Over the last few years, National Plywood invested in its business model with the objective to be future-ready. We believe that our initiatives have helped strengthen our organisation in various ways, resulting in a sense of preparedness.
The principal message that I wish to send out is that the Company has widened and deepened its operating platform and, as soon as the marketplace provides the consumption traction, the Company will be attractively placed to carve out a share of the sector's growth.
Performance,
FY2018-19
In 2018-19, the Company reported profitable growth: even as total revenue decreased by 5.6%, EBITDA and PAT grew by 117% and 65% respectively.
During the year under review, the Company reduced liabilities, optimised working capital, moderated labour engagement, improved manufacturing yield, strengthened quality and reduced wastage.
The Company strengthened its overall receivables cycle through improved delivery schedules and a frequent dispatch discipline. Correspondingly, the creditors were also addressed and their outstandings were reduced substantially.
The Company widened its portfolio to address the price-sensitive middle and lower-middle consumer segments. For this segment, the Company commenced the practice of outsourcing of economy grade plywood (National Gold Plus and Prima National brands) to factories that were meticulously vetted for superior quality. The result: a quality product available at a lower price point, opening up a whole new market of consumers.
Strengthening foundation
From a sectoral perspective, a number of realities are falling into place.
One, the implementation of Goods & Services Tax starting 2017 has strengthened the long-term prospects of the country's interior infrastructure products sector in a single stroke. By bringing most players into the tax net, there has been an increase in compliance and manufacturing costs for the unorganised players, correspondingly narrowing the vast cost difference that they enjoyed over compliant organised manufacturers.
The introduction of electronic waybills could have a similar effect in catalysing a shift towards the formal sector.
Carve out a larger portion of the country's consumption. The numbers of the last couple of years indicate that the growth of the organised sector has been higher than the growth of the overall sector, validating the preference for organised and branded products.
Two, even as the growth of the real estate sector has been sluggish in the last few years, we are optimistic on account of a number of related factors: that apartment and home pricing has become more affordable than ever; that a large number of constructed apartments will soon be occupied and readied for fit-outs; that as income grows, home ownership will continue to top the aspirations agenda.
Three, the overall cost of interior infrastructure products remains a relatively small fraction of the overall cost of home ownership. Given this reality, consumers would rather invest in credible and dependable products than risk periodic replacement on the grounds of poor quality.
Four, a decline in secured lending by commercial banks will make it increasingly challenging for small players to mobilise growth and maintain capital, strengthening prospects for the established players.
Five, the emergence of low-cost housing using prefabricated material is opening up completely new demand for large volumes of cost-effective material. Besides, the growing affordable housing opportunity is widening the market for plywood and other products.
National's strategy of the present
466483>At National Plywood, we are adequately prepared for a turnaround in market sentiment.
The Company possesses a strong brand with positive recall; the brand is being rejuvenated to address a younger and larger consumption audience.
The Company is evolving from a longstanding focus on product manufacture to product outsourcing cum manufacture. On the one hand, the Company will outsource the manufacture of nonpremium plywood grades to quality-committed vendors; on the other hand, the Company will import complementary interior infrastructure products. The result is expected to translate into a one-stop solution for consumers and enhanced revenues for trade partners.
The introduction of economy grade plywood has opened up a whole new market for the Company.
The Company's capital expenditure on new equipment has been initiated, the benefits of which are expected to commence.
The Company is widening and deepening its presence in Tier II and Tier III towns, which are experiencing a larger growth in residential investments over the relatively saturated urban markets.
The Company's marketing team is being strengthened in Andhra Pradesh, Telangana, Kerala and other new markets in North India (Punjab, Uttar Pradesh and Haryana). This wider and deeper marketing will absorb a larger quantity of the Company's increased manufacturing output, strengthening its overall profitability
The Company intends to mobilise additional capital (equity and debt) to launch a targeted advertising campaign. This is expected to translate into higher off-take of products for every price point with incentives for all stakeholders across the value chain (suppliers to dealers to consumers) and a stronger pan-India recognition and respect.
National's strategy for the future
The Company intends to strengthen its business model through the following initiatives.
Working capital adequacy:
In the business of interior infrastructure products, a capital rotation of three cycles generally suffices for a healthy turnover. By this yardstick, an annual turnover of Rs.100 crore warrants finance of at least RS.30-35 crore. Following the last capital infusion of Rs.16 crore, the Company intends to add Rs.12-13 crore of debt to address this requirement. The profit generated would be added to the corpus cycle so an additional infusion of Rs.10 crore in debt in two years could result in a turnover of Rs.180 to 200 crore with a corresponding increase in profits and margins.
Strengthening of capex: A capex of RS.6-8 crore across three years could enrich the portfolio. Modernised equipment could improve production and reduce wastage. An international product standard could help cater to multi-national OEMs. We believe that a RS.8-10 per sq. mtr spread, achieved over three years, could enhance yield, efficiency and realisations by at least 8-10%.
Traded portfolio: We plan to grow the revenues for our traded products by capitalising on our increased financial resources. Some ways in which we plan to do so comprise increased promotional spending, dealer and architect engagements, fabricator training, storefront displays and aggressive marketing especially in the project segment marked by high volumes.
Overview
In view of these realities and corresponding initiatives, the Company is attractively placed to capitalise on opportunities following a second cash infusion and improved market sentiment.
We are optimistic of carving out a progressively larger market and revenue share, increasing margins and value in a sustainable way across the future.
We are prepared!
Piyush Periwal,
Managing Director