India is the most attractive economy among all emerging markets. Rising income levels of the middle class,and rapid urbanization, coupled with rise in nuclear families, is pushing the growth in housing sector. A demand shift from ready made furniture and fixtures to customized ones to suit oneâ€™s interior design and theme has also led to the demand in the plywood and MDF (Medium Density Fiberboards). Also, consumer preference to quality over price has also supported demand for branded products over non-branded ones.
GreenPly, Indiaâ€™s largest interior infrastructure company, was founded in the year 1993. Company manufactures various interior products such as plywoods, plyboards,decorative veneers, decorative laminates and MDFs. Company has a turnover of about Rs. 2,000 crores and market cap of about Rs. 3,300 crores. Greenply has presence over 300 cities, more than 13,000 distributors, dealers, sub dealers and retailers.
Plywood and ply boards have been the major source of revenue for the company. Plywood segment of Greenply contributes almost 70% to the revenues of the company. With organized market growing at 15% to 20% CAGR per annum, Greenply will gain market share in coming years.
Companyâ€™s 28% of revenue comes from manufacturing and sale of MDF. MDFs are more affordable than plywoods, and are used to make customized furniture as they can be carved and moulded to oneâ€™s preference. Market for MDF is relatively small, but is growing at a rapid pace of 15% per annum.
Company has shown excellent financial performance in the past 5 to 10 years, and is expected to do even better in the future. So let’s take a look at the financial performance of Greenply Industries.
Note: Greenply Industries split its shares from face value of Rs. 5 to Rs. 1 on Jan 2016, all per share data has been adjusted to pre-split levels.
Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.
Companyâ€™s Basic EPS in 2007 was Rs. 13.69 per share and in 2016 it was Rs. 54.1(adj) per share, a growth of 14.73% CAGR per annum. In the past 5 years company’s EPS growth has been 19.58% CAGR per annum.
Cash EPS is a measure that looks at how much cash flow the company has generated during the financial year. Cash EPS shows how much cash the business is generating in a year. Cash EPS not only includes Cash received by the business for the products sold or services provided, it also includes any upfront payments, such as cash advance received by the business.
Greenplyâ€™s Cash EPS in the year 2007 was Rs. 18.95 per share, which in 2016 was Rs. 74.55 (adj) per share, a growth of 14.65% CAGR per annum in the past ten years. In the last 5 years, Companyâ€™s Cash EPS has grown at a rate of 12.42% CAGR per annum.
Revenue from Operation/Share:
Revenue from operations is a measure of how much revenue a company is generating from its core business. Revenue from operations does not include income from non operating activities such as sales of assets, sale of subsidiaries, income from investments made etc. Revenue from operations/share measures how much revenue a company is generating from its core business on per share basis.
In the past decade Companyâ€™s revenue from operations have seen a good growth from Rs. 260.84 per share in 2007 to rs. 686.4(adj) per share in 2016, a growth of 10.16% CAGR. However companyâ€™s revenue has seen a slowdown in the past 5 years. In the near future companyâ€™s revenue will improve as the demand for real estate improves, which will lead to improvement in companyâ€™s topline.
Net Profit Margins:
Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.
Companyâ€™s net profit margins have been steady ranging from 5.24% in 2007 to 7.88% in 2016. With companyâ€™s expansion plans to penetrate deeper in rural areas, market share and net profit will improve in coming years.
ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.
Greenplyâ€™s Return on capital employed has seen a gradual but steady growth. In the year 2007,companyâ€™s ROCE was 11.82% which improved with time and in 2016 it was 16.53%, company has been pretty stable in terms of ROCE with very few years of dip.
Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds)
Greenply Industry has pared down its debt significantly in the past decade. In 2007 companyâ€™s Debt/Equity ratio was 1.37 which went down to 0.3 in 2016. Low dbt means company has been able to generate good profits and is now moving towards making enough profits that it can fund all its financial needs through its internal sources.
Dividend Payout Ratio (%NP):
The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year. In other words, this ratio shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders.
Greenply Industries is in its growth phase, for which it needs funds to expand its business, this is the reason why company has been very conservative in its dividend payments. Company’s dividend payout ratio in 2007 was 18.35% but in 2016 it went down to 5.54%. Having low dividend payout ratio is not bad as long as company has plans to grow its business and give higher return on capital.
Dividend Per share:
Dividend per share is the amount of dividends a shareholder receives on per share basis. Dividend per share includes all the interim dividends paid during the financial year as well as the final dividend paid at the end of the financial year. Dividend per share is calculated by dividing total dividends paid during the year from total number of shares outstanding.
Greenplyâ€™s dividend per share has been steady in the past decade. In 2007 Greenply paid a dividend of Rs. 2.5 per share, in 2016 company paid dividend of Rs. 3.0(adj).
Future Expansion Plans:
Company is focusing on penetrating in rural market. Brand recognition, visibility quality will be the key driving forces behind their expansion drive. Company has also set up a new MDF plant in Andhra Pradesh which will produce 1,200 cubic meters of MDF per day. The plant will commence operation in the year 2019. This plant will not only produce MDFs for domestic consumption, but will also be exported to other countries.
Why Greenply Industries is a great investment:
- Largest interior infrastructure company
- Brand recognition and visibility
- Rising demand for premium housing and thematic interior designs
- Reduced furniture replacement cycle from 10-12 years down to 5-6 years
- Expansion of production capacities by setting up new plants
- Penetration in tier 2 and tier 3 cities and rural areas by expanding distribution channel
- Introduction of new products such as MDF which provides better quality and durability at affordable price.