GREENLAM INDUSTRIES

FOREST PRODUCTS | INDIA | 2022-10-04-15:33 CET | CONTACT: MILIND MUCHHALA 1/7

Initiation of coverage

Investment thesis
• Greenlam has established a leading position in the Indian lami-
nate industry, aided by its strong brand image, wide distribu- Stock rating (relative) Buy
tion network, state-of-art manufacturing prowess, robust prod- New price target INR 375.00
uct portfolio and strong management capabilities.
Previous price target -
• The company is undertaking a capex of INR10bn, directed to-
Closing price* INR 283.55
wards additional laminate capacities as well as addition of par-
Return potential 32.25%
ticle board and plywood capacities to its portfolio. This will
MSCI ESG rating** -
help it to transition from a surfacing products provider to an
integrated one-stop surface and substrate solution provider, MSCI ESG Controversies -
while aiding a potential doubling of its revenues over the next Risk rating Medium
three years. The recent fund raise (INR1.95bn) and healthy CF
should help part finance the capex. * as of 3 October 2022
• The home improvement sector continues to offer structural ** as of 30 September 2022
opportunities, aided by favourable demographics, rising in-
come levels, growing aspirations, urbanisation, nuclearisation Company profile
of families, increasing preference for branded products, grow- Greenlam Industries (Greenlam), established from the demerger of the
ing online/MT [3] sales, government’s focus on housing, etc. decorative business of Greenply Industries (GPIL [1]) in 2013, started
Greenlam remains well positioned to benefit from these oppor- its business in 1993, and primarily constitutes laminates, veneers and
tunities, given its well-established brand, expanding product engineered wood floors/doors. Laminates and allied products consti-
offerings, and an unparalleled distribution reach, while it tute a major portion of its business (ca 91% of FY 2022 revenues),
should also benefit from share gains from the large unorgan- while veneer and allied comprise the balance. As of end-FY 2022 the
ised market. We initiate coverage with Buy rating and a target company’s annual manufacturing capacity included 15.6m of laminate
of INR 375 (25x September 2024E EPS). sheets, 4.2m sqm [2] of veneers, 1m sqm of engineered wooden floors,
and 1.2 lakhs engineered doors/frames. Greenlam products are mar-
keted in over 100 countries through its 8 global subsidiaries, and it de-
Business strategy
rives ca 50% of its revenues from exports, while it occupies a leading
• Greenlam has consistently occupied a leading position in the position in the domestic laminate and veneer segments. It posted reve-
Indian decorative laminate segment, aided by capacity addi- nues of INR17.0bn and PAT of INR0.9bn in FY 2022.
tions, extensive product range of 10,000+ SKUs [4] and robust Performance
distribution network of 14,000+ distributors to better address
customer needs. It has also enhanced its brand equity by offer- INR
ing quality products and investing in A&P [5] (ca 3% of sales). 450
• The company is targeting a bigger play in the wood panel in- 400
dustry to leverage its brand and distribution network. It is un- 350
dertaking an aggressive capex of INR10bn, which will help to
300
expand its TAM [6] to INR460bn (from INR110bn currently),
while also addressing its capacity constraint issue. It has ear- 250
marked capex of INR6bn for its 231,000cbm [7] particleboard 200
capacity (operational by Q4 FY 2024) and INR1.25bn for its 150
18.9m sqm plywood capacity (by Q4 FY 2023). These can gen- 100
erate incremental revenues of ca INR10bn at optimum utilisa-
50
tion.
• Greenlam is also adding a greenfield capacity of 3.5m larger 0
Oct 17 Oct 18 Oct 19 Oct 20 Oct 21 Oct 22 Oct 23
size laminate sheets (cost: INR2.25bn; by Q4 FY 2023). It also
Greenlam Industries Price target
recently acquired a 3.4m sheet laminate facility in Gujarat for
INR360m, and this will be expanded to 5.4m sheets by Q4 FY
1 month 3 months 6 months 12 months
2023. These can generate revenues of INR7.5bn, and will help
it to enter into newer products/markets (mass market) apart Absolute return -17.32% -10.30% -22.70% 3.56%
from providing locational advantage. Source: FactSet, Julius Baer; past performance and performance forecasts are not relia-
ble indicators of future results. The return may increase or decrease as a result of cur-
rency fluctuations
[2] sqm - square meter, [3] MT - modern trade, [4] SKUs - stock keeping
units, [5] A&P - advertisement and promotion, [6] TAM - total addressable
market, [7] cbm - cubic meter
[1] Not covered; Julius Baer offers no recommendation and does not provide
any assessment on potential risks and opportunities

Julius Baer Equity Research | Please find important legal information at the end of this document.
EQUITY RESEARCH | GREENLAM INDUSTRIES | 4 OCTOBER 2022 2/7

SWOT ANALYSIS

Strengths Sales segmentation (FY 2022)

