 7% CAGR for plywood.
MDF demand is led by increased acceptability of the product itself and
replacement of low end plywood varieties. Company is increasingly expanding
into value added products like pre-laminated MDF, UV coated MDF and
laminate/veneer flooring. Plywood segment is expected to be impacted by
weak near term demand, though the mid-segment outsourced Ecotek brand
should continue to grow for the company.
Exhibit 5.Greenply – MDF revenue and volumes
MDF segment revenues to contribute significantly to company’s revenue growth profile
Company’s total revenue to grow by 9% FY15-18E cagr MDF segment to lead the FY15-18 revenue growth
MDF volume to grow by c.10% cagr MDF revenue to grow by c.15% cagr
Source: Company, JM Financial.
7.2
10.6
13.1 13.9
15.6 16.318.3
20.439.3
47.1
24.1
5.8
12.3
4.5 11.9
11.7
0
10
20
30
40
50
0
5
10
15
20
25
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Revenue (Rs bn) (LHS) Growth (%)
24.7
17.4
9.37.3
14.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Total revenue Plywood MDF
Revenue cagr (%) FY10-15 FY15-18E
-10.1
17.014.5
12.5
4.54.9
-1.0
5.03.0 3.5
FY14 FY15 FY16E FY17E FY18E
MDF volumes growth (%) MDF realization growth (%)
0.5
2.4
3.7 3.54.1
4.9
5.76.2
-5.7
15.820.2
15.9
8.2
-10
-5
0
5
10
15
20
25
0
1
2
3
4
5
6
7
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
MDF (Rs bn) Growth (%)
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 6. Greenply – Plywood revenues and volumes
Plywood segment to gain traction post FY16
Plywood revenues to be flattish for FY16 Volumes weak in FY16
Plywood volumes to pick up in FY17/18E Ecotek volumes (affordable brand) to continue to faster
Source: Company, JM Financial.
Structural drivers intact for the company
Large unorganized market: 70% of the plywood market is still unorganized
vs. c.10% a decade ago, offering the organized players a huge landscape to
grow with favorable Indian demographics and increasing preference for
branded products. We note that Greenply has delivered plywood revenue
CAGR of c.29% for FY06-15 vs. industry growth of c.10%.
Strong sales and distribution channel: Greenply has a strong pan-India
distribution network with c.6,000 and 4,000 retailers for plywood and MDF
respectively. Company has c.1,170/450 distributors and 33/15 branch offices
for plywood/MDF.
Strong brands: Greenply has built strong brands over last 31 years in
different categories (plywood and MDF) and in various segments (high,
medium-end). Company has built “Green Panelmax” brand in MDF. Company
continues to spend 2-3% of the revenues towards building of brand. In past
company’s brand has been endorsed by celebrities like Arjun Rampal.
Largely retail: Company sells c.90% of the goods to retailers directly, rather
than builders, as plywood and laminates are mainly used by the end-users for
building furniture.
6.7
8.29.4 10.4
11.5 11.412.6
14.230.5
20.9
15.3
10.3
11.1
-1.1
10.2
13.3
-5
0
5
10
15
20
25
30
35
0
2
4
6
8
10
12
14
16
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Plywood (Rs bn) Growth (%)
34.6 38.0
41.544.5 46.1 47.5
51.154.9
195 215
226 233250 252
261 270
0.0
10.0
20.0
30.0
40.0
50.0
60.0
35
85
135
185
235
285
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Plywood volumes (msm)
Plywood realization (Rs/sqm)
20.6
9.9 9.27.2
3.62.0
7.0
9.58.2
10.0
5.5
2.9
7.2
-3.0
3.0 3.5
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Plywood volumes growth (%) Plywood realization growth (%) 45.5
34.3
14.5 13.4
18.322.0
28.6 32.1
34.036.7
FY14 FY15 FY16E FY17E FY18E
Ecotek plywood volumes growth (%) % of total volumes
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 7. Greenply – Structural drivers in place for the company
Large unorganized market, strong sales and distribution channel, strong brand and largely retail sales
Unorganized market continue be c.70% of the total plywood market Company has delivered much higher growth than industry growth
Strong Distribution network 90% of the sales through retail channel
Plywood FY15
Distributors/Stockists 1,100
Retailers 6,000
Branches 33
MDF
Distributors/Stockists 450
Retailers 4,000
Branches 12
Presence
States 21
City 300
Greenply have built strong brands over time Company continues spend on branding
Source: Industry Sources, Company, JM Financial.
Organized,
30%
Unorganized,70%
11.7%
17.4%
5.8%7.3%
Industry Growth Greenply
Plywood revenue growthFY10-15
FY15-18E
Retail, 90%
Institutional,10%
1.8
2.3 2.2 2.2 2.2
FY11 FY12 FY13 FY14 FY15
Selling expenses (% of Net Sales)
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
# Debate 2- Will MDF EBITDA be more than plywood
With strong execution Greenply has built the MDF business in last 5-6years
to contribute c.47% to company’s EBITDA in FY15. With higher revenue
growth than the plywood business and margin expansion on the back of
better utilization, we expect MDF to contribute over 50% to company’s
EBITDA in FY16. We note that more than 60% of the increase in company’s
EBITDA over FY15-18E would be driven by MDF business. For FY15-18E, we
expect MDF EBITDA to witness over 20% CAGR vs. plywood EBITDA of 11%.
MDF to contribute more than 50% to company’s EBITDA: MDF formed
c.26% of Company’s FY15 revenues. We expect MDF revenues to continue to
grow at a higher rate with expansion of margins led by better utilization
levels and price hikes. We estimate FY15-18 MDF EBITDA to witness more
than 20% CAGR (EBITDA margins to expand by more than 350bps) vs. 11% for
plywood. MDF is expected to contribute more than 50% to company’s EBITDA
from FY16 itself. We note that more than 60% of the increase in company’s
EBITDA would be driven by MDF business over FY15-18E.
Exhibit 8. Greenply – EBITDA
MDF is the key for EBITDA growth
Company EBITDA to grow by 15% FY15-18 cagr MDF margins to expand
Growth to be led by MDF segment MDF EBITDA to form more than 50% of EBITDA in FY16
Source: Company, JM Financial.
0.7
1.2
1.8 1.82.0
2.4
2.7
3.1
70.3
53.1
1.8
11.5
15.3 15.814.3
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
EBITDA (Rs bn) Growth (%)
9.1 9.0 9.4 10.2
23.3
27.1 27.1 27.1
0
5
10
15
20
25
30
FY15 FY16E FY17E FY18E
Segment EBITDA margin (%)
Plywood MDF
15.1
11.2
20.5
0.0
5.0
10.0
15.0
20.0
25.0
Total Plywood MDF
EBIDA FY15-18E cagr (%)
Total Plywood MDF
5243 43 46
47 57 57 54
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of EBITDA Plywood MDF
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Plywood EBITDA to grow steadily: During FY15 Greenply’s plywood EBITDA
remained flat as increase in revenues by c.11% was offset by decline in
EBITDA margins by 100bps to c.9%. We note that the plywood margins were
c.850bps lower that Centuryply mainly led by efficient sourcing of raw-
material by Centuryply post ban on export of raw timber in Myanmar
(discussed in detail in the Centuryply section). The difference was driven by
as (1) Greenply established the Myanmar sourcing unit in 2HFY15 vs. 1HFY15
by Century; (2) Greenply has established the Myanmar unit mainly for captive
consumption under 50% JV vs. Centuryply which has established Myanmar
unit under a 100% subsidiary and has been able to sell surplus raw-material at
highly profitable prices (including inventory from last year). We expect
Greenply’s FY15-18E plywood EBITDA to see 11% CAGR driven by 7% revenue
CAGR and c.100bps margin expansion.
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
# Debate 3- Is valuation cheap
We note that company’s P/E has re-rated in the past 4-5years led by FY10-15
revenue/EBITDA/PBT CAGR of 25%/29%/26%. The growth has been led by
growth in both plywood and MDF segment. Currently the stock is trading at
FY17/18 P/E of 15.4x/13.6x. Greenply is expected to deliver higher FY15-18E
PBT CAGR of 22% vs 15% for Centuryply and is trading at c.25-30% discount to
Centuryply on FY17/18 P/E.
We expect company to deliver revenue/EBITDA/PBT CAGR of 9%/15%/22%.
Profit growth would mainly be driven by MDF EBITDA. We value stock at 17x
1-yr forward EPS to arrive at TP of ` 1,150 (Mar’17). Initiate with BUY.
Exhibit 9.Greenply – Valuation Charts
We value the company at 17x 1-yr forward P/E to arrive at TP of ` 1,150
Current 1-yr forward P/E is 16.5x Current 1-yr forward P/BV is 3.4x
Current 1-yr forward EV/E is 9.8x FY15-18E Revenue/EBITDA/PBT and PAT Cagr
Source: Company, Bloomberg, JM Financial.
Exhibit 10.Greenply – Valuation Ratios
Trading FY17/18 P/E of 15.2/13.2x
Valuation Ratios FY14 FY15 FY16E FY17E FY18EPER (x) 29.1 18.4 18.5 15.4 13.6
EV/EBITDA (x) 14.2 12.4 10.5 9.0 8.5
Price to book value (x) 5.9 4.6 3.8 3.1 2.6
Source: Company, Bloomberg, JM Financial.
