Am pleased to present our performance for 2018-19. At a time when the Indian economyslowed and reported declining growth in every successive quarter Uniply Decor reportedprofitable growth: revenues increased 69.47% and profit after tax214.44% in 2018-19.
This contrarian Uniply Decor performance during a challenging phase represented thevalidation of a differentiated way of doing business.
When the current management had assumed control of the business a few years ago it hadsent out an unambiguous message: that the country's plywood and interior products sectorswere at inflection points. Our optimism was influenced by the fact that the per capitaconsumption of plywood in India was well below the global average and at a fraction of thelevels in some developed countries. Besides even as the sector was fairly mature webelieved that it was possible to outperform the sectoral growth average through prudentbusiness strategies.
The performance of the Company during the year under review represented a validation ofsome of the things that we professed when we entered the business.
One we believed that even as the sector was largely unorganised there would sooncome a time when consumers graduated their purchases to branded products offered byorganised manufacturers.
Two we believed that the government would progressively plug loopholes exploitedby unorganised players enhancing their tax compliance.
Three we believed that as consumers became increasingly home-proud oroffice-proud there would be a deeper investment in interiors reflecting in a largerconsumption of premium plywood products.
Four we believed that plywood companies that widened their portfolio with superiorvariants would benefit disproportionately more than companies that responded to businessas usual.
Five we believed that the successful plywood company would be one with costs lowerthan the sectoral average.
Six and perhaps most importantly we believed that companies that believed in thepower of business quality over business volumes would emerge sustainable across thelong-term.
OUTPERFORMANCE IN 2018-19
At Uniply Decor our outperformance in 2018-19 was the result of having put theseconvictions into disciplined implementation in the last few years.
By the virtue of having acquired our Chennai and Gujarat plants at costs lower than thesectoral average and considerably below what it would have taken the Company to commissiona greenfield plant we inherited a fixed cost structure that is competitive across marketcycles.
Besides nearly half the Company's output is marketed within the Uniply Groupaddressing the downstream manufacture of interior infrastructure and furniture. Thissingle value-addition initiative has helped the Company escape the competitive pressuresof a challenging marketplace protected realisations and reduced overall marketing cumpromotional costs.
As an extension of these realities the Company engages in running a quality businessmarked by a relatively short receivables cycle and the virtual absence of any paymentdefaults. The result is that the Company has evolved from a priority on profits to a focuson cash flows and liquidity
During the year under review the Company strengthened its business model through twodecisive initiatives. The Company discontinued operations at its Chennai plywoodmanufacturing facility and focused completely on enhancing operations at its Gujaratfacility. This restructuring has helped the Company moderate overhead costs strengtheneconomies of scale and enhance our logistical efficiency in addressing growing demand fromwestern northern and southern India. We believe that once the relocation is complete ourlogistic cost will declined from 10% of revenues to 3-5% which on a growing scaleshould translate into enhanced competitiveness.
The Company strengthened its engagement with trade partners impressing upon them theneed for growing a quality business. The result of this growing alignment between tradepartners and the Company was a relatively lower stocking of products focus on enhancingworking capital efficiency resistance to extensively discounting our products to drivesales and maximising the importance of cash in hand (liquidity) over profit on paper.
The Company increased the proportion of revenues derived from value-added products. TheCompany promoted value-added and feature-rich products like ATS Fire retardant plywoodand Marine plywood strengthening the Company's brand respect among trade partners andaverage realisations.
There are a number of reasons why one is optimistic of the future.
The Company's operational discipline was validated during the last financial year. TheCompany finished the year under review with a protected Balance Sheet strong brand andits distribution pipelines intact.
Even as the Company finished the year with a turnover of RS 164.84 crore the 2018-19year when it reported revenues within this turnover range there is optimism that in a .best case scenario revenues could strengthen 50% during the current financial year or inthe worst case scenario achieve this target in 2020-21.
Following the Chennai plant closure and modernisation of the Gujarat plant weanticipate an increase in efficiencies on the one hand and a decline in our overall coststructure on the other strengthening our competitiveness.
By the close of the last financial year the Company reported operating margins andratios that compared favourably with the sectoral leaders on a considerably lowerturnover a validation of the Company's overall competitiveness.
The Company reported a capacity utilisation of 40% in 2018-19 based on the standard plycalculation. This indicates extensive headroom to address demand growth and the likelihoodof no major capital expenditure being incurred across the foreseeable future. As ourinterior wood products and construction businesses grow we expect to see a pass-throughgrowth in the insourcing of plywood products to the extent of 100% in about threeyears potentially insulating our business from marketplace volatility. I am optimisticabout our medium-term prospects as the initiatives that we have seeded into our businessshould mature across the foreseeable future.
Uniply Decor is a remarkable success story of the last few years and we expect thistrend to grow enhancing value for our stakeholders.