Dhabriya Polywood - a history waiting to be written?

Stock Opportunities Untested - but worth a good look
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Introduction-

Product Portfolio -
1.Plastics…
PVC profiles and UPVC doors and windows Partitions, False Ceiling,
Panelling, Fencing, Prefabricated Structures to Prefabricated Walls &Buildings and allied products made of PVC, UPVC,
Polymers &compounds

2.Furniture Products- modular kitchen and accessories, tables, podiums, chool library and other office furniture…

here is the link to the full product catalog
http://polywood.org/PolywoodBrochure.pdf

PVC Product Characters-
Heat & Sound insulated
Water proof
Low Maintenance Cost
Recyclable
Long Life of 10-25 years

Raw materials- PVC resin, Calcium Carbonate, Heat stabilizers, Pigments and additives, uPVC Profile, ABV

Subsidiaries-
Polywood Green Building Systems Private Limited [segment-plastics+ furniture]
[since 2012, 100% owned, jaipur]
Polywood Profiles PLtd[100% owned , acquired during fy17,segment-plastics, coimbatore, tamilnadu (was acquired with objective of capturing the southern market)]
Dynasty Modular furniture Ltd[100% owned, acquired on Q1fy18, segment-furniture products, jaipur]

Both readymade and customization option available in the product series
In the catalog, the order placement has a minimum order quantity in almost all of the products

comparison b/w competing products RM…
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In addition to this, aluminium prices are on an uptrend and the gst on aluminium doors, windows and their frames and thresholds for doors is 28%

On PVC products is 18%

On wooden furniture and plywood is 28%

The company has three plants in Jaipur and two in Coimbatore. Utilisation at these plants is 45-55 per cent.Another plant in Bengaluru was scheduled to be commissioned by the end of 2017, pending updates…
The company has a production capacity of 10,000 metric tons of PVC Profiles per Annum.

Niche play-
Dstona…
Artificial Italian marble brand Dstona, owned by the company.
It costs around one tenth of the original Italian marble.
Dhabriya is the only manufacturer in India.
capital expenditure - Rs 5 crore to set up this division
Topline potential-Rs 25 crore of revenues annually.
topline generation
EBITDA margin-25%
excerpt from fy2017AR

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A separate website has been created regarding it…http://dstona.com

Current shareholding-
Promoters- 74.22%[last increase in q1fy18]
No institutional investor
Ace public investor-Mukul Agarwal and firm -10.5% approx

https://www.bseindia.com/corporates/shpSecurities.aspx?scripcd=538715&qtrid=97.00

Numbers and ratios
[i shall edit and add the final numbers after the latest annual report is released]…
Current market price-142.5
Market cap aod- 154.25cr
eps-
fy16 3.52
fy17-4.68
9m fy19 eps-4.93

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The company got listed in bse main board on 27/04/2017
here is an interesting article about the chief promoter …

another 2 articles from the same source…

Here is a rough estimate of the projections…

A lot of more information is to be collected to do a complete analysis and forward projections, hence i will refrain from making any forward looking estimates
waiting for the oncoming AR…

I open this discussion to all the members here for mutual contribution

Here is how the stock behaved after getting listed in the Bse main exchange…

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Disclaimer…Entered into a small position to track…The liquidity in this stock is less as of now…

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Some red flags i have noted here are as follows[needs to be updated and verification from the management]…

1.The Coimbatore plant had not received crtificate from Tamil Nadu State Pollution
Control Board as on september, 2014

2.this is according to the prospectus mention back in sept, 2014

A Buyer’s Agreement was executed between EMMAR-MGF Land Limited and the Company on February 2, 2012 for
purchasing a flat/office space situated at DG-B-10-003, 10th Floor, Tower No. B, Digital Greens, Sector- 61, Gurgaon for a
consideration of 1,32,10,424/-. At present the Company has paid a total sum of1,25,78,739/- in the form of instalments
and a sum of ` 9,71,477/- plus service tax is still required to be submitted, which shall be paid at the time of handing over
of possession of the booked premises meaning thereby that approximately complete amount for the premise has already
been paid by the Company till date but the possession of the premise is still not with the Company.

  1. LAwsuits…
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    the details of the description is in the following document…lawsuits.pdf (1.6 MB)

4.Competition Risk from Chinese suppliers…
the following has been mentionedin the fy17AR regarding this…

Your Company is always exposed to competition
Risk particularly China. The increase in competition
can create pressure on margins, market share etc.
However, by continuous efforts to enhance the
brand image of the Company by focusing on R&D,
quality, cost, timely delivery, best customer service
and by introducing new product range
commensurate with demands your Company plans
to mitigate the risks so involved.

