Indian Wood Products
Dear All,
Greetings and wishing you all a happy new year in advance 
I see that a thread was opened by @pratikjain1310 and closed on the Indian Wood Products Company Ltd without much discussion, so I am starting a new thread again. Request the moderators to kindly edit it or merge it as they seem fit 
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Indian Wood Products Company Ltd is the largest private organized player in Katha industry and have been open since 1919 which is more than 100 years.
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The overall size of the Katha industry is about 2000 crores p.a. with the organized segment being approx. 30%.
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Strong player in the organized section of Katha Industry in India with a market share of approx 35%.
CMP : 29
Dividend Yield : 0.35%
Book Value : 54.9
Incorporated in 1919, IWP was promoted by Mr. H.N. Gladstone, Mr. H. Bateson, Mr. E.H. Bbray, among others. The company is limited by shares under the Companies Act, 1913 with the sole objective to manufacture catechu. It has a manufacturing facility in Izatnagar, Bareilly, Uttar Pradesh. The manufacturing activities started in 1920. In 1980, Mr. K. K. Mohta acquired the controlling interest in the company by the transfer of shares. The company is listed on BSE.
Established Customer Base: IWP generates 75% of its revenue from pan masala manufacturers. The company’s customers include renowned brands such as Rajnigandha, Pan Bahar, Pan Vilas, Vimal, Goa, Dilbagh, Jayanth, Wah, Lingraj, Aashiqi, Mohini, Zafri, Nazar, JM Super, among others. The remaining 25% is generated through the retail segment. As of June 2018, the company had 15-20 distributors, spread across Delhi, Bikaner, Churu, Varanasi, Hyderabad, West Bengal, among others.
They provide Katha which is called Catechu in English to various Gutka/Pan Masala manufacturers in India.
They also sell Katha independently which is finding increasing uses as an ayurvedic medicine and also consumed with Pan.
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Uses of Catechu: It is traditionally being used as mouth freshener with Betel quid in India. The new generation of mouth fresheners, like Pan Masala deploys Catechu as chief ingredient with Areca nuts and sometimes with chewing tobacco. Catechu is an astringent and has distinct bitterness followed by cool-sweetness. It also finds use as flavoring agent in condiments, ice-creams, candy, beverages etc. Since ages, the medicinal uses of catechu are well known. It finds major use in treatment of diarrhea, dysentery, ailments of mouth, gums, tonsils etc. Many new uses of catechins (which are the natural chief ingredients of catechu) like antioxidant, skin care, anti-diabetic, anti-inflamatory are reported.
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Uses of Cutch : Cutch is a natural source for Tannins (for tanning of leather). It creates variety of colors with metals and are useful as dyeing agent for natural fibers. It is also used as a mouth freshener. Medicinal uses similar to catechu are also known. It has application in Oil-drilling, Printing ink-pigments, adhesives etc.
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Uses of Catechins: Both Epicatechins & D-Catechins have demonstrated uses as Antioxidant. It has also proved efficacy in treatment of Acute viral hepatities, and as Anti-diabetic, Anti – inflamatory, Anti-Dirrhoea, Anti-dysentry, Chemo-preventor etc. It is also traditionally used for treatment of Gums & Tooth and skin ailments.
Recently they have also ventured into Spices and have been releasing new products in various masala categories. The share in revenue has been increasing.
The market size of spices business in India about Rs.1.5 Lac Crores p.a. out of which only a small portion is in the organized sector.
The growth of the organized sector has been approx. 25% CAGR over the past 5 years which is a massive opportunity going forward.
They seem to have one product on Amazon but not sure on the units sold etc. since there are only 4 reviews:
- 2019-2020 Revenue from operations - Total revenue from operation of Rs.17812.49 Lakhs, being 91.12% of the total turnover from the sale of Katha and Rs.1685.71 Lakhs being 8.62% of the total turnover from Spices. PAT 692.39 lacs
- 2018-2019 Revenue from operations - Total revenue from operation of Rs. 19645.22 Lakhs, being 97.98 % of the turnover from the sale of Katha and Rs.404.61 Lakhs being 2.18% of the turnover from Spices. PAT 1693.80 lacs
----spices contribution to revenues start — - 2017-2018 Revenue 21956 lacs - PAT 1586.99 lacs
- 2016-2017 Revenue 18835 lacs - PAT 1147.77 lacs
- 2015-2016 Revenue 12540 lacs - PAT 367.82 lacs
Negatives:
- GST impacted their top and bottom lines since the unorganized Katha industry largely evades taxes. But going forward they hope that if this is controlled and properly regulated then their share in the overall industry should improve.
- COVID - Pan masala/ Gutkha consumption was low and hence no demand for raw materials. Profit margins took a terrible hit.
- Promoter has pledged a part of their shares recently.
Positives:
- The Spice industry seems to be of high margin and the share in operating revenues seem to be increasing. Also new spice products are being launched in Northern India steadily.
- The new plant opened in Kashmir Plant will add additional capacity of 1200 MT - Production might start from first half of FY2020. This will increase revenues.
- Company is trading below its book value.
I feel that this is a company trading at very cheap valuations even for a sin industry. Consumption of Gutkha is not something that will stop in the near future and the growth of spices vertical will just make things better in the long run
Disclosure – I am not a SEBI approved advisor and this is not buy/sell recommendation. Please do your due diligence before taking investment decision