14
16
18
20
22
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15
P/E = 16.5x Mean=17.6xMean+1SD=19.1x Mean-1SD= 16.1x
3.0
3.5
4.0
4.5
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15
P/BV = 3.4x Mean=3.6xMean+1SD=3.9x Mean-1SD=3.3x
8.0
9.0
10.0
11.0
12.0
13.0
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15
EV/EBITDA = 9.8x Mean=10.3x
Mean+1SD=11.1x Mean-1SD=9.6x
9%
15%
22%
16%
Revenue EBITDA PBT PAT
FY15-18E cagr
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Financials in exhibits
Exhibit 11.Greenply – Financials
Healthy financials, MDF is the key
MDF revenue to growth at higher rate MDF EBITDA to grow at a higher rate
PAT growth impacted by higher tax rate, PBT to grow over 20% Comfortable of net-debt/equity and net-debt/EBITDA
Major capex would be on MDF in FY18, FCF negative in FY18 Better working capital management than Centuryply
Healthy return on capital Stable dividend policy
Source: Company, JM Financial.
7.2
10.6
13.1 13.9
15.6 16.318.3
20.439.3
47.1
24.1
5.8
12.3
4.5 11.9
11.7
0
10
20
30
40
50
0
5
10
15
20
25
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Revenue (Rs bn) (LHS) Growth (%)
15.1
11.2
20.5
0.0
5.0
10.0
15.0
20.0
25.0
Total Plywood MDF
EBIDA FY15-18E cagr (%)
Total Plywood MDF
9%
15%
22%
16%
Revenue EBITDA PBT PAT
FY15-18E cagr
1.2
1.0
0.6
0.40.3
0.5
2.12.0
1.5
1.00.8
1.4
FY13 FY14 FY15 FY16E FY17E FY18E
Net debt/Equity (x)
Net debt/EBITDA (x)
0.7 0.5 0.40.8
0.4
-2.0
-0.7 -0.6-0.9 -0.8
-1.3
-3.8FY13 FY14 FY15 FY16E FY17E FY18E
FCFE (Rs bn) Capex (Rs bn)
19
30 30 30 30
FY14 FY15 FY16E FY17E FY18E
Working Capital Cycle (days)
17% 17% 17% 16%
25%23%
22%
21%
FY15 FY16E FY17E FY18E
RoCE (%) RoE (%)
9
7
10 10 10
FY14 FY15 FY16E FY17E FY18E
Dividend payout (%)
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 12.Greenply– Key AssumptionsFY14 FY15 FY16E FY17E FY18E
Plywood (msm)
Capacity 32.40 32.40 32.40 32.40 32.40Capacity Utilisation (%) 107.0 102.1 98.6 102.6 107.7Despatches 34.71 32.94 31.95 33.23 34.89Outsourced volumes 9.80 13.16 15.07 17.09 20.21Total Volume 44.51 46.11 47.03 50.32 55.10Growth (%) 7.2 3.6 2.0 7.0 9.5
MDF (mn cum)Capacity 0.18 0.18 0.18 0.18 0.18Capacity Utilisation (%) 76.0 89.6 102.7 115.5 120.7Sales 0.14 0.16 0.18 0.21 0.22Growth (%) -10.1 17.0 14.5 12.5 4.5
Source: Company, JM Financial.
Exhibit 13. Greenply– Segmental financialsmn FY14 FY15 FY16E FY17E FY18E
Net SalesPlywood 10,373 11,521 11,399 12,562 14,237
MDF 3,527 4,085 4,911 5,691 6,155
Total 13,900 15,643 16,310 18,253 20,393Net Sales growth (%)
Plywood 10 11 -1 10 13
MDF -6 16 20 16 8
Total 6 13 4 12 12
EBITDAPlywood 1,070 1,053 1,022 1,183 1,447MDF 764 954 1,333 1,544 1,670
Total 1,833 2,043 2,355 2,727 3,118
EBITDA %Plywood 10.3 9.1 9.0 9.4 10.2
MDF 21.6 23.3 27.1 27.1 27.1
Total 13.2 13.1 14.4 14.9 15.3EBITDA growth (%)
Plywood 8 -2 -3 16 22
MDF -6 25 40 16 8
Total 2 11 15 16 14
Source: Company, JM Financial.
Exhibit 14. Greenply– Income StatementIncome Statement FY14 FY15 FY16E FY17E FY18E
mnNet Sales 13,900 15,606 16,310 18,253 20,393
Other operating income 0 37 0 0 0Total revenues 13,900 15,643 16,310 18,253 20,393
Total operating costs 12,067 13,599 13,955 15,526 17,275
EBITDA 1,833 2,043 2,355 2,727 3,118Depreciation 359 471 473 489 505
Other income 39 11 4 5 5
EBIT 1,513 1,583 1,886 2,243 2,618Interest 481 353 303 256 358
PBT 1,032 1,230 1,583 1,987 2,259
Tax 264 170 372 536 610Adjusted PAT 768 1,061 1,211 1,450 1,649
E/O items 0 158 0 0 0
Reported PAT 768 1,218 1,211 1,450 1,649
Adjusted EPS 31.8 43.9 50.2 60.1 68.3
Cash EPS ( ` ) 46.7 63.4 69.7 80.3 89.2
Shares outstanding (mn) 24 24 24 24 24Growth rates (%)Revenue 5.8 12.3 4.5 11.9 11.7
EBITDA 1.8 11.5 15.3 15.8 14.3
Adjusted EPS -6.9 38.1 14.1 19.8 13.72-year forward Revenue CAGR (%) 8.3 8.2 11.8
2-year forward EBITDA CAGR (%) 13.3 15.5 15.1
2-year forward EPS CAGR (%) 25.5 16.9 16.7
Margins (%)EBITDA 13.2 13.1 14.4 14.9 15.3
EBIT 10.9 10.1 11.6 12.3 12.8
PAT 5.5 6.8 7.4 7.9 8.1
Effective tax rate (%) 25.6 13.8 23.5 27.0 27.0
Source: Company, JM Financial.
New MDF expansion to come in FY19
MDF revenue and EBITDA to grow at a
higher rate than plywood
FY15-18E Revenue/EBITDA/PBT/EPS
cagr of 9%/15%/23%/16%
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 15. Greenply– Balance SheetBalance Sheet FY14 FY15 FY16E FY17E FY18E
` mn
Share capital 121 121 121 121 121
Reserves & Surplus 3,685 4,719 5,788 7,069 8,525
Shareholders' funds 3,806 4,840 5,909 7,189 8,646Secured loans 2,325 1,922 1,222 1,022 3,172
Unsecured loans 1,376 1,317 1,317 1,317 1,317
Total debt 3,701 3,239 2,539 2,339 4,489Deferred Tax Liab 431 403 403 403 403
Total sources of funds 7,938 8,482 8,851 9,932 13,538
Fixed assets 5,273 5,469 5,747 6,508 9,753Gross block 6,533 7,263 7,513 7,763 8,013
Less: Acc. Depreciation 1,525 1,933 2,406 2,894 3,399
Net block 5,007 5,330 5,108 4,869 4,614CWIP 266 139 639 1,639 5,139
Investments 138 329 329 329 329
Liquid Investments 0 182 182 182 182Current assets 5,190 5,667 5,894 6,585 7,355
Stocks + WIP 1,960 1,903 1,989 2,226 2,487
Sundry debtors 2,200 2,572 2,688 3,009 3,361
Cash/bank 72 72 46 40 44Loans and advances 3 8 8 9 11
Other current assets 955 1,112 1,162 1,300 1,453
Current liabilities 2,663 2,983 3,118 3,489 3,898Creditors 2,006 2,249 2,351 2,631 2,939
Other liabilities 423 444 464 519 580
Provisions 235 290 303 339 379Total Application of funds 7,938 8,482 8,851 9,932 13,538
Gearing and profitability ratios (%) Net-debt ( ` mn) 3,629 2,986 2,311 2,117 4,264Net-debt/Equity 1.0 0.6 0.4 0.3 0.5
Net-debt/EBITDA 2.0 1.5 1.0 0.8 1.4
Interest coverage ratio 3.9 5.8 7.8 10.7 8.7RoAE 22.2 24.5 22.5 22.1 20.8
RoACE 14.7 16.6 16.6 17.4 16.3
Fixed Asset T/O (Sales/Avg. GB) 2.2 2.3 2.2 2.4 2.6WC Cycle (days) 57 52 52 52 52
Dividend Yield (%) 0.3 0.3 0.5 0.6 0.7
FCF Yield (%) 2.4 1.9 3.6 1.6 -8.7
Source: Company, JM Financial.
Exhibit 16. Greenply– Cash flowCashflow FY14 FY15 FY16E FY17E FY18E
mn
Profits before tax 1,032 1,388 1,583 1,987 2,259
Depr/amort/non-cash items 383 490 469 484 500Interest income 377 359 303 256 358
Chg in working capital -141 -89 -118 -325 -358
Taxes paid -187 -277 -372 -536 -610CF from operations 1,463 1,871 1,865 1,865 2,150
Fixed asset capex -553 -858 -750 -1,250 -3,750(Purchase)/Sale ofassets/investments
-137 -191 0 0 0
Interest/dividend received 30 7 37 5 5
CF from investments -659 -1,042 -713 -1,245 -3,745
Equity raised 0 0 0 0 0
Debt raised / (repaid) -444 -465 -700 -200 2,150Interest paid -397 -604 -303 -256 -358
Dividends paid -85 -85 -142 -170 -193Others 60 331 0 0 0
CF from financing -866 -823 -1,145 -626 1,599
Change in cash for year -62 6 7 -6 3
Beginning cash 92 23 29 36 30
Closing cash 30 29 36 30 34
FCF 544 416 849 364 -1,954
Source: Company, JM Financial.
