Sharad Fibres & Yarn Processors Ltd Management Discussions.


National Plywood Industries Limited is a pioneer in the Indian plywood industry and one of the first few manufacturers to venture into producing a wide range of high quality plywood and related products. Its plywood, block boards, flush doors and laminates are sold under the National brand, which has a strong prominence in the market because of its quality, steady marketing policies and constant product enhancement through research and development.

Indian economic overview

The Indian economy reported heading slower growth of 6.7 per cent in 2017-18. The year under review was marked by structural reforms: in addition to GST implementation, the government focused on significant resolution of challenges related to bank non-performing assets, FDI liberalization, bank recapitalization and coal mine privatisation. The result: World Economic Forums Global Competitiveness Report 2017 ranked India at 23 in the Global Competitiveness Index, up from ranking 39th in 2016.


World Bank projected Indias economic growth to accelerate to 7.4 per cent in 2018-19 and 7.5 per cent in 2019-20, catalysed by private consumption and services. Private investment is expected to revive as soon as the country adjusts to GST The recapitalisation package for public sector banks announced by the Government of India is expected to resolve banking sector balance sheets, enhance credit availability and spur investment. (Source: IMF, World Bank)

Indian interior infrastructure overview

India was ranked the 14th largest furniture market in the last couple of years, worth ~USD17.9 billion. In 2015, shipments of Indian-made furniture for the U.S. market rose 24 per cent to USD336 million. The past few decades reported increased expenditure in interior infrastructure catalyzed by growing incomes, urbanization, real estate investments and nuclear families. Besides, the continuous introduction of new designs and an expanding distribution network encouraged quicker home renovation. FDI in the Indian real estate sector, and the Central Governments Housing for All by 2022 initiative along with the development of 100 Smart Cities are sectoral growth drivers. The anticipated increased growth in tourism, hospitality and retail sectors could strengthen the offtake of interior infrastructure products.

In terms of domestic production, organised players accounted for 12-15 per cent of total production, while unorganised and individual craftsmen accounted for the rest. Indias organised furniture industry is expected to grow at a rate of 20 per cent per annum and is projected to cross USD32 billion in revenues by 2019. The emergence of dedicated online furniture portals has given a strong impetus to the sector. The online home decor market in India is projected to grow at a CAGR of 50.42 per cent till 2019. The luxury furniture market is expected to garner USD27.01 billion in revenues by 2020, registering a CAGR of 4.1 per cent.

Indian plywood market

Plywood is a growing market in India. The Indian plywood market reached a value of USD4.2 billion in 2017, growing at a CAGR of ~5 per cent between 2010 and 2017. On the basis of end- use, the market is divided into the commercial and residential sectors. The residential sector is the largest consumer of Indian plywood, accounting for more than half of all offtake.

With GST rationalisation from 28 per cent to 18 per cent on plywood, organised players are hopeful of increasing their market share, carving away share of the unorganised plywood sector - around 80 per cent of the estimated H20,000 crore industry. Consequently, the organised sector hopes to grow at a rate of 25 per cent y-o-y. (Source: IMARC, Times of India)

Indian laminates market

The Indian laminates market is valued at H3,700 cr with organised players accounting for a 60 per cent share (H2,800 cr). The sharp shift in preference for products manufactured by organised players has been catalysed by GST implementation. The taxation reform has affected the competitiveness of unorganized players. Over the last decade, the market has been touched by innovation in terms of product mix, designs and lower input prices, strengthening margins for organised laminate and decorative veneer manufacturing companies.

The use of decorative laminates is growing in the Asia Pacific with China and India being the most promising markets. The main driving forces in the region include improved standards of living, enhanced hygiene awareness and increased expenditure on non-residential and residential construction. Decorative laminates are available in a wide range of colours, designs and textures with a beneficial impact on surface longevity and low maintenance costs. Laminates enjoy a gamut of end-use applications such as cabinets, ready-to-assemble furniture and flooring. (Source: Business India)

Impact of GST

The GST rate has been revised from 28 per cent to 18 per cent in the plywood, MDF and particle board industry. The average growth rate of the industry which was 5 per cent (as of November, 2017) is expected to grow at least by 25 per cent y-o-y. All laminates products have come under 18 per cent GST slab, reducing the price gap between organised and unorganised manufacturers to ~20 per cent from ~35 per cent.

Growth drivers

Affordable housing: Affordable housing projects launched by private developers during the past five years have helped correct the long-standing skew when it came to urban housing. Although the urban housing shortage still remains substantial (1.2 crore homes), it is clear that active participation from private developers

could help address the gap. In the 2018-19 Union Budget, the Central Government announced that it would create a dedicated Affordable Housing Fund in collaboration with the National Housing Bank, providing 2 cr homes by 2022 with half of them expected to be completed by 2019. This will drive the demand for more decorative laminates and plywood.

