VALUATION & OUTLOOK
Greenply enjoys a strong pan-India brand presence with a widespread distribution network. It is well poised to play out a leading trend change in the interior infrastructure space over the next few years. For the next 2 years the company is in capex mode as it is setting up a large facility for MDF production in South India, which will enable the company to treble its MDF capacity and further engrain its leadership position in this segment. MDF enjoys better return on capital and hence going into FY19 we expect the return ratios to start moving upwards. Apart from this the company is adopting an asset light model for its plywood segment. It is planning to increase its outsourcing of economy segment plywood from 22% to 30% over the next 3 years. This will enable the company to free up its in-house capacity for premium plywood production. Over the next few quarters on account of government measures on change in currency denominations the trade is expected to slowdown on account of a liquidity crunch. Apart from that we expect the real estate market recovery will also be delayed. While the near-term does seem challenging for the company we believe efforts are being made to grow market reach, expand capacity and improve margins. We believe the next few quarters will be challenging for the company in the light of the impact on the real estate sector on account of the demonetisation measures; but we believe the company is well-placed in as the long term growth trends remain intact. At the CMP of Rs254.80/- the stock trades at 23x and 21x its estimated EPS of Rs10.9/-& Rs12/- for FY17 & FY18 respectively. We advise investors with a long-term investment horizon to HOLD the stock.
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