Debt to peak out in FY18
Net-debt/equity at 0.5x in FY18
FY18 FCFE negative on back of capex on M
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Quarterly Financials
Exhibit 17. Greenply– Quarterly financials
2QFY16 revenue declined by 2.5% YoY and EBITDA was up 7% YoYmn 2QFY16 2QFY15 %YoY 1QFY16 %QoQ
Total Revenues 4,008 4,108 -2.4 3,808 5.2
Expenditure 3,443 3,580 -3.8 3,249 6.0
EBITDA 565 528 7.1 559 1.1
% margin 14.1 12.9 125 bps 14.7 -57 bps
Other income 1 2 -66.0 0 5.3Interest 78 92 -14.7 77 1.6
Depreciation 123 115 7.2 120 2.3
PBT 364 322 12.9 362 0.6
Tax 91 54 69.2 95 -3.7
% tax rate 25.1 16.8 26.2
PAT (Adjusted) 273 268 1.6 267 2.2
Extraordinary items 0 0 0
PAT (Reported) 273 268 1.6 267 2.2
EPS ( ` ) 11.3 11.1 1.6 11.1 2.2
Key Operational matrix
Sales Volume
Plywood (msm) 12.03 12.29 -2.1 11.01 9.3
MDF (cbm) 0.04 0.04 11.7 0.04 6.5
Average net realisation ( /cbm)
Plywood ( ` /sqm) 235 241 -2.5 241 -2.5MDF ( ` /cbm) 26,818 26,158 2.5 27,166 -1.3
Source: Company, JM Financial.
Exhibit 18.Greenply – Quarterly segmental break-up
MDF revenue/EBITDA grew strongly by over 14.5%/38% YoY in 2QFY16mn 2QFY16 2QFY15 %YoY 1QFY16 %QoQ
Segment Revenue
Plywood and Allied 2,877 3,120 -7.8 2,735 5.2
MDFs 1,131 987 14.5 1,074 5.3
Total 4,008 4,107 -2.4 3,808 5.2
Segment EBITDA
Plywood and Allied 259 296 -12.6 235 10.1
MDFs 315 229 37.7 323 -2.4
Total 574 525 9.3 558 2.9
Segment EBITDA %
Plywood and Allied 9.0 9.5 -50 bps 8.6 40 bps
MDFs 27.9 23.2 470 bps 30.1 -220 bps
Total 14.3 12.8 154 bps 14.7 -33 bps
Source: Company, JM Financial.
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Company Details
Exhibit 19. Greenply - Board of DirectorsName Designation Qualification Experience (years) Age (years
Shiv Prakash Mittal Executive Chairman - Promoter Director B Sc 42 66
Rajesh Mittal MD - Promoter Director B Com 31 52
Shobhan Mittal JMD & CEO - Promoter Director BBA 10 35
Moina Yometh Konyak Non-Executive – Independent B Com 58
Susil Kumar Pal Non-Executive – Independent BSc, Mtech 72
Vinod Kumar Kothari Non-Executive – Independent Bcom, CA, CS 54
Anupam Kumar Mukerji Non-Executive – Independent M Sc 79
Sonali Bhagwati Dalal Non-Executive – Independent B Arch 54
Upendra Nath Challu Non-Executive – Independent BA 65
Source: Company, JM Financial
Exhibit 20. Greenply – Key PersonnelName Designation Qualification Experience (years) Age (years
Vishwanathan Venkatraman CFO Bcom, CA 51 28
Yogesh Arora Country Head - Sales & Marketing (EPD) B Sc 29 59
Vinit Kumar Tiwari Country Head - Sales & Marketing (PBD) MBA 23 46
Naveen Malhotra Country Head-Flooring (EPD) 19 19 43
Dr. Sushil Kumar Nath Technical Head Ph.D 31 60
Mr Sanjeeb Choudhury AVP HR BA (Hons), PGDHRM 23 46
Mr Kamala Kant Mishra AVP Branding PGDM 13 36
Source: Company, JM Financial
Exhibit 21. Greenply – Shareholding Pattern
Institutional holding has increased c.10pps in last 2-3 yearsMar-13 Mar-14 Mar-15 Sep-15
Promoters 55.0 55.0 55.0 55.0
FII 7.7 15.3 12.2 11.4
DII 5.8 6.5 7.9 11.9
Others 31.5 23.3 24.9 21.7
Total 100.0 100.0 100.0 100.0
Holding of more than 1%Emerging Markets Management LLC A/C TheEmmumbrella Funds Emerging Markets SouthAsianstars Fund 1.3
Volrado Venture Partners 1.9
Jai-Vijay Resources Pvt Ltd 2.3
Morgan Stanley Mauritius Company Ltd 2.9 1.8 1.1
Kotak Mahindra UK Ltd A/c Kotak IndiaFocusfund II 3.1
IDFC Trustee Company Ltd A/c HDFC balanceFund 1.9
HDFC Trustee Company 3.9 4.6 7.9 9.0
HDFC Trustee Company 1.9
Citigroup Global Markets Mauritius Pvt Ltd 3.0HSBC Bank (Maurities) Limited A/c Jawalamukhi Investment Holdings 9.9 9.9 9.9
Westbridge 3.0 3.0Mangal bhansali 1.1 1.0 1.0
Ashish Kacholia
Ashish Dhawan 11.9 9.8 9.8 4.2
Lata Bhanshali 1.8 2.1
Vallabh Roopchand Bhanshali 1.3
Gagandeep Credit Capital Pvt Ltd
HDFC Life 1.3
IDFC Sterling Equity Fund 1.5
Akhil Dhavan 1.1
Source: Company, JM Financial.
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 22.Greenply – MilestonesYear Events
1984Mr. Shiv Prakash Mittal and Mr.Rajesh Mittal ventured into the industry by setting up asaw-mill.
1988 Set up a plant at Nagaland for the manufacture of plywood.
1994
Amalgamation of the erstwhile Greenply Industries Limited with Mittal Laminates Limitedwith effect from April 1, 1994. Pursuant to this amalgamation the plywood manufacturingunit at Tizit, Nagaland was transferred and its name was changed to ‘Greenply' industriesLimited’.
1995 The equity shares of our Company were listed pursuant to an offer for sale.
2005Amalgamation of Worthy Plywoods Limited, pursuant to which the plywood manufacturingunit at Kriparampur, West Bengal was amalgamated.
2006 Established a manufacturing unit in Pantnagar, Uttarakhand for plywood.
2007Acquisition of Galaxy Décor Private Limited and Platinum Veneers Private Limited aswholly-owned subsidiaries, which owned the plywood manufacturing facility atBamanbore, Gujarat.
2008Launched Green Defender (Fire Retardant Plywood) certified by the Central BuildingResearch Institute (CBRI).
2009Ranked first for the largest plywood company, by construction world. Amalgamation ofGalaxy Décor Private Limited and Platinum Veneers Private Limited with Greenply.
2010 Chosen as ‘Power Brand’ by Indian consumers.
2011 Introduced value- added products.
2012Recognised as the leading Indian Company in the Plywood sector at the Dun & BradstreetCorporate Awards 2012.
2013Created a lasting impression with Greenply Always Hoyenga, India’s largest graffiti wall(960 x 5.25ft) that figured in the Limca Book of Records (national record).
2014The Brand Trust Report Award to Greenply Industries Limited for the most trusted PlywoodBrand.
2015Greenply Industries Limited was honoured with the Dun & Bradstreet Manappuram FinanceLimited Corporate Award in the Plywood Sector.
Source: Company, JM Financial.
Exhibit 23.Greenply –Location of manufacturing units
Source: Company, JM Financial.
Bamanbore, Gujarat
Plywood - 11.40msm
Pantnagar, Uttarakhand
Plywood -10.50msm
MDF - 0.18mn cbm
Kriparampur , Kolkata
Plywood - 6.00msm
Tizit, Nagaland
Plywood - 4.50msm
Chittoor, Andhra Pradesh
MDF - 0.36msm (FY19E)
Total capacity (FY15)
- 32.40msm Plywood
- 0.18mn cbm MDF
Expansions
- 0.36msm MDF (FY19E)
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Company background Greenply derived c.74% of the FY15 revenues from plywood and balance
c.26% from MDF (commenced in FY11). MDF contributed c.46% to the
company’s EBITDA in FY15.
Company is the joint leader, along with Century, in the plywood industry with
c.25% market share of the organized plywood industry (c.30% is organized).
Company has four plywood manufacturing capacities with a total capacity of
c.32.4msm spread across India and a 50% joint venture in Myanmar (capacityof 42msm) to source face veneer (required to manufacture plywood).
With MDF capacity of 0.18mn cbm (at Pantnanagar, Uttarakhand) it is the
largest player in the MDF market.
Company demerged the decorative business of laminates and veneers into a
separate listed entity as “Greenlam”.
Key investment arguments
MDF capacity to treble by FY19: We expect MDF to deliver FY15-18E revenue
CAGR of c.15% on back of increasing acceptability of the product, demand
from cannibalization of low-end plywood demand and company's expansion
in value-added products. Company plans to treble the capacity to 0.54cbm by
FY19. Plywood segment is expected to be impacted by weak near term
demand (7% FY15-18E revenue CAGR), though the mid-segment outsourced
Ecotek brand should continue to grow for the company.
MDF to contribute more than 50% to EBITDA: Greenply's FY15-18E MDF
EBITDA is expected to witness CAGR of more than 20% led by higher revenue
growth and margin expansion vs. plywood EBITDA by 11%.
Key Risks
Company is incurring substantial capex on MDF expansion; any slump in MDF
demand would be detrimental to company’s growth and financials.
Foreign exchange fluctuation risk as company imports raw-material.
Continued slowdown in real estate construction activities.
Valuation and View
Currently stock is trading at FY17/18 P/E of 15.4x/13.6x. We expect FY15-
18E revenue/EBITDA/PBT CAGR of 9%/15%/22%. We value stock at 17x 1-yr
forward EPS to arrive at TP of ` 1,150 (Mar’17). BUY.