5.contingent liabilities…
Standalone

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Consolidated
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6.The company units are built on lease hold land…

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  1. receivables keep on mounting yoy…
    this is H1 consol BS
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8.Last year and this H1 reporting on the consol BS, there was a rise in the inventory…
this is H1…

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  1. in fy17, Monthly basic salary hike of 100% of the managerial members of the company, while at the same year the [standalone]PAT grew 14.7% yoy and [standalone]operational revenue grew by 17.2%
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10.Lack of Quality standardization on upvc products, lowers the entry barrier for new players to exploit the market, there by blunting competitive edge to gain market share

Business out look reports…
The upvc market is expected to grow at an cagr of 7-8%plus upto 2024…
Here are some links to reports…
https://globenewswire.com/news-release/2017/09/13/1118439/0/en/Doors-Market-in-India-worth-over-2-800-Million-by-2024-Global-Market-Insights-Inc.html
https://www.wfm.co.in/upvc-doors-windows-current-evolving-market-scenarios/
Some excerpts from the below link…

The latest technology in architecture has played a major role in the enhancement of new homes with smarter products. The new age material which is now being used in smart windows and doors is uPVC.
There has been a clear shift towards uPVC as a preferred windows material. Apart from its functional superiority, uPVC is also a green material. While wood promotes deforestation, aluminum windows waste a lot of energy, an inclination towards green buildings in both residential and commercial sectors has increased with a surge in the use of uPVC windows and doors
Globally, uPVC windows and doors have been well accepted, with wide usage, due to better aesthetics and excellent insulation characteristics. We have seen a shift towards the usage of uPVC windows in India now as a result of the growing focus on energy efficient performance for homes and buildings. It is poised to achieve a higher and faster market penetration in the years to come. Double glazed windows with uPVC frames are proven performers in reducing energy consumption for heating and cooling and consequently over their whole lifecycle can reduce a building’s greenhouse gas emissions by as much as half compared to the use of aluminium framed windows. uPVC is effectively replacing aluminum , steel and timber now.
As a comparatively new product in the market, uPVC windows organized players are meeting International standards. Standards suitable for Indian conditions are being formalized as players pitch in their energies to give the customers the best deal. In a market where standardization is an issue, several bodies are taking a lead in helping to establish standards and there is a need to define profile width, formulation and environmental safety.
http://projectvendor.com/doors-windows-current-evolving-market-scenario/
this is an excellent read about upvc market
https://www.wfm.co.in/market-situation-and-technical-advantages-of-upvc-windows/
https://www.masterbuilder.co.in/upvc-alternate-material-doors-windows-outlook-residential-commercial-construction/

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Looks good given the shift to environmental friendly sustainable business. However, does increase in crude oil prices will have negative impact on their profitability and cash flows…As per my understanding PVC being a derivative of crude oil, highly co-related with the prices of oil…
I addition I witnessed virtually no liquidity in the stock, just wondering will you get an exit option in case of any uncertain event…thoughts are appreciated.
Thanks for putting it and introducing such a niche theme and stock !

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Definitely crude has a linear relation with ethylene prices which indirectly is related to pvc…
The question is one,if they can pass through the rm cost increase to the customers, two, they have developed significant inventory, so there must be a lag in margin compression if there is at all…
So,I dont really know if i can depend on the q4 to do a correct assessment of crude effect on the margins…
Trying to establish contact with the management, to get many questions answered…
And yes liquidity is really an issue, agreed…

Disclaimer… Small poistion taken and being maintained

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Regarding increased inventory build up, environment ministry of gov of India recently banned lead based stabilizer used in manufacturing of PVC and you can’t sell them withought branding them as hazardous to human health. Also, it is very difficult to move for a PVC manufacturers to non lead based products also clear the existing inventory. I am sure it will affect small companies like this.

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Hi buddy,

Please do share the insights provided by management when they respond to your queries.

Disclaimer: initiated a small position at 145

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thanks for the input…

The use of lead based stabilizers in pvc is a hazard specifically in pvc pipe industry and packaging industry, as it leads to direct consumption …

In this regard the NGT addressed the MoFECc to regulate the use of the same, but it was addressed specifically to approach the pvc pipes…

This company on the other hand is neither into pipes business nor the packaging one, rather in the furniture and internal decoration based segment and ducts segment of upvc use…
Also i have noted they use ABS in their pvc profiles, lead has an advantage of use m in that aspect, that it increases softening point of pvc, which if not used there has to be use of high transition temperature styren polymers like ABS… so whether they use lead at all is a question to be answered…

they do have exposure to modular kitchen business, but those materials are primarily made of MDF/HDF and upvc profiles are not used…

But still, if i get in contact with the management team, i will ask about which variant of stabilizers they use and related info…

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hi dhruv,

yes surely i will update the thread as soon i get in contact with them

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Thanks a lot.
DigVijay Dhabriya is the maternal uncle of my colleague from previous company.
Last year she told me that her uncle was very bullish on the prospects going forward and insisted that she invest in the company too.
I am trying to get in touch with her and will gather some scuttlebutt which I will share soon.

