Q3FY19 Result Update

Greenlam Industries Limited

Independent Equity Research

March - 2019

Equentis Wealth Advisory Services (P) Ltd

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 GREENLAM INDUSTRIES LTD (Greenlam)

Synopsis

Recommendation BUY
CMP (BSE) 798.45
Upside (15-18mths) Rs. 1,185 – 1,383 (48 – 73%)
Upside (5 years) Rs. 1,531 – Rs. 2,026 (1.9xs – 2.5xs upside)
Type of Result Un-Audited Financial Results for the Quarter ended 31st Dec 2018
Outlook Continues to be positive
ISIN INE544R01013

Q3FY19 Performance Snapshot – Consolidated

Particulars (INR Mn.) Q3FY18 Q2FY19 Q3FY19 9MFY 18 9MFY 19 Q4FY19E FY18 FY19
Net Sales 2,803 3,184 3,140 8,336 9,205 3,412 11,447 12,617
YoY (%) 15.7% 15.6% 12.0% 6.4% 10.4% 9.7% 6.4% 10.2%
QoQ (%) 1.7% 10.5% -1.4% 8.7%
Core EBITDA 391 393 411 1,100 1,141 389 1,489 1,530
as % of net sales 13.9% 12.4% 13.1% 13.2% 12.4% 11.4% 13.0% 12.1%
YoY (%) 29.8% 3.0% 5.1% 15.2% 3.7% 0.1% 7.6% 2.8%
QoQ (%) 2.3% 16.6% 4.4% -5.3%
Reported PAT 174 182 198 467 534 131 646 664
as % of net sales 6.2% 5.7% 6.3% 5.6% 5.8% 3.8% 5.6% 5.3%
YoY (%) 82.0% 14.1% 14.1% 46.5% 14.2% -26.8% 30.1% 2.8%
QoQ (%) 8.7% 18.8% 8.7% -34.0%

Performance Review
o Revenue – Greenlam reported a revenue growth of 12%YoY. In laminates segment (which forms 84%
of total revenue), volume remained flat YoY, revenue grew by 12% YoY driven by realization growth.
For Decorative Veneer & Allied Products (which forms 16% of total revenue), topline grew by ~15%.
Topline of Door business & Wood flooring business which comes under Decorative Veneer & Allied
Products grew by 79% and 44% YoY respectively. For 9MFY19, Greenlam reported a revenue growth
of 10%YoY.

o Margins – EBITDA Margins for Greenlam contracted by 80bps YoY mainly due to higher sales
promotion expenses. EBITDA Margins for Laminates and Allied Products have largely remained flat at
14.1% YoY. Laminate industry is facing intense competition due to oversupply and hence continue to
remain sluggish. This has resulted in margin pressures. As regards Decorative Veneer and Allied
Products, EBITDA Margins have improved by 340bps YoY. Also Engineered Door segment has turned
EBITDA positive while Engineered floor segment continues to remain negative. For 9MFY19, EBITDA
Margins have contracted by 80bps YoY.

o PAT- PAT Margins expanded by 10bps YoY majorly due slight dip in the tax rate. Also PAT growth
for the quarter improved by 14% YoY. For 9MFY19, PAT Margins improved by 20bps YoY and PAT
recorded a growth of 14% YoY.

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Outlook

Greenlam, is the largest player in the Laminates industry with a wide range of innovative product designs catering to
diverse end use applications, straddling across price points. Government initiatives of “Housing for All” by 2020 coupled
with significant benefit of GST augurs extremely well for the business. We have very high opinion on the management
capability to successfully ramp up operations and grow ahead industry.

Also recently, the company announced the acquisition of 100% shares of Decolan SA (a company incorporated in
Switzerland) through Greenlam Asia Pacific Pte Ltd, a wholly owned subsidiary based out of Singapore. Decolan SA is a
wholesale trader, importer and exporter of decorative surfaces solutions and products such as high pressure laminates,
compact panels and allied products. It caters to several markets in Central Europe, and this acquisition will open up for
Greenlam a bigger market thereof. With acquisition of Decolan SA, Greenlam Industries will now have access to Cental
European markets.

Considering company’s ambitious business plans, we are of the opinion that Greenlam is good investment bet for longer
term period and hence we continue to maintain “Buy” recommendation on the company.

Valuation – 15-18M BUY for 48-73% upside in 15 to 18 months
15-18 Month Valuation
Particulars (Consolidated)
FY18 FY19E FY20E
Normalised PAT (Rs. Mn.) 646 664 954
YoY (%) 30.1% 2.8% 43.5%
Share Count (Mn.) 24 24 24
EPS (Rs.) 26.8 27.5 39.5
PE (xs) @ CMP of Rs. 798 29.8 29.0 20.2

Attach PE Multiple (xs) to FY20E EPS (Rs.) Intrinsic Value (Rs.) Upside (%)
20 39.5 790 -1.0%
25 39.5 988 23.7%
30 39.5 1,185 48.4%
35 39.5 1,383 73.2%
40 39.5 1,580 97.9%
45 39.5 1,778 122.7%
Average Intrinsic range 1,185 48.4%
over 15 - 18M 1,383 73.2%

We attach a multiple of 30 - 35xs to FY20E EPS to arrive at the intrinsic value range of Rs. 1,185 – 1,383, implying
potential upside of 48–73% over the next 15 – 18 months. We have a BUY rating on the stock.

Valuation – 5Year

FY18 EPS EPS FY23 EPS Attach PE Multiple (xs) Upside (xs)
(Rs.) CaGR (Rs.) 18.0 20.0 22.0 25.0 28.0 30.0 18.0 20.0 22.0 25.0 28.0 30.0
26.8 15.0% 53.8 969 1,077 1,184 1,346 1,507 1,615 1.2 1.3 1.5 1.7 1.9 2.0
26.8 18.0% 61.2 1,102 1,225 1,347 1,531 1,715 1,837 1.4 1.5 1.7 1.9 2.1 2.3
26.8 20.0% 66.6 1,199 1,332 1,465 1,665 1,865 1,998 1.5 1.7 1.8 2.1 2.3 2.5
26.8 22.0% 72.3 1,302 1,447 1,592 1,809 2,026 2,170 1.6 1.8 2.0 2.3 2.5 2.7
26.8 25.0% 81.7 1,470 1,634 1,797 2,042 2,287 2,451 1.8 2.0 2.3 2.6 2.9 3.1
26.8 28.0% 92.0 1,655 1,839 2,023 2,299 2,575 2,759 2.1 2.3 2.5 2.9 3.2 3.5

Disclaimer - Our 5yr. Target prices are rolling estimates. These factor in changes in accounting period, estimates v/s actual
performance and changes in current valuation multiples periodically. Accordingly, our target prices in latest reports may be different
from the ones published at the time of Initiating coverage.

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Key Monitorables

Company derives 86% of its business from Laminates sector. Any slowdown in this segment can significantly
impact Greenlam’s performance.

Due to increasing awareness about the industry and strong opportunities in engineered wood flooring and doors,
a large number of unorganized players have entered market adding to competition. This could lead to delay in
turnaround of Greenlam’s new segments, impacting its overall business performance.

Delay or poor execution of government schemes could further impact Greenlam’s performance as the overall
demand may not see immediate pickup.

Prolonged slowdown in the realty sector could also impact the company’s performance as volume growth could
slowdown.

Greenlam derives more than 40% of its business from exports and imports raw materials of similar value, making
for a natural hedge. Any unfavorable currency movements may hit margins in the short term due to the lag in
imports and exports.

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