Greenply vs Greenpanel: A Clash of Plywood and MDF Giants!

2 Sep

About Companies

Greenply Industries GREENPLY is a prominent player in the plywood industry, dedicated to the production and trade of plywood and its associated products. Their extensive range features plywood, block board, wood flooring, medium density fiberboard, flush doors, and decorative veneers. Founded in 1984 by Shiv Prakash Mittal, the company operates out of Kolkata, India.

In 2018, Greenpanel Industries GREENPANEL emerged as a separate entity from Greenply Industries, concentrating on the manufacturing of MDF boards and related products. Their product lineup includes wood flooring, veneers, flush doors, and more.

Market Capitalization
● Greenply Industries - ₹ 4,751 Cr.
● Greenpanel Industries - ₹ 4,849 Cr.

Technical Aspects

Greenply
● The monthly chart reveals that the stock price encountered significant resistance around the 340 mark, resulting in a sharp decline that brought it down to the 70 level, where it found support.
● After an extented phase of consolidation, the stock formed a Double Bottom pattern.
● Once this pattern broke out, the price surged upward, and nearly 6.5 years later, in July 2024, the stock successfully broke through the previous resistance zone.
● Having maintained its position above this breakout level, the stock price is poised for further gains.

Greenpanel
● After reaching a remarkable high close to 625, the stock faced a considerable downturn.
● It later found a solid support at the 260 level, which set the stage for its recovery.
● Nevertheless, the stock ran into resistance around the 430 mark, caused another retreat to the previous support zone.
● Currently, with a fresh upward trend, the price exhibits significant growth potential.

Revenue Breakdown

● Greenply Industries generates a remarkable 77.4% of its total revenue from plywood and associated products, establishing itself as a dominant player with a 26% market share in the domestic plywood sector.
● In contrast, Greenpanel Industries focuses heavily on MDF boards, which make up an astounding 91% of its total sales, securing a 21% market share in the domestic MDF industry.

Sales & Profit Analysis

● Greenply

➖ In the last three years, this company has experienced an impressive compounded annual growth rate of 23% in sales.
➖ However, profit growth has been modest, increased by only 3% during the same period.
➖ The company currently holds an operating profit margin of 9%, which is deemed acceptable.
➖ In the fiscal year 2024, earnings per share have dropped to 5.44, down from 7.44 in FY2023.

● Greenpanel

➖ Over the past three years, this company has achieved a compounded annual growth rate of 15% in sales.
➖ In contrast, profit growth has been exceptional, soaring at a 26% CAGR during the same period.
➖ Currently, the company boasts an operating profit margin of 16%, a noteworthy figure.
➖ However, in fiscal year 2024, earnings per share have declined to 11.64, down from 20.92 in FY2023.

Valuation

● P/E Ratio
➖ Greenply Industries currently has a price-to-earnings (PE) ratio of 48.75, which is marginally above its 1-year median PE of 48.1, yet it aligns closely with the industry average PE of 48.75.
➖ On the other hand, Greenpanel Industries shows a current PE of 33.94, indicating it may be overvalued relative to its 1-year median PE of 25.2, but it appears undervalued when compared to the industry PE of 48.75.

● P/B Ratio
➖ Greenply has a PB ratio of 6.69, suggesting it is considerably overvalued.
➖ However, Greenpanel Industries has a PB ratio of 3.68, which, although somewhat high, does not indicate overvaluation.

● Intrinsic Value
● Greenply is presently valued at ₹984, a figure that is approximately 2.4 times its intrinsic worth of ₹158. This suggests that the stock is currently overvalued.
● Conversely, Greenpanel has a market price of ₹395, roughly 1.5 times its intrinsic value of ₹259, which similarly indicates that this stock is also overvalued at this time.

Product Demand analysis (Plywood vs MDF)
● Greenply presently has an inventory turnover ratio of 4.2, an improvement from 3.96 three years ago.
● In comparison, Greenpanel Industries shines with a current inventory turnover ratio of 5.08, a substantial increase from 3.71 three years earlier.
● These figures clearly indicate a rising demand for MDF products, highlighting a promising trend in the market.

Company Capex

● Greenply has significantly reduced its capital expenditure, slashing it to 123 crore from last year's 412 crore, indicating a lack of a robust capex program.
● In contrast, Greenpanel has made a remarkable leap in its capital investments, raising its capex to 344 crore from just 80 crore in the previous financial year.

Debt Analysis
● Greenpanel Industries stands strong with a manageable debt of 296 crores and a favorable debt to equity ratio of 0.22, indicating that debt is not a concern for the company. With an impressive interest coverage ratio of 16, Greenpanel is well-equipped to handle its loan repayments without any issues.
● Other side, Greenply Industries carries a higher debt burden of 549 crores, reflected in a debt to equity ratio of 0.77. With an interest coverage ratio of only 3.33, the company may face challenges in meeting its loan repayment obligations.

Cashflow Analysis

● Greenply has experienced an impressive increase in its operating cash flow, jumping to 111 crore from a mere 62 crore in FY23.
● Greenpanel Industries has struggled to convert its profits into cash, with its operating cash flow declined significantly to 135 crore from 337 crore in FY2023.

Shareholding Pattern

● Greenply
➖ Foreign Institutional Investors (FIIs) are dramatically raising their investments. In the latest June quarter, their stake has surged to 4.91%, a notable increase from just 2.15% in June 2023.
➖ Meanwhile, Domestic Institutional Investors (DIIs) currently hold 30.33% as of the June quarter, down from 32.41% last year.

● Greenpanel
➖ Foreign Institutional Investors (FIIs) are consistently divesting their positions in this stock, with their current ownership now at a mere 2.12%, a significant drop from 4.3% a year ago
➖ In contrast, Domestic Institutional Investors (DIIs) are steadily boosting their investments, with their current stake rising to 26.71%, up from 21.60% in June 2023.

Some Important Facts

● Shifting Demand From Plywood to MDF

➖ Worldwide, the consumption ratio of MDF to plywood stands at 80:20; however, in India, this ratio is notably reversed, with plywood dominating at 20:80 as of 2022.
➖ Industry experts predict that by 2030, this ratio in India will shift to an even 50:50.
➖ This shift indicates significant growth opportunities for the MDF sector in India, particularly as it is poised to capture a larger share of the low and medium-grade plywood market, which currently makes up 85% of the plywood industry in the country.

MDF Industry Growth Drivers

● Growth of Online Home Décor Platforms
➖ The growth of online home décor platforms like Pepper Fry, Fab Furbish, and Urban Ladder has increased the need for ready-to-assemble (RTA) furniture, impacting the MDF industry directly.

● Reduction in Furniture Cycle Time
➖ The increasing popularity of stylish, comfortable furniture crafted from MDF has significantly reduced the home renovation timeline, slashing it from the previous 15 to 20 years down to just 7 to 8 years.

● Cost Advantage Over Plywood
➖ MDF is much cheaper than plywood because it is made from leftover wood materials, both hardwood and softwood.

Conclusion
➖ After examining all the factors, it appears that the MDF industry is poised for significant growth in the near future, outpacing the Plywood sector. As a result, companies such as Greenpanel Industries are likely to reap substantial benefits, which will have a direct positive effect on their share prices.