Smallcap stock Greenpanel can rise about 32% from current levels, here’s why
Greenpanel Industries stock appears to be an attractive bet for the medium term from the smallcap space at the current juncture owing to its growth prospects even though some challenges on domestic capacities and imports persist.
Greenpanel Industries’ share price has been under pressure for the last one year. The stock is down nearly 23 per cent in the last one year while the BSE Midcap index has surged 37 per cent and the equity benchmark has risen 23 per cent in that period. The stock hit its 52-week high of ₹522.45 on July 22, 2022, and as of June 21, 2023 close, the stock is down 35 per cent from its one-year peak.
Greenpanel shares hit their 52-week low of ₹255 on March 29, 2023. In about the last three months, they have risen 33 per cent.
At this juncture, YES Securities sees value in the stock. In a report on June 20, the brokerage firm maintained a ‘buy’ recommendation on Greenpanel Industries with a target price of ₹449, implying a 33 per cent upside potential in the stock from its June 21 close of ₹338.05 on BSE.
“At the current market price, the stock trades at a P/E (price-to-earnings ratio) of 18 times and 15 times on FY24E ad FY25E EPS (earnings per share) of ₹19 and ₹22 respectively. We have valued the stock at 20 times FY25E EPS and arrived at a target price of ₹449, retaining our buy rating,” the brokerage firm said.
YES Securities expects Greenpanel’s MDF (medium density fibreboard) volumes to grow by 13 per cent CAGR over FY23-FY25E on account of rapid acceptance of MDF in the domestic market and realisations to degrow by four per cent, hence revenue should grow by nine per cent CAGR over a similar period.
However, the brokerage firm underscored that margins may contract to 24 per cent in FY24E and FY25E, hence MDF’s EBITDA growth will be flattish over the next two years.
“For Plywood, we reckon volume and revenue to grow by seven per cent CAGR over FY23- FY25E and margins should be nearly eight per cent. Hence, overall, we expect revenue, EBITDA and PAT to grow by nine per cent, five per cent and four per cent, respectively, over FY23-FY25E,” said YES Securities.
The brokerage firm said even though it remains positive on the growth of the MDF industry which is likely to come in at 15 per cent CAGR, the upcoming domestic capacities and higher imports will keep realisations and margins under pressure.
YES Securities interacted with the CFO of Greenpanel Industries to understand the ongoing trends and development and observed that demand is subdued as the first quarter is a seasonally weak quarter while there is some pressure from new domestic capacities and imports as well.
The brokerage firm underscored that the domestic prices continue to remain steady while there is a five-to-six per cent hike in export prices, however, the benefit of higher export prices will be reflected in the second quarter of FY24 (Q2FY24) as the company had pending orders in Q1FY24.
YES Securities said Greenpanel Industries has committed a capex of ₹600 crore for 2,20,000cbm brownfield capacity which will be operational by Q1FY25E and the company will fund the above capex via a mix of debt and internal accruals wherein debt will be ₹260 crore.
Shares of Greenpanel Industries opened flat at ₹338.15 against the previous close of ₹338.05 and rose about a per cent to the level of ₹340.95 in today’s (June 22) trade so far.
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Disclaimer: The views and recommendations given in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 22 Jun 2023, 10:21 AM IST