• Largest manufacturer of decorative laminates in Asia and third By business segment Laminate & Allied Products
largest globally, with presence in 100+ countries, and well sup- (91.4%)
ported by a strong brand and expansive distribution network
• An integrated multi-surface solutions provider with world-class Veneer & Allied Products (8.6%)
manufacturing capabilities, and the company moving from sur-
face to substrate products
• Substantial experience of the promoters in the wood panel in-
dustry
Weaknesses
• Sub-par capacity utilisation of veneers and engineered wood
floors/doors, leading to operating losses in the units
• Capacity constraints for laminates (currently at 110%+ utilisa-
tion), and product concentration risks (ca 90% sales from lami-
nates)
• WC [8] -intensive nature of business due to high inventory re-
By region India (52.1%)
quirement, and dependence on imported RM [9]
Opportunities International (47.9%)
• Recovery in RE [10] activities and improved demand from fur-
niture industry would act as catalysts for wood panel products
• Entry into particleboard and plywood space would allow it to
capture a larger pie of the wood panel value chain and offer
opportunities of market share gains from the large unorganised
market
• Addition of laminate capacity widens company’s presence in
the mass market segment and larger-sheet laminates
Threats
• Adverse change in the RE cycle on increase in interest rates or
weakening of consumer demand could weigh on demand for Source: FactSet
company’s products/profitability [8] WC - working capital, [9] RM - raw material, [10] RE - real estate
• Delay in planned expansions or inability to scale up capacity to
optimum levels
• Increased competitive pressure, with other major players en-
tering adjacencies in plywood/particleboard

FACTS & FIGURES

Consensus rating Financials

Buy Hold Sell 2021 2022 2023E* 2024E*
6 analyst(s) 2 analyst(s) 0 analyst(s) Sales (INRm) 11,996 17,034 20,939 27,318
EBIT (INRm) 1,177 1,285 1,950 2,658

Consensus target (INR) 404.14 EBIT Margin (%) 9.81 7.54 9.31 9.73

Consensus target return potential (%) 42.53 EV/EBITDA (x) - - - -

Adjusted EPS (INR) 7.14 7.50 12.55 17.83
Market capitalisation (INRbn) 36.01
EPS growth (%) -0.56 5.04 67.33 42.03
Free float (%) 28.72
P/E (x) 21.01 38.34 24.58 17.31
Beta 0.56
P/B (x) 3.93 6.69 - -
Average Daily volume (m) 0.07
Dividend yield (%) 0.54 0.37 1.05 1.18
52-week high (INR) 396.80
Net debt/equity (%) 31.74 33.83 - -
52-week low (INR) 268.21
Exchange National Stock Exchange of India
* Estimates
Ex-dividend date 7 July 2022
- Implies not available/not meaningful
Results date 7 November 2022
Source: FactSet
Standard & Poor’s rating -
ISIN INE544R01021
EQUITY RESEARCH | GREENLAM INDUSTRIES | 4 OCTOBER 2022 3/7

CHARTS & FINANCIAL DETAILS

12-month forward P/E (Sep 2017 - present) 12-month forward P/B (Sep 2017 - present)
P/E (x) P/B (x)
9.00
34.0

7.00
25.0
5.00

16.0
3.00

7.0 1.00
Sep 17 Sep 19 Sep 21 Sep 17 Sep 19 Sep 21

+/- 1 Standard de viation Forward P/E (x) +/- 1 Standard de viation Forward P/B (x)

Average (x) Average (x)

Source: FactSet; Past performance and performance forecasts are not relia- Source: FactSet; Past performance and performance forecasts are not re-
ble indicators of future results. The return may increase or decrease as a re- liable indicators of future results. The return may increase or decrease as a
sult of currency fluctuations. result of currency fluctuations.

Peer valuation Earnings per share versus performance

Estimated P/E (FY 2023) INR INR
90.0
400.0 13.00
60.0
330.0
11.00
30.0
260.0
0.0 9.00
CENTURYPLY-NSE*
GREENLAM-NSE

GREENPLY-NSE*

STYLAMIND-NSE*

190.0

7.00
120.0

50.0 5.00
Sep 17 Sep 19 Sep 21

Estimated P/E (FY 2023) Average Share price (l.h.s.) Ne xt 12 months' EPS (r.h.s.)
* Not covered; Julius Baer offers no recommendation and does not provide
any assessment on potential risks and opportunities
GREENLAM-NSE-Greenlam Industries, CENTURYPLY-NSE-Century Ply-
boards (India), GREENPLY-NSE-Greenply Industries, STYLAMIND-NSE-
Stylam Industries
Source: FactSet; Past performance and performance forecasts are not relia- Source: FactSet; Past performance and performance forecasts are not re-
ble indicators of future results. The return may increase or decrease as a re- liable indicators of future results. The return may increase or decrease as a
sult of currency fluctuations. result of currency fluctuations.
Valuation ratios (x)
2020 2021 2022 2023E* 2024E*