Growing urbanisation: The pace at which Indians are shifting from rural to urban centres has reached unprecedented levels. By 2050, 60 per cent of Indians will live in cities. Delhi, Mumbai, and Kolkata will be among the worlds largest cities and cumulatively become home to ~100 million people. This rapid urbanisation would require more homes to be built in the cities, which, in turn, will drive the demand for wood panel products in the coming years. (Source: Business World)

Rising incomes: The per capita net national income during FY2017-18 stood at ~H1,11,782 compared to HI,03,219 during FY2016-17, growing at a rate of 8.3 per cent. The per capita income in real terms (at 2011-12 prices) during FY2017-18 stood at ~H86,660 compared to H82,269 during FY2016-17. The growth rate in per capita income (real terms) was ~5.3 per cent during FY2017-18, compared to 5.7 per cent in the previous year.

Rural demand: The growth in nominal rural wages has remained stable at 6-6.5 per cent in FY17 and in the first four months of FY18. However, owing to the sharp fall in inflation, real rural wages accelerated over the last 12 months. After remaining flat y-o-y in 1HFY17, growth improved to 3.3 per cent in 2HFY17 and further to 4.8 per cent during April-July 2017, the fastest pace in four years. The sustained improvement in real rural wages is a positive for rural demand. (Source: Economic Times)

Evolving shopping experiences: The Indian ecommerce industry has overcome many challenges to become a USD17.8 billion industry. Online commerce has definitely grown beyond the top cities. In 2017, metro and Tier-I cities together had around 53 million online shoppers, while Tier-II and beyond were home to 37 million

online shoppers. Consumers can now access the latest furniture on their mobile phones and order them with a few clicks. (Source: Red Seer)

Raw material security: Indias forests are populated by a variety of deciduous, coniferous, tropical and evergreen trees. Plywood is manufactured from timber logs and formed by combining thin sheets of face and core veneer. The industry is undergoing a transformational shift from unorganised market to the organised. An increased willingness to spend on branded plywood among the middle class has been noted in the recent years. This implies a greater importance being given to the quality of the product purchased.

Risk management

Risks are integral part for a business to grow. However, an effective risk management framework helps the organisation in mitigating the risks effectively and ensures business sustainability. Effective risk management comprises reducing the element of surprise, improving services, ensuring proactive change management, sourcing resources efficiently, optimizing utilisation levels, preventing leakages and reducing wastage. National Plywood Industries Limited has a risk management process that is periodically reviewed by the Board for effectiveness.

Economic risk: Slowdown in the economy may impact the industry

Mitigation: With the impact of demonetisation and teething issues of GST implementation fading away, the Indian economy is poised for strong growth. The IMF predicts that the Indian economy will grow at a rate of 7.4 per cent in FY19, compared to 6.7 per cent in FY18 and accelerate further to 7.8 per cent in FY20.

Industry risk: Slowdown in downstream sectors could impact offtake

Mitigation: With the real estate sector gradually recovering, the demand for panel products is all set to grow. The Housing for All Scheme is expected to drive the demand for panel products. Growing per capita incomes coupled with increasing private consumption levels bode well for the industry. Additionally, increasing office space demand is expected to drive offtake of office furniture in the country.

Competition risk: High competition may impact profitability

Mitigation: The implementation of the GST has enabled the creation of a level playing field. Backed by strong quality and consistent performance, the Company has positioned itself favourably to capitalise on the sectoral upturn.

Financial review Sales

Revenues during the year stood at H42.16 cr, decreasing by 9.04 per cent as compared to H46.35 cr in FY2016-17

Interest and finance costs

Net interest and finance costs increased by 161.92 per cent during the year due to high cost of short term borrowing

Profit before tax

The Company registered a profit before tax of H0.44 cr compared to H0.23 cr in the previous year

Profit after tax

The Company registered a profit after tax of H0.44 cr compared to H0.23 cr in the previous year (no tax due to set off with unabsorbed depreciation)

Key ratios

Particulars 2017-18 2016-17
EBIDTA/Turnover % -2.25 -9.26
EBIDTA/Net interest -3.64 -41.22
Debt-equity ratio -2.38 -2.25
Return on equity (%) 1.10 0.57
Book value per share (H) -67.91 -68.66
Earnings per share (H) 0.74 0.39

Human resources

The Company believes that its intrinsic strength lies in its dedicated and motivated employees. As such, the Company provides competitive compensations, an amiable work environment and acknowledges employee performance through a planned reward and recognition programme. The Company aims to create a workplace where every person can achieve his or her true potential. The Company encourages individuals to go beyond the scope of their work and undertake voluntary projects that enable them to learn and devise innovative ideas.

Internal control systems and their adequacy

The internal control and risk management system is structured and applied in accordance with the principles and criteria established in the Corporate Governance Code of the organisation. It is an integral part of the general organisational structure of the Company and involves a range of personnel who act in a coordinated manner while executing their respective responsibilities. The Board of Directors offers its guidance and strategic supervision to the Executive Directors

and Management, monitoring and support committees. The Control and Risk Committee and the Head of the Audit Department work under the supervision of the Board-appointed Statutory Auditors.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual results could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent development, information or events.

By Order of the Board
Place: Kolkata Chairman & Managing Director
Date: 30th May, 2018 DIN: 00698796


[Pursuant to Section 204(1) of the Companies Act, 2013 and rule No.9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014]