The Greenply stock is an excellent pick at Rs 270

The Greenply stock is an excellent pick at Rs 270

By Rajiv Kapoor | 27 August, 2016

With humble beginnings way back in 1900, Greenply Industries Ltd has emerged as a leading interior infra player in the wood panel space in the country. The product portfolio of the company comprises mainly plywood and medium density fibre board (MDF), which contributes about 70% and 30% respectively to the top line growth. It has four state of the art plywood manufacturing facilities along with the country’s largest MDF plant. It has a 26% market share in the plywood segment, while the MDF share is over 30%. It has been consciously moving to an asset light model over the next few years by outsourcing its mid segment products. This would free the in-house capacity in favour of the premium segment, which generates better margins. Envisaging capacity constraints in the next few years, Greenply plans to set up a new MDH facility in Andhra Pradesh, thereby trebling the capacity by the end of 2019. The growing market for readymade furniture is witnessing a tremendous growth and the new MDH plant will impact the bottom line positively. On the other hand, Greenply has a widespread distribution network, with an extremely strong pan India presence. A key trigger for the company will be the rollout of GST from next year. The unorganised sector has been enjoying a price advantage by staying below the exemption limit of Rs 1.50 crore turnover, while other large companies like Greenply have to pay 12.5% excise and VAT. Currently, the price difference between the organised and unorganised players is around 20%, which will come down by half as the dealer will be able to enjoy input credits for GST paid. Moreover, the exemption limit will come down significantly to Rs 10 lakh for the unorganised players, thus reducing the price gap. Apart from the benefit in the domestic market post GST, the import of low cost Chinese plywood would also reduce, driving the growth of the company significantly. The Greenply stock is an excellent pick among the mid-cap basket at the current market price of Rs 270, with a 50% appreciation in the next 15 months.

Reflecting the cautious mood in global equities ahead of the eagerly awaited commentary of the US Federal Reserve on how aggressively it plans to raise rates, the Indian stock markets performed quite poorly. In the week ended 26 August, Friday, the Sensex fell 53 points to close at 27,782 while the Nifty declined 19 points to settle at 8,572. Traders were cautious that any increase in interest rates by the US Fed Reserve Chairwoman could spur the FIIs to pull out money from the emerging markets and redirect it to the US. Market men have not been building plus positions in their favourite stocks on valuation concerns for some time. Similarly, high net worth investors have been booking profits in equity mutual funds for the last four-six weeks, creating a mild redemption pressure. This has also led to few mutual funds to book profits and increases their cash allocation in their schemes ahead of any correction in September. With the US Fed deciding not to increase interest rates this time, our markets are expected to react positively next week but come down after profit booking.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.


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