Greenply Industries Ltd

Market price when the stock is suggested – 115Rs

Greenply Industries Limited (GIL) is a 30 year old company and is also India’s largest interior infrastructure company. GIL is primarily involved in manufacturing of plywood and trading of plywood and allied products. The company over the past several years had faced very strong ups and downs however going forward with increasing urbanisation as well as increasing organised plywood markets GIL is set to be the big beneficiary of all.

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Established as as “Mittal Laminates Private Limited” in 1990 the company was later renamed to Greenply Industries Limited in 1996. Its first manufacturing plant was established in 1993 at Behror, Rajasthan, followed by one at Pantnagar, Uttarakhand in 2006. Prior to which a manufacturing unit of erstwhile Greenply Industries Limited at Tizit, Nagaland was taken over, along with the company itself in 1995.

Greenply manufacturers various interior infrastructure products such as plywood, block board, decorative laminates, decorative veneers, medium-density fiberboards (MDF), Laminate flooring and restroom cubicles. It has 45 branches all across India and presence in more than 300 cities with more than 13,000 distributors, dealers, sub-dealers and retailers. The company has its registered office in Tinsukia, Assam and corporate office in Kolkata.

Over the years, Greenply has reinforced its position as one of the most innovative and environment-friendly plywood manufacturing companies in India. The Company made forward looking investments in people, practices, facilities and equipment with the objective to reinforce its differentiation.

Products

Indian Railway

Segment Results

Greenply is one of the most credible plywood brands in India. If there is one word that would be synonymous with the Greenply brand, it would be ‘trust’. The brand – now in its fourth decade of existence – generates among the highest recalls for any consumer seeking to set up or renovate their homes or even among those seeking to influence those doing seeking to set up homes, which includes an eco-system of architects, interiors, carpenters, contractors and consumers.

Demand drivers There are a number of reasons why Greenply is preferred. 

• One, the Company addressed the needs (quality, terms of trade, accounts reconciliation, handling product returns if any) of its primary customers – channel and trade partners. 
• Two, the brand provides products across all price points, addressing the requirements across all sections of consumers and society. 
• Three, the brand is visible, with outdoors advertising reinforcing recall. 
• Four, the Company’s products are available across retail outlets pan-India. 
• Five, the brand has periodically churned its products portfolio, making it possible to excite consumers with new products. 
• Six, the brand has consistently pushed the innovation frontier – through the creation of complete categories (like India’s first zero emission plywood, products with anti-bacterial properties, 500% lifetime warranty and certification by California Air Resources Board)

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Impact of key economic parameters on the company and how well the company is positioned to tackle them

Urbanisation – Rising urbanisation will expand the market for the Company’s products and increase penetration of its varied portfolio of products Urbanisation could accelerate the consumption of value added plywood varieties.

Rising per capita income – The Company will benefit from the rise in per capita income leading to higher discretionary spending, home pride and superior interior infrastructure products

Changing lifestyles – The Company is uniquely positioned to capitalise, shifting consumption from conventional to customised and branded interior infrastructure products.

Trending towards nuclear families – The Company will benefit from the sustained increase in the number of nuclear families, widening the market for interior infrastructure products.

Demographic dividend and growing middle class – The Company will capitalise on the demographic dividend through a larger off take and quicker brand acceptance There could be increased off take in the Company’s mass and popular brands, strengthening economies.

Brand consciousness – The Company enjoys a premium brand recall in the market for its products and is an attractive proxy for rising brand consciousness in India.

E-commerce – With the e-commerce market growing exponentially, the Company has increased its digital visibility.

What are the steps taken by the company to cater growth in the sector?

Widening its distribution presence in non metro locations.

Introducing mass market products with the assurance of Greenply quality, enabling the Company to widen its market presence and share

Widening its product portfolio; increasing production capacity

Key Greenply innovations 

Plywood durability Greenply was one of the first companies to offer a seven-year warranty across its products. The R&D team developed adhesives and chemicals that made it possible for its plywood varieties to endure extreme climate changes without impairment.

Fire retardant Greenply was the first to introduce fire-retardant plywood. The product, when exposed to 50 minutes of fire, reported only two layers of burns, compared to the specified norm of being able to withstand 45 minutes of fire. 

Double pressing Greenply developed the double-pressing process, which helped bond veneers better and marginally reduce veneer thickness. This made it possible to produce more from less, reduce plywood warpage and enhance profitability. 

Calibrator Greenply was the first in its sector to install a calibrator across its manufacturing units, delivering uniform plywood thickness. 

Emission Zero plywood Plywood adhesives consume phenol and formaldehyde that generate mild emissions detrimental to long-term health. Greenply developed an adhesive variety around a special formulation that moderated emissions. The product was certified by California Air Resource Board,indicating extensive formaldehyde emission control. Greenply pioneered the launch of Emission Zero plywood, reinforcing its commitment towards environment safety.