P/E 23.80 21.01 38.34 24.58 17.31

P/B 2.31 3.93 6.69 - -

P/S 1.64 1.59 2.14 1.87 1.43

P/CF - - - - -

EV/EBITDA - - - - -

EV/EBIT - - - - -

Dividend yield (%) 0.63 0.54 0.37 1.05 1.18

* Estimates
- Implies not available/not meaningful
Source: FactSet
EQUITY RESEARCH | GREENLAM INDUSTRIES | 4 OCTOBER 2022 4/7

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IMPRINT

Authors:
Milind Muchhala, Equity Research Analyst, [email protected] 1)

1) This analyst is employed by JBWA, which is regulated by the Securities & Exchange Board of India (SEBI). The analyst has obtained
the requisite certification as mandated by SEBI under the SEBI (Research Analyst) Regulations, 2014.

APPENDIX

Analyst certification
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EQUITY RESEARCH | GREENLAM INDUSTRIES | 4 OCTOBER 2022 5/7

Disclosure & Recommendation history

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Terms and abbreviations

adj. Adjusted Bp(s) Basis point(s) c.c. Constant currencies
CAGR Compound annual growth rate capex Capital expenditure Consensus The analysts’ opinion on the se-
rating curity. It shows the number of
analysts covering the security
and the breakdown between
Buy, Hold and Sell ratings.
Consensus The average price to which ana- DCF Discounted cash flow DM Developed market(s)
target lysts expect the security to rise.
DPS Dividend per share E Estimate EBIT Earnings before interest and
taxes
EBITA Earnings before interest, taxes EBITDA Earnings before interest, taxes, EM Emerging market(s)
and amortisation depreciation and amortisation
EPS Earnings per share EV Enterprise value FCF Free cash flow
FY Fiscal year GDP Gross domestic product H1; H2 First/second half of the year
m/m Month-on-month Market cap. Market capitalisation MV Market value
NAV Net asset value p.a. Per annum PAT Profits after tax
P/B Price to book value PBT Profits before tax P/CF Price to cash flow
P/E Price to earnings PEG P/E divided by year-on-year P/TBV Price to tangible book value
EPS growth
P/S Price to sales Ppt Percentage point(s) q/q Quarter-on-quarter
Q1; Q2; Q3; First/second/third/fourth REIT Real estate investment trust ROA Return on assets
Q4 quarter
ROE Return on equity ROIC Return on invested capital RoTE Return on tangible equity
TBVPS Tangible book value per share YTD Year-to-date y/y Year-on-year

Rating system for Equity Research (Stock Rating)

Buy Expected absolute return of 15% and above in the coming 12 months, unless otherwise stated.
Hold Expected absolute return of between 5% and 15% in the coming 12 months, unless otherwise stated.
Reduce Expected absolute return of 5% and below in the coming 12 months, unless otherwise stated.

Frequency of equity rating updates

An update on Buy-rated equities will be provided on a quarterly basis. An update for Hold and Reduce-rated equities will be provided
semi-annually or on an adhoc basis.

Risk rating system for global Equity Research

The risk rating (High/Medium/Low) is a measure of a stock’s expected volatility and risk of losses in case of negative news flow. This
non-quantitative rating is based on criteria such as historical volatility, industry, earnings risk, valuation and balance sheet strength.

MSCI ESG Rating

MSCI ESG Research provides in-depth research, ratings and analyses to support companies’ and governments’ efforts in terms of envi-
ronmental, social and corporate governance (ESG). MSCI ESG Research Intangible Value Assessment (IVA) Rating (MSCI ESG
Rating) provides ratings of companies' investment risks and opportunities which are not generally detected by traditional research
methods. There are three steps to the method: 1) identification of key issues for each sector 2) evaluation of risks and how they are
handled within the company 3) drawing up ratings to qualify the ESG risks not identified. The MSCI ESG Rating is expressed on a
seven-point scale and they range from CCC (worst) to AAA (best).
MSCI ESG Controversies
MSCI ESG Controversies analyses & monitors ESG controversies and breaches of ESG criteria or global rules such as the UN Global
Compact principles. MSCI uses the following indicators: human rights and society, employment rights and the supply chain, company
organisation, environment and clients.
Flag Flag description
A red flag indicates recent very serious and/or extremely widespread controversies on a particular issue. Such a flag is also as-
⚫
sessed when the problems are systemic or repetitive or indicate wilful negligence.
⚫ An orange flag indicates ongoing severe controversies on a particular issue when the problems are systemic or repetitive.
⚫ A yellow assessment indicates significant concern, where the impact on the relevant stakeholders is high.
⚫ No evidence of major and/or systematic problems.
EQUITY RESEARCH | GREENLAM INDUSTRIES | 4 OCTOBER 2022 6/7

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