To acquire Uniply Industries Limited When we set outin 2015 we did so with thelarger perspective of empowering people to work and live better.
We did so because we were convinced that there was a widening gap between the interiorstandards of developed countries and India. The core design of India's offices had notaltered in years; most office spaces were merely larger replicas of the same design; mostoffices were a sequential extension of the same idea; most managements felt that theirinterior aesthetic fit-out creativity stopped at providing a large floor plate coupledwith air-conditioning. Most offices were designed around functional comfort and notbusiness agility. Most designers responded with a make do' approach resulting in awidening gap between what was needed and what was provided.
The reality with Indian residences was no different. Even as the disposable incomes ofmost Indians increased substantially over the years their residential standards did not.Most lived largely the same way they had for years. While the subject of aesthetics canindeed be debated one's man's nectar is another's poison where most Indianhomes did fall short was in not being able to keep up with growing standards of producthygiene and environment consciousness related to interior infrastructure products.
When we acquired Uniply we did so not merely to capture a fleeting arbitrageopportunity that would have required us to play the game better; we did so with theobjective to transform the game itself.
Transforming the game
The need to transform the game extended Uniply beyond the manufacture and marketing ofplywood. Within a year of acquiring management control we acquired Vector Projects oneof India's largest interior design and fit-out companies.
This is the how our strategy has played out.
One the Vector acquisition extended us from marketing products to uniquelymarketing complete interior solutions enhancing the value of delivered productsincreasing our revenues and strengthening our business sustainability.
Two we resolved to grow faster a reality that would help us amortise our fixedcosts better. And yet even as we could have grown for growth's sake considerably fasterby dumping material on trade channels and under-cutting prices we resolved we would growonly as fast as our Balance Sheet would permit. This meant that prudent working capitalmanagement would dictate the scale and scope of our business; if there was a danger ofreceivables extending beyond our prudent cut-off we consciously froze our growth at thatpoint. The result is that we created a quality business that would not be dragged down byloans receivables bad debt and illiquidity; we would position our company around debtorsafety relatively low receivables completely recoverable receivables and comfortableliquidity. In doing so the message that we sent out to our employees and associates wasthat Uniply would do good business over any business; that cash flows mattered more thancash profits; that sustainability was more important than profitability.
Three we do not intend to pursue the cash-burn model of companies in this space;we expect that brand visibility and word-of-mouth recall will translate intocash-accretive growth.
Four we believe that the business of standalone product sales would remaincompetitive in India. However we expect to extract additional margins from the increasedin-sourcing of products manufactured by one intra-group business for another making itpossible to save marketing cum distribution costs on the one hand and enhance our overallcompetitiveness on the other. We believe that such an advantage will make it possible forus to create markets as opposed to the conventional approach of competing for marketshare. Five the affordable home construction business will create attractivemodular product opportunities like kitchens. By delivering around 15000 constructed homesby the end of this financial year we will have achieved a sizeable critical mass in termsof kitchens delivered that should provide us with the economies that make thissub-business competitive and ready for scalable growth. Besides we believe that thekitchen subsegment is at the cusp of an attractive transformation: gas stoves are yieldingto LPG connections and kitchens are becoming multi-gadgets attractive larger investmentsthat make them an ideal building block for other interior components (plywood doors andfloors).
What we achieved
I am pleased to report that this strategy of growth over the last two years hastranslated into a deep competitiveness marked by credible features.
The reinvented Uniply is a multi-business organisation woven around a core synergy aconsiderable advantage over standalone businesses in the respective spaces. The acquiredbusinesses have accelerated their organic growth. Vector Projects for instance had taken15 years to grow to B210 crore when it was acquired by Uniply in September 2016; in justtwo years thereafter the Company added B109 crore in revenues showcasing dynamism.
Even though the reinvented Uniply has been in existence for only three years marked byacquisitions and change it is perceived as a stable organisation. Much of the Company'ssenior management has been retained members of acquired companies integrated into theUniply way of doing things new senior hires made and the result is a core team that iscommitted to the Company's long-term growth. During the last few years the quality ofprojects on-boarded by the Company has improved: it would have been easy to validate thison the grounds that these have become progressively larger especially after thecommissioning of the affordable home construction business. The reality is that theworking capital-light projects are not dragging the Balance Sheet down in any way.Besides they are creating opportunities for increased product in-sourcing from across ourGroup constituents.
Even as the Company has grown aggressively in the last three years it is stillunder-borrowed and net cash-positive an attractive foundation on which to scale growthacross the foreseeable future.
The Company has established a recall across trade partners and associates that it ishere to stay encouraging a number to either enter into or deepen engagements with us.
Where we go from here
The Company's objective will be to complete its home construction projects sweatmanufacturing assets and operating leverage with the objective to maximise revenues. TheCompany does not expect to make any significant capex across the foreseeable future. Thefit-outs business is working capital-consuming the affordable construction business isworking capital-negative and the plywood business is working capital-neutral anattractive and scalable mix. The focus of the Company will be to enhance RoCE through theinterplay of enhanced revenues in-sourcing integration branding and value-addition.
Without compromising any of these priorities the Company expects to grow revenues toB2500 crore by FY 2022.
Keshav Kantamneni Chairman