Greenply Industries: On Ratings Watch

Share price of Greenply Industries, the plywood, block boards, decorative veneers, flush doors and allied products maker slid 4.5% to Rs 129.70 apiece on NSE on being placed under credit ratings watch.

CARE Ratings has placed the ratings assigned to the company on credit watch with negative implications for bank facilities worth Rs 378 crore.

The rating action follows the approval by the board of directors to extend the corporate guarantee to a foreign loan not exceeding Euro 12.5 million provided to the erstwhile MDF division of the company which has been shifted by way of demerger to Greenpanel industries.

Recently, Greenply Industries reported 2.25% rise in net profit to Rs 21.32 crore in the quarter ended December 2019 as against Rs 20.85 crore during the previous quarter ended December 2018.

Sales declined eased almost 1% to Rs 345.98 crore in the quarter ended December 2019 as against Rs 349.43 crore during the previous quarter ended December 2018.

The company has unveiled new products taking into consolidation fast changing consumer preferences.

It has launched all new Green Club Plus Seven Hundred, a first-of-its-kind zero emission plywood in India, a unique product with a brand promise to provide healthy homes with superior strength, with no undulation and 7 times money back guarantee on manufacturing defects.

The emission-free plywood used for making furniture, partitions, paneling, false ceilings and other interior applications conforms to E0 grade emission standards. It offers safer air quality in interior spaces and healthy homes.

GIL’s consolidated revenue dipped 1% YoY to Rs 3.5bn. India plywood revenues grew just 2% YoY to Rs 3.2bn due to tough market conditions, whereas subsidiaries – primarily Gabon face veneer operations – posted a 29% YoY decline to Rs 26.5 crs

The company management has guided for improvement in Gabon operations due to better traction in new markets such as Southeast Asia and Europe.

For India operations, GIL expects lower growth due to tough market conditions and tight working capital control. Management has guided for improvement in working capital cycle by 4-5 days in FY20

GIL’s consolidated operating margins expanded just 9bps YoY to 11.5%, resulting in flat EBITDA. Plywood margins rose 70bps YoY to 11% due to lower other expenses, whereas Gabon margins decreased by 400bps to 18.1%

To diversify from face veneer sales concentration in India (from the Gabon plant), management has been focusing on other markets such as Europe and Southeast Asia. During the quarter, revenues from Europe stood at 13% (vs. 1% in Q3FY19) and from Southeast Asia at 27% (vs. 4%).

A weak demand climate coupled with tight working capital control affected sales during the quarter. GIL now expects its plywood business to grow at 4- 4.5% in FY20 vs. 8% earlier.

The company management noted that rising compliance (GST, e-way bill) by the unorganised sector could aid some improvement ahead.

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