Exhibit 24.Greenply – Key assumptionsParticulars FY14 FY15 FY16E FY17E FY18E
Sales VolumePlywood (msm) 44.5 46.1 47.0 50.3 55.1
YoY Growth (%) 7.2 3.6 2.0 7.0 9.5
MDF (mn cbm) 0.14 0.16 0.18 0.21 0.22
YoY Growth (%) -10.1 17.0 14.5 12.5 4.5
Average net realisation ( /cbm)Plywood ( ` /cbm) 233 250 242 250 258
YoY Growth (%) 2.9 7.2 -3.0 3.0 3.5MDF ( ` /cbm) 25,572 25,307 26,572 27,369 28,327
YoY Growth (%) 4.9 -1.0 5.0 3.0 3.5
EBITDA %Plywood 10.3 9.1 9.0 9.4 10.2
MDF 21.6 23.3 27.1 27.1 27.1
Source: Company, JM Financial.
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Greenply Industries 1 December 20
JM Financial Institutional Securities Limited Page
Financial Tables (Standalone)
Profit & Loss ( mn)
Y/E March FY14A FY15A FY16E FY17E FY18E
Net sales (Net of excise) 13,900 15,606 16,310 18,253 20,393
Growth (%) 5.8 12.3 4.5 11.9 11.7
Other operational income 0 37 0 0 0
Raw material (or COGS) 9,490 10,489 10,768 11,968 13,290
Personnel cost 1,199 1,457 1,478 1,644 1,847
Other expenses (or SG&A) 1,378 1,654 1,710 1,914 2,138
EBITDA 1,833 2,043 2,355 2,727 3,118
EBITDA (%) 13.2 13.1 14.4 14.9 15.3
Growth (%) 1.8 11.5 15.3 15.8 14.3
Other non-op. income 39 11 4 5 5
Depreciation and amort. 359 471 473 489 505
EBIT 1,513 1,583 1,886 2,243 2,618
Add: Net interest income -481 -353 -303 -256 -358
Pre tax profit 1,032 1,230 1,583 1,987 2,259
Taxes 264 170 372 536 610
Add: Extraordinary items 0 158 0 0 0
Less: Minority interest 0 0 0 0 0
Reported net profit 768 1,218 1,211 1,450 1,649
Adjusted net profit 768 1,061 1,211 1,450 1,649
Margin (%) 5.5 6.8 7.4 7.9 8.1
Diluted share cap. (mn) 24 24 24 24 24
Diluted EPS ( .) 31.8 43.9 50.2 60.1 68.3
Growth (%) -6.9 38.1 14.1 19.8 13.7
Total Dividend + Tax 85 87 142 170 193
Source: Company, JM F inancial
Balance Sheet ( mn)
Y/E March FY14A FY15A FY16E FY17E FY1
Share capital 121 121 121 121 1
Other capital 0 0 0 0
Reserves and surplus 3,685 4,719 5,788 7,069 8,5
Networth 3,806 4,840 5,909 7,189 8,6
Total loans 3,701 3,239 2,539 2,339 4,4
Minority interest 0 0 0 0
Sources of funds 7,507 8,079 8,448 9,529 13,1
Intangible assets 0 0 0 0
Fixed assets 6,533 7,263 7,513 7,763 8,0
Less: Depn. and amort. 1,525 1,933 2,406 2,894 3,3
Net block 5,007 5,330 5,108 4,869 4,6
Capital WIP 266 139 639 1,639 5,1
Investments 138 329 329 329 3
Def tax assets/- liability -431 -403 -403 -403 -4
Current assets 5,190 5,667 5,894 6,585 7,3
Inventories 1,960 1,903 1,989 2,226 2,4
Sundry debtors 2,200 2,572 2,688 3,009 3,3
Cash & bank balances 72 72 46 40
Other current assets 955 1,112 1,162 1,300 1,4
Loans & advances 3 8 8 9
Current liabilities & prov. 2,663 2,983 3,118 3,489 3,8
Current liabilities 2,428 2,693 2,814 3,150 3,5
Provisions and others 235 290 303 339 3
Net current assets 2,527 2,684 2,776 3,095 3,4
Others (net) 0 0 0 0
Application of funds 7,507 8,079 8,448 9,529 13,1
Source: Company, JM Financial
Cash flow statement ( mn)
Y/E March FY14A FY15A FY16E FY17E FY18E
Reported net profit 768 1,218 1,211 1,450 1,649
Depreciation and amort. 305 407 473 489 505
-Inc/dec in working cap. -130 -72 -100 -277 -305
Others 0 0 0 0 0
Cash from operations (a) 944 1,554 1,583 1,662 1,849
-Inc/dec in investments -137 -191 0 0 0
Capex -615 -604 -750 -1,250 -3,750
Others -43 -85 -17 -48 -53
Cash flow from inv. (b) -795 -880 -767 -1,298 -3,803
Inc/-dec in capital 5 -97 0 0 0
Dividend+Tax thereon -85 -87 -142 -170 -193
Inc/-dec in loans -239 -462 -700 -200 2,150
Others 91 -28 0 0 0
Financial cash flow ( c ) -229 -674 -842 -370 1,957
Inc/-dec in cash (a+b+c) -80 0 -26 -6 3
Opening cash balance 152 72 72 46 40
Closing cash balance 73 72 46 40 44
Source: Company, JM F inancial
Key Ratios
Y/E March FY14A FY15A FY16E FY17E FY1
BV/Share ( ` ) 157.7 200.5 244.8 297.9 358
ROCE (%) 15.7 17.7 17.6 18.3 16
ROE (%) 22.2 24.5 22.5 22.1 20
Net Debt/equity ratio (x) 0.9 0.6 0.4 0.3 0
Valuation ratios (x)
PER 29.1 21.1 18.5 15.4 13
PBV 5.9 4.6 3.8 3.1 2
EV/EBITDA 14.1 12.3 10.4 8.9 8
EV/Sales 1.9 1.6 1.5 1.3 1
Turnover ratios (no.)
Debtor days 58 60 60 60
Inventory days 51 45 45 45
Creditor days 77 78 80 80
Source: Company, JM Financial
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JM Financial Institutional Securities Limited
Fueled for growthGreenlam is structurally well placed to deliver strong growth with extremelystrong established distribution network and brand, even internationally.
Greenlam is a largest laminate player in Asia and third largest in the world.Company is in a sweet spot with all the growth capex completed. It hasincurred a total capex of 1.6bn in FY14-1HFY16 with potential to generaterevenues of 5-6bn (FY15 total revenue at 8.5bn). Expansions includedcapacities of 2mn sheets laminate, 2msm melamine faced chipboard (part oflaminate), 120k units factory finishes doors (part of veneer) and 1msmengineered wood flooring (part of veneer). We expect expansions to drivecompany’s growth – laminate segment revenue/EBITDA is expected towitness 16%/22% and veneer 36%/27% CAGR for FY15-18E. Though veneer’srevenue share would increase by c.50% in next three years, laminate wouldstill be c.80% of the revenues by FY18. We expect the company to deliverrevenue/EBITDA/EPS CAGR of 18/23/39% over FY15-18E. Currently the stockis trading at FY17/18 P/E of 19.8/13.7x. We value the company at 17x 1-yrforward EPS to arrive at a TP of 550 (Mar’17), c.27% upside from current
levels. GST implementation would provide an additional uptick. Expansions completed; staged to grow: Greenlam has incurred total capex
of ` 1.5bn in FY14-1HFY16 (excluding c.Rs0.8bn improvement capex on
existing facilities) with potential to generate revenues of ` 5-6bn. Expansions
added following capacities - 2mn sheets laminate, 2msm melamine faced
chipboards (part of laminate), 120k units factory finishes doors (part of
veneer) and 1msm engineered wood flooring (part of veneer). For FY15-18E,
laminate segment revenue is expected to witness 16% CAGR and veneer 36%.
Though veneer’s revenue share would increase by c.50% in next three years,
laminate would still be c.80% of revenues by FY18 (88% in FY15).
To outpace peers’ profit growth: We expect Greenlam’s EBITDA to witness
c.23% CAGR during FY15-18E driven by 22%/27% EBITDA CAGR for the
laminate/veneer business vs. 15-17% growth for peers. EBITDA growth isexpected to be driven by (1) margin expansion in laminate business on better
utilizations and (2) EBITDA contribution by new businesses in the veneer
segment. Laminate segment would continue to contribute c.80% to EBITDA.
Initiate with BUY: We expect the company to deliver Revenue/EBITDA/EPS
CAGR of 18/23/39% over FY15-18E. Currently the stock is trading at FY17/18
P/E of 19.8/13.7x. We value the company at 17x 1-yr forward EPS to arrive at
a TP of ` 550 (Mar’17), c.27% upside from current levels. E1.Vicky
Samir [email protected]
Tel: (91 22) 663030
Key Data
Market cap (bn) ` 10.5 / US$ 0
Shares in issue (mn) 24
Diluted share (mn) 24
3-mon avg daily val (mn) ` 1.1/US$ 0
52-week range ` 582.0/299
Sensex/Nifty 26,146/7,9
` /US$ 66
Daily Performance
% 1M 3M 12
Absolute 7.2 16.0
Relative* 9.2 16.5
* To the BSE Sensex
Shareholding Pattern (
Sep-15 Sep-
Promoters 55.1
FII 6.9
DII 7.6
Public / others 30.4
0%10203040506070809010
0
100
200
300
400
500
600
Mar-15 May-15 Ju l-15 Se p-15 No v-15
Greenlam Industries
Greenlam Industries Relative to Sensex (RHS)
Greenlam Industries | GRLM IN
1 December 2015
Price: ` 435
BUY
12M Target: ` 550
Exhibit 1: Financial Summary (
mn)
Y/E March FY15A FY16E FY17E FY18E
Net sales 8,446 9,632 11,768 13,986
Sales growth (%) 11.4 14.0 22.2 18.8
EBITDA 929 1,146 1,431 1,739
EBITDA (%) 11.0 11.9 12.2 12.4
Adjusted net profit 284 335 529 765
EPS ( ` ) 11.8 13.9 21.9 31.7
EPS growth (%) -17.7 18.1 57.8 44.6
ROCE (%) 9.9 10.3 13.3 16.6
ROE (%) 13.2 13.8 18.6 22.1
PE (x) 37.0 31.3 19.8 13.7
Price/Book value (x) 4.6 4.1 3.4 2.7
EV/EBITDA (x) 14.0 11.4 8.9 6.9
Source: Company data, JM Financial. Note: Valuations as of 30/11/2015.
