Buy Stock Of Asia’s Largest Laminate Brand, Beats Revenue Estimates To Rs. 518 Cr, Debt Falls

Sharekhan, a top brokerage firm has maintained a Buy rating for the stock of Greenlam Industries Ltd. The company reported higher-than-estimated consolidated revenues at Rs. 518 crores, up by 14% y-o-y, led by 27% y-o-y rise in laminate average realizations. Its domestic and export laminate revenues were up 16% y-o-y. The company also pared its net debt to Rs. 75.5 crores from Rs. 220 crores in Q1FY2023 led by Rs. 195 crore preferential issue. The Current Market Price (CMP) of the stock is Rs. 323.75 a piece, and the brokerage firm has given it a buy rating with a target price of Rs. 420.

Q2FY23 earnings report

However, the stock's sales volume declined by 10% y-o-y (aided by strong domestic performance). The OPM at 10.4% (down 34 bps q-o-q) was lower than our expectation of 11.3% affected by elevated key raw material costs (Deco paper, Veneer & Plywood). Veneers & allied segment reported an 18% y-o-y growth in revenues at Rs. 47 crores although continued to report operating loss, which stood at Rs. 3.2 crore. Overall, consolidated operating profit/net profit were up 17% y-o-y/25% y-o-y at Rs. 54 crore/Rs. 29 crores.

Stock Valuation

Sharekhan stated, "We retain Buy on Greenlam Industries Limited (Greenlam) with an unchanged target price of Rs. 420, considering its strong growth outlook over FY2022-FY2025E. For Q2FY2023, Consolidated revenues beat estimates led by strong realization growth in laminates while OPM lagged on account of continued raw material cost pressures. The company reduced its net debt to Rs. 75.5 crore led by Rs. 195 crore preferential issue. The working capital gets reduced by 8 days to 69 days. The company's Rs. 1000-crore capex plans for laminates, particleboard, and plywood businesses remain on track."

Demands and capacity expansion

The domestic laminate demand is expected to remain healthy, although certain emerging export markets would continue to face weak demand due to currency fluctuations over the next 3-6 months. Completing Plywood capacity and commissioning of enhanced laminate capacity by Q4FY2023 is expected to provide 20% y-o-y growth in overall consolidated revenues for FY2024. The 2,31,000 cbm particle board capacity is expected to start commercial production by Q4FY2024.

About The stock

Greenlam is among the world's top 3, Asia's largest, and India's No. 1 surfacing solutions brand. With its presence in over 100 countries, Greenlam has a team of over 14,000 distributors and dealers along with more than 4,500 employees. The company offers end-to-end surfacing solutions spread across laminates, compacts, veneers, engineered wooden floors, and engineered wooden doors and frames to choose from. With two manufacturing facilities in the country, the company is the first choice of homeowners, architects, and interior designers, when it comes to transforming living spaces.

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.