Equity Advisory

Are you looking for an honest, transparent and independent equity research and advisory? www.intelsense.in is run by Abhishek Basumallick for retail investors. Subscribe for long term wealth creation.

Sunday 11 October 2015

Indian Plywood Industry - Value Migration On The Way

The Indian Plywood industries is at the cusp of a new era. Over the last few years, the organised players (Century Ply, Green Ply, Kitply etc) have been growing at double the rate of the overall industry. This signifies that there is value migration happening from the unorganised unbranded products to the organised branded ones. The overall organised sector is growing 20-25% CAGR. Organised sector is 30% of the overall plywood sector.

The overall plywood industry size is Rs. 180 billion (source: Greenply AR 2015). The MDF industry size is Rs. 13 billion growing at 15-20% over the last 5 years. MDF is engineered wood made from wood (fibres), glued together using heat, resin and pressure. It is also a superior substitute for cheap unorganised plywood. It faces competition from imports. Demand in this sector is driven by ready-made modular furniture, modular kitchen, ready-to-move into offices/retail outlets, a need to substitute low quality plywood, affordability, increasing awareness of customers of better alternatives and shortage of time.

The Indian govt has imposed a ban on new licenses for manufacturing due to the environmental impact. This will help the existing majors.

Growth Levers
GST & its impact
    • Remove inter-state tax anomalies
    • Remove differential with unorganized sector hence a value migration from unorganized to organized players
   
Other growth levers
    • Home renovation cycle is declining
    • India's per capita income rising along with disposable income
    • Rising urbanisation and aspiration levels amongst people
    • Govt focus on "Housing for All" -- Rs 22,407 crores allocated by FinMin for 2015 to create 6 cr (2 cr urban + 4 cr rural) complete houses by 2022

    • Government Announcement regarding construction of 100  smart cities    
    • Focus by HFCs on Tier-2, Tier-3 locations

Over the short term (< 1 year), the industry may have moderate growth owing to the subdued demand in real estate sector. However, the growth levers are likely to kick in over the medium term (2-3 years). The industry looks to have bright prospects over the long term (10 years). It would be interesting to keep a watch on Century, Green and any new player in this space.

8 comments:

  1. SIr, Plz update the portfolio and any new things that you picked up in the Sept fall.

    ReplyDelete
  2. This comment has been removed by a blog administrator.

    ReplyDelete
  3. Hi,

    There are a lot of small players in the industry. I do not track Bloom decor.

    ReplyDelete
  4. plz update your portfilio any new buy

    ReplyDelete
  5. This comment has been removed by a blog administrator.

    ReplyDelete
  6. Hi Abhishek, Have you looked into Uniply. It is a small company (260 CR market cap) and a branded player. I think the size of the company and promoter's conviction make it interesting. What do you think?

    ReplyDelete
    Replies
    1. There are a lot of good small players in this space - Uniply, Kitply, Archidply. But all them together constitutes a very small percentage of the organised market, which is dominated by Green and Century.

      Delete