JM Financial Research is also availableon: Bloomberg - JMFR <GO>,Thomson Publisher & Reuters,S&P Capital IQ and FactSet.
Please see Appendix I at the end of thireport for Important Disclosures andDisclaimers and Research AnalystCertification.
India | Building Materials | Initiating Coverage
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Key Charts
Exhibit 2. Greenlam – Fuelled for growth
Initiate with BUY, to outpace peers profit growth
Capex completed in FY14-1HFY16 Staged for a strong growth, veneer to grow faster
Product CapacityCapex( mn)
RevenuePotential ( mn)
Laminate Sheets 2mn sheets 200 1,000-1,200
MFC 2msm 150 350-500
Factory Finished Doorsand frames
1,20,000units 270 800-900
Engineered WoodFlooring
1msm 1,050 3,000-3,500
Total 1,620 5,150 - 6,100
Laminate to contribute to c.80% of the revenues by FY18 Laminate to continue to contribute to c.80% of the EBITDA
Capex over, FCFE to kick in from FY17 Net-debt equity and EBITDA to improve
Return ratios to improve Outpace peers growth
Source: Company, JM Financial.
18%16%
36%
23% 22%27%
40%
Total business Laminates Veneer business
FY15-18E cagr Revenue EBITDA PAT
88 87 84 82
12 13 16 18
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of revenues Laminates Veneer
81 91 86
79
19 9 14
21
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of EBITDA Laminates Veneer
0.3
-0.1
0.4
0.6
-1.0
-0.5
-0.1 -0.1
FY15 FY16E FY17E FY18E
FCFE (Rs bn) Capex (Rs bn)
1.21.1
0.8
0.5
2.8
2.4
1.6
1.0
FY15 FY16E FY17E FY18E
Net debt/Equity (x)
Net debt/EBITDA (x)
10% 10%
13%
16%
13% 14%
19% 22%
FY15 FY16E FY17E FY18E
RoCE (%) RoE (%)
14%
9%
18%16% 15%
23%
14% 16%
39%
Centuryply Greenply Greenlam
FY15-18E cagr
Revenue EBITDA PAT
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Investment Debates
# Debate 1- Revenue potential from the capex done
Company is largest laminate producer in Asia and third largest in the world
by volumes. c.88% of the FY15 8.4bn revenues of Greenlam came from the
laminate business, balance c.12% from veneer segment. It has incurred total
capex of 1.6bn in FY14-1HFY16 (excluding c.Rs0.8bn improvement capex on
existing facilities of Nalagarh and Behror) to drive the growth momentum inthe business. These expansions have the capacity to generate revenues of
5-6bn. Expansions added the following capacities - 2mn sheets laminate,
2msm melamine faced chipboards (part of laminate), 120k units factory
finishes doors (part of veneer) and 1msm engineered wood flooring (part of
veneer). We expect expansions to drive company’s revenues – for FY15-18E,
laminate segment revenue is expected to witness 16% CAGR and veneer
36%. Though veneer’s revenue share would increase by c.50% in next three
years, laminate would continue to form c.80% of the total revenue in FY18.
Structurally company is well placed to deliver strong growth with extremely
strong distribution network and brand established, even internationally.
Asia’s largest player in laminate: c.88% of FY15 ` 8.4bn revenues for
Greenlam came from the laminate business, balance c.12% from veneersegment. Company has c.30% market share of the total organized laminate
market in India (c.45% of the India’s laminate exports market and c.30% of the
domestic organized market). Greenlam is largest laminate producer in Asia
and third largest in the world by volumes. c.50% of the company’s laminate
revenue comes from exports. APAC/US/Europe account for c.47%/16%/13% of
exports. In the veneer market, company is present in the natural veneer
business with market share of c.20% of the organized market. In
1QFY16/2QFY16 it entered the teak veneer/engineered veneer business.
Exhibit 3.Greenlam – Revenue break-up
88% revenues from laminate and 12% from veneer’s in FY15
Source: Company, JM Financial.
82 87 88 88 87 84 82
18 13 12 12 13 16 18
0
20
40
60
80
100
120
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
% of revenuesLaminates Veneer
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 4.Greenlam – Revenue market share and capacity
Company is the Asia’s largest player in the laminate market and leading player in natural veneer business
c.30% revenue market share of India’s organized laminate market c.20% revenue share of India’s organized natural veneer market
10.02mn sheets laminate capacity, c.114% utilization (FY15) Sufficient veneer capacity, expanding into teak/engineered venee
Source: Industry Sources, Company, JM Financial.
Laminate capacity is optimally utilized; veneer has surplus capacity: We
note that company ended FY15 with a capacity utilization of c.114% in
laminate. A new 2mn sheet laminate expansion (taking total capacity to 14mn
sheets) became operational in Sep’15. Veneer’s capacity utilization was c.25%in FY15. Veneer’s optimal capacity utilization is generally low (around 50%) as it
is a niche product involving a labor intensive process.
Capex incurred has ability to generate more than 5bn revenues: Greenlam
has done total capex of ` 1.6bn in FY14-1HFY16 (excluding c.Rs0.8bn
improvement capex on existing facilities of Nalagarh and Behror) to drive the
growth momentum in the business. With new products company would be
present across the spectrum of surface decorative materials. These expansions
have the capacity to generate revenues of ` 5-6bn as shown below:
Exhibit 5. Greenlam – Capex
` 1.6bn capex done, capable of generating ` 5-6bn of revenues
Product Segment Capacity CommercialOperations
Capex(
mn)RevenuePotential
(
mn)Comments
Laminate Sheets Laminate 2mn sheets 2QFY16 2001,000-1,200
Brownfield expansion. Already a marketleader.
MFC Laminate 2msm 3QFY15 150 350-500Used in the organized manufacture ofmodular furniture and kitchens. It is aderivative of laminates business itself.
Factory Finished Doors and frames Veneer 1,20,000units 2QFY16 270 800-900 Market growing by 20-25%.
Engineered Wood Flooring Veneer 1msm 3QFY15 1,0503,000-3,500
Market size of ` 6bn (75% is timber basedproducts). Market growing by 20-25%.
Total 1,6205,150 -6,100
Source: Company, JM Financial
Greenlam,31%
Merino, 26%
Centuryply,11%
Stylam, 8%
Royal Touch,
7%
Rushil
Décor, 7% Others,
10% Greenlam,
20%
Others
organised
players, 80%
10.0 10.0 10.0 10.0 10.0
12.0
14.0 14 .0
9499
103107
114
105
101
114
60
70
80
90
100
110
120
3.0
5.0
7.0
9.0
11.0
13.0
15.0
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Laminates (mn sheeets) (LHS) Capacity utilisation (%)
4.20 4.20 4.20 4.20 4.20 4.20 4.20 4.20
33
33
3026 25
34
37 39
0
5
10
15
20
25
30
35
40
45
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Veneer (msm) (LHS) Capacity uti lisation (%)
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
We note that, if required, company may go for further two phases of brownfield
expansions (2mn sheets each phase) in laminate by incurring incremental capex
of ` 200mn per 2mn sheets.
About the new products
Melamine Faced Chipboards (MFC): MFC is an engineered particle wood
product. Greenlam offers laminated MFC which is primarily used in organized
carpentry by OEMs like modular furniture manufacturers and kitchen
manufactures.
Engineered Wood Flooring: Company sells the wood flooring material, under
the brand “Mikasa”. It is the first Indian brand in the category and has the
highest range of offerings with 111 SKUs. The product comes with a maximum
warranty of 30 years and is unique with a glueless mechanism for installation.
Engineered Door: Greenlam is the first organized company to launch
engineered, factory finished, door solutions in the country.
Exhibit 6. Greenlam - New products
Melamine Faced Chipboards Engineered Wood Flooring Engineered Door
Source: Company, JM Financial.
Veneer share to double in next three years; laminate to continue to form
more than 80% revenue: Veneer business is expected to deliver c.35% revenue
cagr driven by (1) new wood flooring business; (2) new engineered doors
business; (3) expansion into teak and engineered veneer business. We note
that we have assumed wood flooring and engineered door business to deliver
c. ` 700mn and ` 500mn revenues by FY18E, though they have the potential to
deliver double the revenues. For FY15-18E, we expect Laminate business to
witness c.16% revenue CAGR driven mainly by volume growth from newly
expanded capacity.
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Greenlam Industries 1 December 20
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Exhibit 7.Greenlam – Veneer revenues
Veneer’s revenue share to increase by c.50% in next three years, FY15-18E revenue cagr of 36%
Company’s total revenue to grow by 18% FY15-18E cagr Veneer segment revenue to grow faster at c.36% cagr
Revenue assumed from wooden flooring and engineered doors Veneer revenue growth ex- flooring and doors business
Source: Company, JM Financial.
Exhibit 8. Greenlam – Laminate revenues
Laminate continue to form more than 80% revenue in FY18Laminate revenues to continue to grow Volumes gain traction with expansions done
Source: Company, JM Financial.
