Greenlam Industries Rating ‘Add’; market share in laminates will continue to rise

We expect Greenlam Industries’ (GRLM’s) laminate volumes to stage a steady recovery post Q2FY21 led by market share gains in both domestic and international operations. Our optimism is based primarily on: (i) weakening competition in the laminate segment (post Covid) in domestic and export markets and the recent launch of 0.7mm thickness laminates in the domestic space. While exports have largely achieved normalcy, the gradual liquidation of high inventories in the domestic real estate space resulting in increase in rate of occupation of premises, and pent-up demand in renovation, would aid gradual recovery in the domestic laminate space going forward. GRLM, being one of the top players with strong brand equity and impressive distribution network, has been witnessing market share gains post Covid and this trend will most likely continue. Maintain Add.

Valuation and outlook: Considering the faster than expected recovery in laminate exports, we increase our PAT estimates by 6%/4.7% for FY21e/FY22e respectively. Rolling forward our estimates to FY23e, we expect GRLM to report overall revenue/PAT CAGRs of 8%/11.3% over FY20-FY23e, respectively. Maintain Add with a revised TP of Rs 900 (earlier: Rs 850), valuing the stock at 20x Sep’22e earnings.

RoCE to inch higher despite large capex for upcoming South plant: Despite incremental capex of Rs 1.75 bn for the company’s upcoming laminate plant in South India, we expect GRLM’s balance sheet to strengthen even further, driven by its increasing FCF generation amid stricter working capital discipline. This in turn would help improve RoCEs by 230bps to 18.4% in FY23e from 16.1% in FY20.