Indian furniture segment overview 

The Indian furniture market was estimated to cross US$32 billion in 2019 compared to US$21 billion in 2018, on the back of growing real estate and hospitality industries. The wooden furniture sector was dominant in the furniture segment. On the supply front, India’s furniture market is categorised into domestic and imported segments. In both cases, the unorganised segment dominates the Indian furniture market, owing to cheaper products in comparison to the ones available through the organised channel. The Indian furniture market is also further segmented into the residential and commercial segments. The demand for furniture was concentrated in the northern and southern zones of the country. The Southern region continued to be the leading generator of revenue as the distribution network of furniture manufacturers continuously expanded. Kerala was among the major suppliers of wood which was widely used as raw material in the country’s furniture market. The global lockdown had a major effect on virtually all business sectors, including the furniture sector and related sectors like real estate, retail market, e-commerce etc. Production shutdown, raw material supply obstructions, supply chain disruption, interruption in labour flows and a complete shift in consumer sentiment were manifest; furniture sales took a backseat. In view of this, growth estimates for foreseeable future are impossible to make. (Source: TechSci Research, Economic Times, Ciston,KPMG) Plywood sector overview Plywood is available in four types (structural plywood, external plywood, internal plywood and marine plywood). Plywood possesses structural strength coupled with flexibility; it provides resistance against chemicals and fire; it provides insulation against sound-vibrations and excessive heating. Due to these properties plywood is preferred in the manufacture of doors, stairs, external cladding, flooring, framing, interior rails and balustrades, internal panelling and timber joinery products. Special grades of treated plywood are used in the marine industry, designed to withstand occasional exposure to seawater without decaying or deteriorating. 

Subsidiaries

Presently, Company has two overseas wholly owned subsidiaries viz. (i) Greenply Holdings Pte. Ltd., Singapore, which is holding the investment in Greenply Alkemal (Singapore) Pte. Ltd., Singapore. (ii) Greenply Middle East Limited, Dubai, UAE, which is managing, controlling and holding investment in Greenply Gabon SA, Gabon, West Africa and also engaged in general trading business 1984.

Financials

Greenply had long-term debt of Rs49.35 crore as on 31 March 2019 In FY2019-20, the Company retired Rs11.70 crore of long-term debt Debt-equity ratio transformed from 0.75 in FY2017-18 to 0.40 in FY2019-20 The Company intends to retire all long-term debt by 2024

For the Year Ended FY 2020

• Total Borrowings stood at Rs143.09 crore compared as on 31st March 2020 against Rs143.64 crore as on 31st March 2019.
• Net Sales decreased marginally by 1.00% from Rs1275.76 crore in FY2018-19 to Rs1263.07 crore in FY2019-20, largely owing to the loss of sales in March 2020 due to the onset of COVID 19. 
• EBITDA increased to Rs133.93 crore in FY2019-20 compared to Rs126.33 crore in FY2018-19 
• Profit after tax declined from Rs61.29 crore in FY2018-19 to Rs32.60 crore in FY2019-20 owing to the write off for an exceptional item of Rs49.97 crore in FY2019-20. 
• EBITDA margin increased by 70 bps from 9.90% in FY2018-19 to 10.60% in FY2019-20. 
• Total expenses for FY2019-20 stood at Rs1177.85 crore compared to Rs1197.44 crore in FY2018-19. Depreciation and amortisation stood at Rs21.07 crore in FY2019-20 compared to Rs18.72 crore in FY2018-19.
• Bank balances, other than cash and cash equivalents, increased from Rs0.26 crore as on 31st March 2019 to Rs0.31 crore as on 31st March 2020. 
• Cash and cash equivalents declined from Rs17.84 crore as on 31st March 2019 to Rs9.35 crore as on 31st March 2020

Outlook

With residential construction growing, especially in the affordable segment, the demand for PVC Foam Boards and Sheets over the long term are expected to grow attractively.

Company is currently operating primarily in the structural sphere of interior infrastructure domain with almost all the products in its basket catering to the structural needs of the customers. The demand for readymade furniture is growing. Company also focused on the value added products to improve margin.

Conclusion- : 

Past several years had been very tough for the company where the profits declined significantly but now due to covid19 there seems to be a significant shift in the sector that is movement from unorganised to organised sector on account of increasing e-commerce growth as well as urbanisation and many other factors which can be the big beneficiary for the company. Also the company has decreased it debt and going forward it is expected to decrease it even further till 2024 that is when the company plans to be completely debt free. With the economic revival , increased spendings in housing and interior the company is further set to gain big from all the above mentioned. The current fundamentals may be very well reflected in the price as a result the company still trades down 35% from its 52 week high even though the market is making new high every day.  As said last week we would advice users to start partial profit booking in the stocks where significant profit is available. 

This stock is extremely risky and not unlike other darkhorsestock ideas. Due to markets hitting new highs we are not found of suggesting companies with premium valuations and thus as result when the markets are very high we shift our strategy to accommodate more risky companies into the portfolio. This is one such stock. Therefore users are request to do due research before investing into this stock. This would be bay far one of the riskiest darkhorsestock ideas suggested.

Please note that above expressed are our own views. Users are requested to take their own decision regarding investments. No member of DARKHORSESTOCKS would be responsible for any loss.