8.4 9.6 11.8 14.0
11.314.2
22.2
18.8
0
5
10
15
20
25
0
2
4
6
8
10
12
14
16
FY15 FY16E FY17E FY18E
Total Revenue (Rs bn) (LHS) Growth (%)
1.0 1.3 1.9 2.5
10.2
26.4
54.3
29.3
0
10
20
30
40
50
60
0
1
1
2
2
3
3
FY15 FY16E FY17E FY18E
Veneer (Rs bn) Growth (%)
182
0
511
250
703
500
Wooden flooring Engineered Doors
Revenue (Rs mn) FY16E FY17E FY18E
26.4
8.1
54.3
9.7
29.3
10.7
Total Veneer business Veneer business (ex-floor and doors)
Revenue Growth (%) FY16E FY17E FY18E
7.4 8.4 9.8 11.5
11.4
12.5
17.4
16.8
0
5
10
15
20
0
2
4
6
8
10
12
14
FY15 FY16E FY17E FY18E
Laminates (Rs bn) Growth (%)
7.3
9.0
12.5 12.5
3.93.0 3.5 3.5
FY15 FY16E FY17E FY18E
Laminates volumes growth (%) Laminates realization growth (%)
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
# Debate 2- Will company outpace peers’ profit growth
We believe Greenlam will outpace peers like Centuryply and Greenply in
terms of EBITDA growth. For FY15-18E, we expect company’s EBITDA to
witness c.23% CAGR driven by 22%/27% CAGR of the laminate/veneer
business (vs. 15-17% growth of Centuryply and Greenply). EBITDA growth in
both segments is expected to be driven by (1) higher utilization in laminate
business and (2) contribution to EBITDA by the new businesses in the
veneer segment. We note that laminate segment would continue to
contribute c.80% to company’s EBITDA.
Laminate to account for c.80% of EBITDA in FY18: Laminate business
accounted for 81% of EBITDA in FY15. We expect laminate share to remain
flattish over FY15-18E (higher in FY16 due to initial loss in new business
ventures of veneer segment), delivering 22% EBITDA CAGR on c.16% revenue
CAGR and c.250bps margin expansion (to 12.4%, from 10% in FY15).
Company’s 1HFY16 laminate EBITDA margin was 12.4%.
New businesses to drive veneer segment’s EBITDA: We expect the new
businesses of wooden flooring/engineered door to be EBITDA
breakeven/positive from FY17 and contribute to more than 40% of EBITDA of
the total veneer business by FY18. EBITDA of the veneer business is expected
witness 27% CAGR to more than ` 350mn by FY18.
Exhibit 11. Greenlam – EBITDA
Company FY15-18 EBITDA to witness 23% cagr; higher than peers
Company EBITDA to grow by 23% FY15-18 cagr, higher than peers Laminate margins to expand
Higher growth in Veneer business EBITDA Laminate to continue to form 80% of EBITDA
Source: Company, JM Financial.
0.9 1.1 1.4 1.7
13.6
23.3
24.9
21.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0.0
0.5
1.0
1.5
2.0
FY15 FY16E FY17E FY18E
EBITDA (Rs bn) Growth (%)
10.1
11.7 12.4 12.5 12.0
17.9
9.78.6
10.4
14.4
0
5
10
15
20
FY15 1QFY16 FY16E FY17E FY18E
Segment EBITDA margin (%)
Laminates Veneer
23.2
22.4
26.8
20.0
21.0
22.0
23.0
24.0
25.0
26.0
27.0
28.0
Total Laminates Veneer
EBIDA FY15-18E cagr (%)
Total Laminates Veneer
81 91 86 79
19 9 14 21
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of EBITDA Laminates Veneer
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
# Debate 3- Valuations vs. high growth
Greenlam was formed by demerging the decorative surface laminate and veneer
business of Greenply.
We expect the company to deliver Revenue/EBITDA/EPS CAGR of 18/23/40%
over FY15-18E. Currently the stock is trading at FY17/18 P/E of 19.8/13.7x. We
value the company at 17x 1-yr forward EPS to arrive at a TP of ` 550 (Mar’17),
c.27% upside from current levels.
Exhibit 12.Greenlam – Valuation Charts
We value the company at 17x 1-yr forward P/E to arrive at TP of ` 550
Current 1yr forward P/E is 22.5x Current 1yr forward P/BV is 3.7x
Current 1yr forward EV/E is 10x FY15-18E Revenue/EBITDA and PAT Cagr
Source: Company, Bloomberg, JM Financial.
Exhibit 13.Greenlam – Valuation Ratios
Trading FY17/18 P/E of 19.7/13.6xValuation Ratios FY15 FY16E FY17E FY18E
PER (x) 39.4 31.3 19.8 13.7
EV/EBITDA (x) 14.1 11.5 9.0 7.0
Price to book value (x) 4.6 4.1 3.4 2.7
Source: Company, Bloomberg, JM Financial.
14
19
24
29
34
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15
P/E = 22.5x Mean=23.6xMean+1SD=26.8x Mean-1SD= 20.3x
2.5
3.0
3.5
4.0
4.5
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15
P/BV=3.7x Mean=3.5xMean+1SD=3.8x Mean-1SD=3.2x
8.0
9.0
10.0
11.0
12.0
13.0
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15
EV/EBITDA = 10x Mean=9.8x
Mean+1SD=10.6x Mean-1SD=9.5x
18%
23%
40%
Revenue EBITDA PAT
FY15-18E cagr
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Greenlam Industries 1 December 20
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Financials in exhibitsExhibit 14.Greenlam – Financials
Strong growth in offing
Revenues to grow by c.18% cagr over FY15-18E Veneer to grow faster
Laminate to continue to form c.80% EBITDA FCFE to kick in with capex being over
Net-debt/equity and net-debt/EBITDA to trend down Efficient working capital management
Return ratios set to improve To maintain c.4% dividend payout
Source: Company, JM Financial.
8.4 9.6 11.8 14.0
11.314.2
22.2
18.8
0
5
10
15
20
25
0
2
4
6
8
10
12
14
16
FY15 FY16E FY17E FY18E
Total Revenue (Rs bn) (LHS) Growth (%)
18%16%
36%
23% 22%27%
40%
Total business Laminates Veneer business
FY15-18E cagr Revenue EBITDA PAT
81 91 86 79
19 9 14 21
0
20
40
60
80
100
120
FY15 FY16E FY17E FY18E
% of EBITDA Laminates Veneer
0.3
-0.1
0.4
0.6
-1.0
-0.5
-0.1 -0.1
FY15 FY16E FY17E FY18E
FCFE (Rs bn) Capex (Rs bn)
1.21.1
0.8
0.5
2.8
2.4
1.6
1.0
FY15 FY16E FY17E FY18E
Net debt/Equity (x)
Net debt/EBITDA (x) 41 41 41 41
FY15 FY16E FY17E FY18E
Working Capital Cycle (days)
10% 10%
13%
16%
13% 14%
19% 22%
FY15 FY16E FY17E FY18E
RoCE (%) RoE (%)
4 4 4 4
FY15 FY16E FY17E FY18E
Dividend payout (%)
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 15. Greenlam– Key AssumptionsFY15 FY16E FY17E FY18E
Laminate (mn sheets)Capacity 10.02 12.02 14.02 14.02Capacity Utilisation (%) 114 105 101 114Sales 11.59 12.63 14.21 15.99Growth (%) 7.3 9.0 12.5 12.5
Veneer (msm)Capacity 4.20 4.20 4.20 4.20Capacity Utilisation (%) 25 34 37 39Sales 1.06 1.45 1.55 1.65
Growth (%) -5.0 36.0 7.0 7.0
Other CapacitiesMFC (msm) 2.00 2.00 2.00 2.00Engeneered Wood (msm) 1.00 1.00 1.00 1.00Engineered Doors (mn units) 0.12 0.12 0.12
Source: Company, JM Financial.
Exhibit 16.Greenlam – Segmental financialsmn FY15 FY16E FY17E FY18E
Net SalesLaminate and Allied Products 7,442 8,375 9,828 11,477Veneer and Allied Products 994 1,257 1,940 2,509Total 8,436 9,632 11,768 13,986Net Sales growth (%)Laminate and Allied Products 11.4 12.5 17.4 16.8Veneer and Allied Products 10.2 26.4 54.3 29.3
Total 11.3 14.2 22.2 18.8EBITDALaminate and Allied Products 752 1,038 1,228 1,377Veneer and Allied Products 178 108 202 362Total 929 1,146 1,431 1,739EBITDA %Laminate and Allied Products 10.1 12.4 12.5 12.0Veneer and Allied Products 17.9 8.6 10.4 14.4Total 11.0 11.9 12.2 12.4EBITDA growth (%)Laminate and Allied Products 10.9 38.2 18.3 12.1Veneer and Allied Products 26.9 -39.4 88.3 78.7Total 13.6 23.3 24.9 21.5
Source: Company, JM Financial.
Exhibit 17.Greenlam – Income StatementIncome Statement FY15 FY16E FY17E FY18E
mnNet Sales 8,446 9,632 11,768 13,986Other operating income 0 0 0 0Total revenues 8,446 9,632 11,768 13,986Total operating costs 7,517 8,486 10,337 12,247EBITDA 929 1,146 1,431 1,739Depreciation 302 335 354 358Other income 14 16 20 24EBIT 642 827 1,097 1,405Interest 268 299 283 228PBT 373 528 814 1,177Tax 89 193 285 412Adjusted PAT 284 335 529 765E/O items -18 0 0 0Reported PAT 266 335 529 765
Adjusted EPS 11.8 13.9 21.9 31.7Cash EPS ( ` ) 24.3 27.8 36.6 46.5Shares outstanding (mn) 24 24 24 24
Growth rates (%)Revenue 11.4 14.0 22.2 18.8EBITDA 13.6 23.3 24.9 21.5Adjusted EPS -17.7 18.1 57.8 44.62-year forward Revenue CAGR (%) 18.0 20.52-year forward EBITDA CAGR (%) 24.1 23.22-year forward EPS CAGR (%) 36.5 51.1
Margins (%)EBITDA 11.0 11.9 12.2 12.4EBIT 7.6 8.6 9.3 10.0PAT 3.4 3.5 4.5 5.5
Effective tax rate (%) 23.9 36.5 35.0 35.0
Source: Company, JM Financial.
