"Timely capital infusion will kick-start a virtuous cycle that enhances value forall those who own shares in our Company"
The principal message that we wish to send out to our shareholders can be encapsulatedin one word: commitment.
The promoters of National Plywood Industries Limited could have given up on theCompanys prospects after its enforced closure by the Supreme Court in the lateNineties 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 caseaddressed statutory compliances entered into a Negotiated Settlement with banksstatutory agencies and workers and finally emerged completely free from all dues threeyears ago. The promoters sold personal assets borrowed unsecured funds in a personalcapacity 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 fromthe fact that it engaged in a responsible liquidation of all dues to the variousstakeholders kept the Company in existence by continuously providing material todistributors around the country protected revenue streams with the intention to revivethem when corporate fortunes improved and added new business lines with negligible capitalexpenditure.
The Company kept the faith for an important reason: the core of the business modelcontinues to be robust and relevant. The only aspect of the business that prevented theCompany 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 wasconsiderably below optimal levels investment in product development was inadequate andresource plough-back into brand revitalisation was negligible.
The fact that National Plywood was able to report a revenue of H42.16 crore cashprofit of H1.01 crores and a profit after tax of H0.44 crores during the year under reviewis 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 balancesome of the equipment that we possess strengthen operating efficiencies and enhance brandvisibility potentially translating into a consumer pull. At National Plywood this firstphase of our turnaround game-plan is being directed towards kick-starting a positive cashflow cycle.
The second phase of this exciting blueprint will focus on strengthening terms of tradenegotiating better with resource providers and widening our value chain to strengthenoverall profitability. We believe that a consistent focus on operational financial andmarketing discipline should translate into business sustainability.
What provides us with optimism is that the available headroom in our business isextensive. For one even at our expanded capacity we would only be accounting for aminiscule portion of a large and growing addressable market. The Company possesses a largeunutilised manufacturing capacity considerable room to widen our product portfolio incontiguous markets and enrich this product mix with fast-moving items. Besides
The implementation of the Goods & Service Tax promises to be a sectoralgame-changer. During the last year the system has made it progressively difficult forunorganised 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 willwiden our access to diverse low-cost funding lines that accelerates our return to businesshealth.
Central role of governance
The role of governance will be central to our turnaround and return to attractiveprofitability. At National Plywood we intend to showcase our governance commitmentthrough a number of initiatives. There is a strategic clarity in that we intend tostrengthen the business through investments in long-term sustainability reflectedunambiguously a superior Return on Capital Employed.
The Company will strengthen its Board of Directors invest in cutting-edge technologiesand experienced industry professionals whenever warranted graduate from manual toautomated processes replace ad hoc personalised decisionmaking with a process-drivenapproach and deepen its culture of compliances emphasising its recall as a responsiblecorporate entity.
At National Plywood we find ourselves at an attractive moment in the sector'sexistence in India. Over the last two decades there has been a sectoral attrition - theIndian infrastructure sector is being driven by only a handful of prominent pan-Indiancompanies and brands leaving a vast opportunity for companies and brands possessing theright credentials.
The implementation of the Goods & Service Tax promises to be a sectoralgame-changer. During the last year the system has made it progressively difficult forunorganised plywood and laminate brands to exist outside the country's tax purview. Forlong such companies exploited their tax arbitrage to compete aggressively in themarketplace even as their organised competitors invested in compliances and statutorypayments that increased their costs in comparison. The result of this inequity is that theorganised players in India's interior infrastructure sector accounted for only about 3040per cent overall offtake well below their true potential.
The GST game-changer has altered the contours of the playing field in a decisivemanner. The evasion-based differential between organised and unorganised players hasdeclined substantially in the plywood and laminate segments. Additionally a standardisedtax across states has benefited pan-India players greatly. Organised players have becomemore holistically competitive: there is a greater traction being generated by buyers whowould now rather pay a little more to buy a product with corresponding quality safeguardsand guarantees.
In view of this we believe that there could be a quicker shift in purchases being madefrom the country's organised players across the foreseeable future benefiting companieslike National Plywood.
National Plywood is attractively placed to capitalise on this sectoral inflectionpoint. The Company has no long-term secured debt. No licenses are being given for newplywood 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 materialresources from the sustainable forests of the North East (as opposed to competitors' needto import) provides an excellent logistical advantage. As a result there are a mix ofincentives that should translate into a lower cost of doing business for the Company.
Complementing all these realities is timely capital infusion that we expect willkick-start a virtuous cycle that enhances value for all those who own shares in ourCompany.
Chairman and Managing Director