We believe that Uniply Decor is perched at the bottom-end of a longJ-curve in India's interior infrastructure sector.
I am pleased to present the annual report of the Company following thetransfer of the plywood business of Uniply Industries Limited with effect from 1 October2017.
The result is that Uniply Decor Limited is a standalone Companyfocusing on the manufacture and marketing of plywood as well as the marketing ofcomplementary interior infrastructure products. The transfer of the business was done tostrengthen the Company's singular focus on growing the plywood business. We believe thatthe transfer was necessary and imperative: India is perched at an inflection point relatedto the consumption of interior infrastructure products benefiting companies that possessthe right operating structure product portfolio brands bouquet and competitiveness.
There are two overarching developments influencing the growth ofIndia's interior infrastructure sector. One aspirations and disposable incomes arerising the basis of a consumption-driven economy. The result is that people are buyingnew homes they are investing these homes with aesthetics-enhancing products; the cost ofthese embellishments as a proportion of the cost of a home has declined considerablyaccelerating the offtake of such pride-increasing products. India's consumption ofinterior infrastructure products (plywood laminates and veneers) is a fraction of theglobal average but now rising faster than the global consumption indicating that anextended and extensive under-penetration is beginning to correct.
Two even as the underlying consumption trend continues to be robust anew structural correction is expected to transform sectoral realities. In 2017 Indiaimplemented the
Goods & Services Tax a unified indirect tax. Among its variousimplications this tax has reduced the cost of business for organised plywoodmanufacturers and increased the cost for unorganised manufacturers. The narrowing of thecost differential between the two segments has reversed a longstanding sectoral inequity:there is a greater consumption of organised interior infrastructure products over the lastyear than unorganised alternatives. The result is that consumers are seeking to buyorganised plywood brands and this trend is likely to accelerate. At Uniply Decorwe are at the right place at the right time for some good reasons. The Company possessestwo manufacturing facilities servicing four national zones; we possess a range of plywoodproducts servicing the gamut of consumer needs; these products have been benchmarkedaround the highest quality standards; the automation of the Company's manufacturingfacilities will translate into higher output quality efficiency competitiveness. Theresult is that we do not only intend to emerge larger but also around a lower coststructure.
At Uniply Decor we possess relatively under-utilised capacity: theGujarat plant barely operated at around a third of its overall capacity in 2017-18; theChennai plant operated at less than two-third of its installed capacity. As we increaseproduction across the foreseeable future we stand to amortise our fixed costs moreeffectively and in doing so we expect to report a higher return on capital employed. Webelieve that we possess another two years of straight growth from this point before wetouch peak asset utilisation by which time we expect to have enhanced our cash resourcesfor onward reinvestment.
We believe that the complement of financial controls cash flows andre-investment should strengthen our business sustainability across the foreseeable futureat a time when the business shifts from unorganised to organised brand-driven players inIndia's plywood sector.
In view of these initiatives and realities we believe that UniplyDecor is perched at the bottom-end of a long J-curve in India's interior infrastructuresector.
Ramesh Kumar Malpani
Joint Managing Director Uniply Decor Ltd and