All expansions completed
Veneer business to grow faster, laminate
continue to form c.80% of EBITDA
FY15-18E Revenue/EBITDA/PBT/EPS
cagr of c.%/18%/23%/39%
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 18. Greenlam – Balance SheetBalance Sheet FY15 FY16E FY17E FY18E
` mn
Share capital 121 121 121 121
Reserves & Surplus 2,150 2,468 2,971 3,698
Shareholders' funds 2,271 2,589 3,092 3,819Secured loans 1,742 1,842 1,442 842
Unsecured loans 930 930 930 930
Total debt 2,672 2,772 2,372 1,772Deferred Tax Liab 145 145 145 145
Total sources of funds 5,087 5,506 5,608 5,735
Fixed assets 3,206 3,371 3,067 2,759Gross block 4,534 5,034 5,084 5,134
Less: Acc. Depreciation 1,420 1,755 2,109 2,466
Net block 3,114 3,279 2,975 2,667CWIP 92 92 92 92
Investments 175 175 175 175
Liquid Investments 0 0 0 0Current assets 3,757 4,298 5,223 6,197
Stocks + WIP 1,881 2,145 2,621 3,115
Sundry debtors 1,181 1,347 1,645 1,955
Cash/bank 29 46 29 23Loans and advances 662 754 922 1,095
Other current assets 5 6 7 8
Current liabilities 2,051 2,339 2,857 3,396Creditors 1,765 2,012 2,459 2,922
Other liabilities 194 221 270 320
Provisions 93 106 129 153Total Application of funds 5,087 5,505 5,608 5,735
Gearing and profitabilityratios (%) Net-debt ( ` mn) 2,643 2,726 2,343 1,749
Net-debt/Equity 1.2 1.1 0.8 0.5Net-debt/EBITDA 2.8 2.4 1.6 1.0
Interest coverage ratio 3.5 3.9 5.1 7.7
RoAE 13.2 13.8 18.6 22.1RoACE 9.6 9.9 12.8 16.1
Fixed Asset T/O (Sales/Avg. GB) 2.0 2.0 2.3 2.7
WC Cycle (days) 56 56 56 56Dividend Yield (%) 0.1 0.1 0.2 0.3
FCF Yield (%) 3.2 -0.6 3.9 6.0
Source: Company, JM Financial.
Exhibit 19. Greenlam – Cash flowCashflow FY15 FY16E FY17E FY18E
mn
Profits before tax 355 528 814 1,177Depr/amort/non-cash items 319 319 334 334
Interest income 268 299 283 228Chg in working capital 737 -236 -424 -441
Taxes paid -109 -193 -285 -412
CF from operations 1,571 718 722 886
Fixed asset capex -973 -500 -50 -50(Purchase)/Sale ofassets/investments
9 -1 0 0
Interest/dividend received 11 16 20 24
CF from investments -953 -485 -30 -26
Equity raised 0 0 0 0Debt raised / (repaid) -325 100 -400 -600Interest paid -269 -299 -283 -228
Dividends paid 0 -17 -26 -38
Others -1 0 0 0CF from financing -596 -216 -709 -866
Change in cash for year 22 17 -18 -6Beginning cash 7 29 46 28
Closing cash 29 46 28 22
FCF 340 -65 409 632
Source: Company, JM Financial.
Debt at peak in FY16
Net-debt/equity to reduce to 0.4x by FY18
To generate strong FCF from FY17
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Quarterly Financials
Exhibit 20. Greenlam – Quarterly financials
Laminate volume grew by c.5% YoY in 2QFY16 led by decline in exportsmn 2QFY16 1QFY16 %QoQ,bps
Net Sales (excluding excise) 2,216 2,082 6.5
Other operating Income 85 88
Total Revenues 2,301 2,170 6.0
Expenditure 2,005 1,918 4.5
EBITDA 296 252 17.6% margin 12.9 11.6 127 bps
Other income 3 2 16.4
Interest 75 77 -3.6
Depreciation 75 76 -1.5
PBT 149 100 48.5
% margin 6.5 4.6 185 bps
Tax 56 36 55.3
% tax rate 38.0 36.3
PAT (Adjusted) 92 64
% margin 4.0 2.9 107 bps
Extraordinary items 0 0
PAT (Reported) 92 64 44.6
EPS ( ` ) 3.8 2.6 44.6
Key Operational matrix
Sales VolumeLaminate 3.0 2.8 4.9
Veneer 0.4 0.4 5.4
Average net realisation ( /cbm)
Laminate 638 627 1.8
Veneer 740 735 0.7
Source: Company, JM Financial.
Exhibit 21.Greenlam – Quarterly segmental break-up
Veneer EBITDA being impacted by loss of new business of wood flooringmn 2QFY16 1QFY16 %QoQ,bps
Segment Revenue
Laminate1,997 1,887 5.8
Veneer 304 283 7.4
Total 2,301 2,170 6.0
Segment EBITDA
Laminate 260 221 17.6
Veneer 33 27 20.6
Total 293 248 17.9
Segment EBITDA %
Laminate 13.0 11.7 130 bps
Veneer 10.9 9.7 120 bps
Total 12.7 11.4 128 bps
Source: Company, JM Financial.
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Company Details
Exhibit 22. Greenlam - Board of Directors
Name Designation Qualification Experience Age
Shiv Prakash Mittal Chairman B.Sc 42 66
Saurabh Mittal MD & CEO B.Com 18 40
Parul Mittal Director Marketing & Design B.Com 13 37
Vijay Kumar Chopra Independent Director CA 35 69
Urvashi Saxena Independent Director LLB 40 70
Sonali Bhagwati Dalal Independent Director B.Arch 30 54
Source: Company, JM Financial
Exhibit 23. Greenlam – Key Personnel
Name Designation Qualification Experience (years) Age (years)
Ashok Sharma CFO CA 22 46
B L Sharma President - Plant Operations
Deepak Aadhar VP - HR, CSR, IT & Admin MSc, EMP 29 51
Alex Joseph VP - Marketing MBA 12 39
Anuj Sangal Country Head Sales – Laminate & Allied Vertical MBA 22 48
Anil Tyagi Country Head Sales – Flooring Vertical B.Sc 28 59
Shivaji Mohinta Country Head Sales – Decorative Veneer Strategic Mgt Diploma 25 47
Lokesh Dutt VP - International Exports B.Tech 25 49
Banwari Lal Sharma Head - Manufacturing B.Sc, LLB, MBA 34 59
Sandeep Mathur President-Doors PGDM 34 57
Alok M Tibrewala Country Head - Laminate and Allied B.Tech 31 52
Source: Company, JM Financial
Exhibit 24. Greenlam – Shareholding Pattern
Listed in Mar’15
Mar-15 Jun-15 Sep-15Promoters 55.0 55.1 55.1
FII 12.3 12.4 6.9
DII 7.6 7.6 7.6
Others 25.1 25.0 30.4
Total 100.0 100.0 100.0
Holding of more than 1%
HSBC (Jwalamukhi) 9.9 9.9 5.0
HDFC 7.6 7.6 7.6
MS 1.4 1.4 1.4
Westbridge 3.0 3.0 7.9
Akash Bhansali 1.4 1.4 2.6
Ashish Dhawan 9.8 10.2 10.5
Vallabh Bhansali 1.3 1.3 1.3
Mangal Bhansali 1.1 1.1 1.1
Source: Company, JM Financial.
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Exhibit 25. Greenlam – MilestonesYear Events
1992 Foundation stone of First laminate Unit at Behror, Rajasthan.
1993 Commercial Production and Exports of Laminate started.
2002 Started Commercial Production of Decorative Veneer.
2005 1st Overseas Subsidiary in Singapore.
2008 2nd Overseas Subsidiary in US.
2009 2nd Laminate unit at Nalagarh starts commercial production.
2010-11 Highest exporter of Laminate.
India’s Largest Laminate Company.
Worlds 3rd Largest Laminate Brand.
2013 Decorative Division demerger approved by Board of Directors.2014
Commercial Production of Engineered Wooden flooring and Melamine Faced Chipboardsstarted at Behror.
Demerger with Greenply was appproved by Hon’ble High Court of Gauhati and filingdone with RoC.
2015 Listed on NSE & BSE.
Source: Company, JM Financial.
Exhibit 26. Greenlam – Location of manufacturing units
Source: Company, JM Financial
Behror, Rajasthan
Laminates - 5.34mn sheets
Veneer - 4.20msm Engineered Wood Flooring - 1msm
Engineered doors – 1,20,000 units
Nalagarh, Himachal Pradesh
Laminates - 6.68mn sheetsMelamine Faced Chipboards - 2msm
Total capacity (FY15)
- 10.02mn sheets Laminates
- 4.20msm veneer
- 1msm engineered wood flooring
- 2msm melamine faced chipboards
Expansions
- 2mn sheet Laminates (2QFY16)
- 1,20,000units engineered doors (2QFY16)
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Company background Greenlam demerged the decorative surface business of laminate and veneer
business into a separate entity w.e.f. from Nov’14.
c.88% of FY15 ` 8.4bn revenues came from the laminate business, balance
c.12% from veneer segment.