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great, that will be very helpful dhruv…!

please share your insights

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11.41cr worth of orders received in February, 2018 from 4 corporate customers…



note update…the coimbatore plant is built on leased land to a individual lease renewed annually,
other than that, the jaipur plants are leased to them for a period of 99 years 1994 onwards from the rajasthan gov
their trademark SHIDE had expired on march 2018, , update regarding renewal application and status to be gathered…

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I think the products are good here. SHreholding pattern too assuring, though shares trade very thin. But it is about marketing too. I wrote to the management about the product availibility and inquire their distributors in Mumbai and their reply is still awaited.Would like to see their products to judge it’s possible acceptance.

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Dilip, do u think they cater to the retail customers in the prefab segment?
This is one area i am finding a sticky point in the business, acc to the website there is a minimum order requirement, for each orders… I dont know how many retail go and order 10doors at a time…
Looking at the recent orders, the customers seem to be coming from the big ticket realty business…
Share ur views regarding the customer profile?
And can u post ur exact queries u had made?
I might be in a position to address them to the management, soon…

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Hi Sandipan, unless Dhabaria have Distributors and retailers to showcase & market their products like furnitures and floorings directly to the users, I don’t see a consumer story unfolding here.
In my mail to them, I had simply asked them about availability of their products in city of Mumbai.

Regards

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thank you dilip,
in their prospectus they have done a big talk that they have distributors all over india,
will verify that and your query address too…
meanwhile i know dhabriya conducts in person analyst/investors meet in Mumbai,
if you are interested in this company, we will be in debt to you if u can attend the oncoming meet post the annual results and share your inputs from it…

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@ragsingh0305…
Here is a scenario i found, strangely , the ethylene prices have hit a 9year low, due to high supply n lower demand offlate…
https://googleweblight.com/i?u=https://www.icis.com/resources/news/2018/03/20/10204214/us-ethylene-spot-prices-fall-to-nine-year-low/&hl=en-IN&geid=1033

In such a scene, the pvc prices should follow the same trend…
We might not have to worry about the margins, apparently in the short term…
It makes sense to investigate and track the ethylene prices instead of crude, as pvc is produced from ethylene as a raw material…

Views and analysis appreciated…

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Yes Sir, I will attend.

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@Capsule91 - Thanks for initiating the thread, I had gone through the entire thread.
I do see a lot of potential on the products that they have on their portfolio and since you have invested in it wanted to get your opinion on the legal issues that they are currently facing, as management plays a key role from an investment point of view, wanted to know your thought process of going ahead inspite of the legal hassles, your input would be greatly appreciated.

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Hi again, rao sir…
Honestly i was taken aback when i noted there are lawsuits against our promoters…
But when i read anout the cases, i found them insignificant, except one wherr a crimincal chargesheet was filed against dhabriya , reagrding the supplied materials to the customers didnt have trademark printed on the product, dont know if thas a mistake or a misssell… But that way a case which dates back to 2012 , and yet nothing has been mentioned regwrding any arbitration claim in the contingent liabilities, so i would give the benefit of doubt that the case was either dismissed or still pending …
3 good points regarding the subsequent lawsuits against income tax department, where in the judgement was passed in favor of our promoters, othereise it dep claiming charges from the company on account of evasion would be a major red flag…
So personally, i am not factoring in the lawsuits as a significant red falg, although the update regarding that criminal charge is on my to ask list…
Right now, i am more concerned about the coimbatore plant’s pending status of certilication from the tn pol controll board and that the factory is built on private lease land{both of which was last updated in 2014september} , the building inventory n receivables , the company is constantly increasing borrowings although the debt to equity has come down yoy , the capacity utilization hasent improved much over thr last 3 years, promoterd taking a big hike in salary from business while having no plan of dividends and finally the effect of crude on the rm costs, most likely retails are not their customers as yet…
Having said that i recon , as u say,the potential of the business in this segment is huge, and they cater to the realty companies…

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Yes, good observation…the supply of ethylene, one of the key raw material, (other key rm is chlorine) increased due to newbuilt refinery and crackers. However there is a 3-6 months lag on the pass through of prices of PVC resins. If oil continues to remain in the range of $70-$80/bbl, despite increase in supply, the price of pvc resins bound to shoot up, how much is anybody’s guess.

We also need to check in case of increase in raw material cost, will company be able to pass on the cost to its customers. What is the pricing structure of the contracts that company has and have got in the recent past. Is it fixed price, or raw material escalation is there.

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