"Timely capital infusion will kick-start a virtuous cycle that enhances value for
all those who own shares in our Company"
The principal message that we wish to send out to our shareholders can be encapsulated
in one word: commitment.
The promoters of National Plywood Industries Limited could have given up on the
Company’s prospects after its enforced closure by the Supreme Court in the late
Nineties on the grounds that the challenges to revive the business were insurmountable.
Keeping the faith
The Management of the Company engaged with the Supreme Court, presented its case,
addressed statutory compliances, entered into a Negotiated Settlement with banks,
statutory agencies and workers, and finally emerged completely free from all dues three
years ago. The promoters sold personal assets, borrowed unsecured funds in a personal
capacity and engaged with strategic investors to revive the Company from its sick status.
The index of the Management's commitment to the sector and business can be derived from
the fact that it engaged in a responsible liquidation of all dues to the various
stakeholders, kept the Company in existence by continuously providing material to
distributors around the country, protected revenue streams with the intention to revive
them when corporate fortunes improved and added new business lines with negligible capital
expenditure.
The Company kept the faith for an important reason: the core of the business model
continues to be robust and relevant. The only aspect of the business that prevented the
Company from being brought back to health was a dearth of investable capital.
In the absence of a robust and low cost funding line, capacity utilisation was
considerably below optimal levels, investment in product development was inadequate and
resource plough-back into brand revitalisation was negligible.
The fact that National Plywood was able to report a revenue of H42.16 crore, cash
profit of H1.01 crores and a profit after tax of H0.44 crores during the year under review
is a fair indication of the latent competitiveness of our business model.
Revitalising the business
Our principal objective is to infuse net worth, invest in new production lines, balance
some of the equipment that we possess, strengthen operating efficiencies and enhance brand
visibility, potentially translating into a consumer pull. At National Plywood, this first
phase of our turnaround game-plan is being directed towards kick-starting a positive cash
flow cycle.
The second phase of this exciting blueprint will focus on strengthening terms of trade,
negotiating better with resource providers and widening our value chain to strengthen
overall profitability. We believe that a consistent focus on operational, financial and
marketing discipline should translate into business sustainability.
What provides us with optimism is that the available headroom in our business is
extensive. For one, even at our expanded capacity, we would only be accounting for a
miniscule portion of a large and growing addressable market. The Company possesses a large
unutilised manufacturing capacity, considerable room to widen our product portfolio in
contiguous markets and enrich this product mix with fast-moving items. Besides,
PROMOTER'S OVERVIEW
The implementation of the Goods & Service Tax promises to be a sectoral
game-changer. During the last year, the system has made it progressively difficult for
unorganised plywood and laminate brands to exist outside the country's tax purview.
the complement of our relisting on the stock exchange and strengthening cash flows will
widen our access to diverse low-cost funding lines that accelerates our return to business
health.
Central role of governance
The role of governance will be central to our turnaround and return to attractive
profitability. At National Plywood, we intend to showcase our governance commitment
through a number of initiatives. There is a strategic clarity in that we intend to
strengthen the business through investments in long-term sustainability reflected
unambiguously a superior Return on Capital Employed.
The Company will strengthen its Board of Directors, invest in cutting-edge technologies
and experienced industry professionals whenever warranted, graduate from manual to
automated processes, replace ad hoc personalised decisionmaking with a process-driven
approach and deepen its culture of compliances, emphasising its recall as a responsible
corporate entity.
Sweet spot
At National Plywood, we find ourselves at an attractive moment in the sector's
existence in India. Over the last two decades, there has been a sectoral attrition - the
Indian infrastructure sector is being driven by only a handful of prominent pan-Indian
companies and brands, leaving a vast opportunity for companies and brands possessing the
right credentials.
The implementation of the Goods & Service Tax promises to be a sectoral
game-changer. During the last year, the system has made it progressively difficult for
unorganised plywood and laminate brands to exist outside the country's tax purview. For
long, such companies exploited their tax arbitrage to compete aggressively in the
marketplace even as their organised competitors invested in compliances and statutory
payments that increased their costs in comparison. The result of this inequity is that the
organised players in India's interior infrastructure sector accounted for only about 3040
per cent overall offtake, well below their true potential.
The GST game-changer has altered the contours of the playing field in a decisive
manner. The evasion-based differential between organised and unorganised players has
declined substantially in the plywood and laminate segments. Additionally, a standardised
tax across states has benefited pan-India players greatly. Organised players have become
more holistically competitive: there is a greater traction being generated by buyers who
would now rather pay a little more to buy a product with corresponding quality safeguards
and guarantees.
In view of this, we believe that there could be a quicker shift in purchases being made
from the country's organised players across the foreseeable future, benefiting companies
like National Plywood.
Optimism
National Plywood is attractively placed to capitalise on this sectoral inflection
point. The Company has no long-term secured debt. No licenses are being given for new
plywood companies in the North East. The Company enjoys an attractive GST concession
by the virtue of its locational presence. The Company's access to abundant raw material
resources from the sustainable forests of the North East (as opposed to competitors' need
to import) provides an excellent logistical advantage. As a result, there are a mix of
incentives that should translate into a lower cost of doing business for the Company.
Complementing all these realities is timely capital infusion that we expect will
kick-start a virtuous cycle that enhances value for all those who own shares in our
Company.
Piyush Periwal,
Chairman and Managing Director