Company is the largest producer of laminate in Asia and third largest in the
world. In has a market share of c.12.5% in the natural veneer business.
Company has a capacity of 12.02mn sheets of laminate and 4.20msm of
veneer’s capacity.
Key investment arguments
Expansions completed; staged to grow: Greenlam has incurred total capex
of ` 1.6bn in FY15 and 1HFY16 (excluding c.Rs0.8bn improvement capex on
existing facilities of Nalagarh and Behror) with potential to generate revenues
of ` 5-6bn. Expansions added capacities of - 2mn sheets laminate, 2msm
melamine faced chipboards, 120k units factory finishes doors (part of veneer)
and 1msm engineered wood flooring (part of veneer). For FY15-18E, laminate
segment revenue is expected to witness 16% CAGR and veneer 36%.
Higher profit growth than peers: EBITDA growth in both segments is
expected to be driven by margin expansion in laminate business and
contribution to EBITDA by the new businesses in the veneer segment.
Greenlam will outpace EBITDA growth of Centuryply and Greenply. For FY15-
18E, we expect company's EBITDA to witness c.23% CAGR vs. 13-15% growth
of Centuryply and Greenply.
Key Risks
Slower than expected pick-up in new businesses of MFC, wooden flooring and
engineered door.
Increase in competitive intensity in laminate market in India and globally.
Foreign exchange fluctuation risk as company imports raw-material.
Continued slowdown in real estate construction activities.
Valuation and View
Currently the stock is trading at FY17/18 P/E of 19.8/13.7x. We value the
company at 17x 1-yr forward EPS to arrive at a TP of ` 550, BUY.
Exhibit 27. Greenlam – Key assumptionsParticulars FY15 FY16E FY17E FY18E
Sales Volume
Laminate 11.59 12.63 14.21 15.99
YoY Growth (%) 7.3 9.0 12.5 12.5Veneer 1.06 1.45 1.55 1.65
YoY Growth (%) -5.0 36.0 7.0 7.0
Average net realisation ( /cbm)
Laminate 642 661 684 708
YoY Growth (%) 3.9 3.0 3.5 3.5
Veneer 936 737 763 789
YoY Growth (%) 16.0 -21.3 3.5 3.5
EBITDA %
Laminate 10.1 12.4 12.5 12.0
Veneer 17.9 8.6 10.4 14.4
Source: Company, JM Financial.
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Financial Tables (Standalone)
Profit & Loss ( mn)
Y/E March FY15A FY16E FY17E FY18E
Net sales (Net of excise) 8,446 9,632 11,768 13,986
Growth (%) 11.4 14.0 22.2 18.8
Other operational income 0 0 0 0
Raw material (or COGS) 5,466 6,147 7,480 8,852
Personnel cost 788 899 1,099 1,306
Other expenses (or SG&A) 1,262 1,439 1,758 2,090
EBITDA 929 1,146 1,431 1,739
EBITDA (%) 11.0 11.9 12.2 12.4
Growth (%) 13.6 23.3 24.9 21.5
Other non-op. income 14 16 20 24
Depreciation and amort. 302 335 354 358
EBIT 642 827 1,097 1,405
Add: Net interest income -268 -299 -283 -228
Pre tax profit 373 528 814 1,177
Taxes 89 193 285 412
Add: Extraordinary items -18 0 0 0
Less: Minority interest 0 0 0 0
Reported net profit 266 335 529 765
Adjusted net profit 284 335 529 765
Margin (%) 3.4 3.5 4.5 5.5
Diluted share cap. (mn) 24 24 24 24
Diluted EPS ( .) 11.8 13.9 21.9 31.7
Growth (%) -17.7 18.1 57.8 44.6
Total Dividend + Tax 15 17 26 38
Source: Company, JM Financial
Balance Sheet ( mn
Y/E March FY15A FY16E FY17E FY1
Share capital 121 121 121 1
Other capital 0 0 0
Reserves and surplus 2,150 2,468 2,971 3,6
Networth 2,271 2,589 3,092 3,8
Total loans 2,672 2,772 2,372 1,7
Minority interest 0 0 0
Sources of funds 4,943 5,361 5,464 5,5
Intangible assets 0 0 0
Fixed assets 4,534 5,034 5,084 5,1
Less: Depn. and amort. 1,420 1,755 2,109 2,4
Net block 3,114 3,279 2,975 2,6
Capital WIP 92 92 92
Investments 175 175 175 1
Def tax assets/- liability -145 -145 -145 -1
Current assets 3,757 4,298 5,223 6,1
Inventories 1,881 2,145 2,621 3,1
Sundry debtors 1,181 1,347 1,645 1,9
Cash & bank balances 29 46 29
Other current assets 5 6 7
Loans & advances 662 754 922 1,0
Current liabilities & prov. 2,051 2,339 2,857 3,3
Current liabilities 1,958 2,233 2,728 3,2
Provisions and others 93 106 129 1
Net current assets 1,707 1,960 2,366 2,8
Others (net) 0 0 0
Application of funds 4,943 5,361 5,463 5,5
Source: Company, JM Financial
Cash flow statement ( mn)
Y/E March FY15A FY16E FY17E FY18E
Reported net profit 266 335 529 765
Depreciation and amort. 103 335 354 358
-Inc/dec in working cap. 563 -182 -328 -341
Others 0 0 0 0
Cash from operations (a) 933 488 555 782
-Inc/dec in investments 1 0 0 0
Capex -780 -500 -50 -50
Others 78 -53 -96 -100
Cash flow from inv. (b) -702 -553 -146 -150
Inc/-dec in capital -6 0 0 0
Dividend+Tax thereon -15 -17 -26 -38
Inc/-dec in loans -307 100 -400 -600
Others 89 0 0 0
Financial cash flow ( c ) -238 83 -426 -638
Inc/-dec in cash (a+b+c) -7 18 -18 -6
Opening cash balance 36 29 46 29
Closing cash balance 29 47 29 23
Source: Company, JM Financial
Key Ratios
Y/E March FY15A FY16E FY17E FY1
BV/Share ( ` ) 94.1 107.3 128.1 158
ROCE (%) 9.9 10.3 13.3 16
ROE (%) 13.2 13.8 18.6 22
Net Debt/equity ratio (x) 1.1 1.0 0.7 0
Valuation ratios (x)
PER 37.0 31.3 19.8 13
PBV 4.6 4.1 3.4 2
EV/EBITDA 14.0 11.4 8.9 6
EV/Sales 1.5 1.4 1.1 0
Turnover ratios (no.)
Debtor days 51 51 51
Inventory days 81 81 81
Creditor days 118 119 120 1
Source: Company, JM Financial
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
Notes
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Greenlam Industries 1 December 20
JM Financial Institutional Securities Limited Page
APPENDIX I
JM Financial Institutional Securit ies Limited(Formerly known as JM Financial Institutional Securities Private Limited)
Corporate Identity Number: U65192MH1995PLC092522Member of BSE Ltd. and National Stock Exchange of India Ltd. and MCX Stock Exchange Ltd.
SEBI Registration Nos.: BSE - INZ010012532, NSE - INZ230012536 and MCX-SX - INZ260012539Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
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Definition of ratingsRating Meaning
Buy Total expected returns of more than 15%. Total expected return includes dividend yields. Hold Price expected to move in the range of 10% downside to 15% upside from the current market price. Sell Price expected to move downwards by more than 10%
Research Analyst(s) Certification
The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:
All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and tsecurities; and
No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views exprein this research report.
Important Disclosures
This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to proinformation about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely fopurpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form andreproduced or redistributed without the prior written consent of JM Financial Institutional Securities. This report has been prepindependent of the companies covered herein.
JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Merchant Banker and a SBroker having trading memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and MCX Stock Exchange Ltd. (MCXNo material disciplinary action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which
impact the investment decision making of the investor.
JM Financial Institutional Securities provides a wide range of investment banking services to a diversified client base of corporates indomestic and international markets. It also renders stock broking services primarily to institutional investors and provides the reseservices to its institutional clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrainvestment banking, investment management, brokerage and financing group. JM Financial Institutional Securities and/or its associates mhave provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergeacquisitions, broking, financing or any other advisory services to the company(ies) covered herein. JM Financial Institutional Securities anits associates might have received during the past twelve months or may receive compensation from the company(ies) mentioned in report for rendering any of the above services.
JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or sposition in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving ssecurities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) covered uthis report or (c) act as an advisor or lender/borrower to, or may have any financial interest in, such company(ies) or (d) considering nature of business/activities that JM Financial Institutional Securities is engaged in, it may have potential conflict of interest at the tim
publication of this report on the subject company(ies).
Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individuown one per cent or more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (ReseaAnalysts) Regulations, 2014.
Research Analysts or their relatives; (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receany compensation from the company(ies) covered under this report, or from any third party, in connection with this report or (c) do not any other material conflict of interest at the time of publication of this report. Research Analyst(s) are not serving as an officer, directoemployee of the company(ies) covered under this report.
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Greenlam Industries 1 December 20
While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securimarkets or developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness.Financial Institutional Securities may not be in any way responsible for any loss or damage that may arise to any person from any inadvererror in the information contained in this report. This report is provided for information only and is not an investment advice and must alone be taken as the basis for an investment decision. The investment discussed or views expressed or recommendations/opinions gherein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contaherein may be changed without notice and JM Financial Institutional Securities reserves the right to make modifications and alterations tostatement as they may deem fit from time to time.
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This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulatiowhich would subject JM Financial Institutional Securities and/or its affiliated company(ies) to any registration or licensing requirement wisuch jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investPersons in whose possession this report may come, are required to inform themselves of and to observe such restrictions.
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