CDGS stock is at a 52-week-low level, analysts see a 92% potential upside

They have said in a note that “We interacted with GREENP CFO V Venkatramani to gain a perspective on the company’s growth prospects and sector outlook. MDF imports have risen during the last couple of months as (i) Vietnam, Malaysia and Indonesia flooded the global market with plain MDF supplies following a decline in their furniture exports to the US & Europe, and (ii) ocean freight has fallen to US$ 600/cbm vs. US$ 1,450-1,500 during Covid and US$ 850 pre-Covid. MDF imports into India were in the range of 2,000-3,000cbm per month from April to August, which has swelled to 13,600cbm and 17,800cbm in September and October respectively and could be at similar or higher levels in November. Per management, GREENP is comfortable with imports below 20,000cbm per month and will prefer to maintain pricing, instead taking a hit on volumes if needed.”

They further added that “Management expects to post MDF export volumes of ~30,000cbm in Q3FY23 vs. 26,736cbm in Q2FY23 and ~21,000cbm in Q3FY22. Guidance for domestic MDF volume growth is now at 7-8% (earlier 12%) and export volume growth at 8-10% (earlier flat) in FY23, implying a blended increase of 7-8% for the year. EBITDA margin is expected to be similar to Q2 levels of 30% for FY23 (with stability over Dec-Mar’23) and at 27-28% in the long term. Due to accumulated losses in the subsidiary ( ₹310mn), onerous documentation and bank charges, GREENP has shut down its Singapore operations, the full impact of which will be visible on the P&L in Q3FY23. Going forward, its Singapore office will be limited to procuring orders from export countries.”

“GREENP has strong growth prospects due to its leadership position in India’s fastgrowing MDF market coupled with an improving balance sheet and return ratios. While the MDF and plywood businesses have slowed during Oct-Nov’22 due to the festival season, increasing MDF imports, lower MDF export realisations and an inability to hike plywood prices, management is hopeful of a demand recovery in Dec-Mar’23 amid a seasonally strong fourth quarter. We continue to model for a revenue/EBITDA/PAT CAGR of 13%/11%/15% over FY22- FY24 aided by better capacity utilisation at the MDF facility and better EBITDA margins arising from operating leverage. The stock is trading at an attractive valuation of ~15x FY24E EPS. We continue to value GREENP at 23x FY24E EPS (a 34% discount to peer CPBI) and retain our TP of ₹595 with a BUY rating,” claimed the research analysts of BOB Capital Markets.

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