- Company was previously under a different management. So looking at the history of company won’t provide much idea on the future. Suggest to look at it form vision of new management (Keshav Kantamneni) as shared by him publicly and consider what he brings to the table and his future plans for the business.
- in Feb’15, Keshav bought 36 per cent of Uniply , held by BL Bengani and others, for ₹2.5 crore !!! and made an open offer at Rs. 13.50/- to buy 26% (45 lac shares; spending 6 odd cr.) + Company had debt of 115 cr.
- Keshav is form investment banking background, did his MBA from the famous Kellogg school of management and hails from a business family. They have business interests in wood logging in parts of Africa and trading of ply doors (earlier manufactured by a Chinese partner) and investment banking (Globality Partners) and few other business interest like retail in different countries.
- Few things happened in close succession which led to Keshav buying stake in Uniply 1. Their ply door trading business which was manufactured by a Chinese manufacturer, it’s second generation was no longer interested in the business and Keshav was looking for another manufacturer for ply doors. 2. Uniply approached Globality Partners looking for a buyer. This led to Keshav to consider buying Uniply in his individual capacity.
Current Valuation - MCap - ~65 cr. Debt - 90 , EV - ~155 cr. (Debt has come down from 115 to 90 cr. post new mgmt take over)
First few points on plywood industry business dynamics
Main raw material for ply is raw forest wood and wood logging is currently banned in India. Only the plantation logging like rubber/poplar is allowed and those are not good raw material for standard quality plywood. So, raw material is sourced from outside India. Burma was earlier the largest source but then Burma has banned logging since 2012, so the new source is mainly Vietnam and some parts of Africa. Importing raw materials of this nature involves risk on quality of raw materials, as sometimes the seller may show different quality and ship different quality of materials and it’s hard to tell the difference until it’s too late.
A good quality ply is made from pressing together sheets of vineer using chemical and glue. Vineer is made from peeling the logs and doing other processes on it. Lower quality/priced ply is mostly made by un-organized players by putting veneers (sourced from organized players, Uniply almost owns this market supplying 90% of this requirement) only on the top & bottom layers and using rubber/poplar and other termite prone wood and leaving more hollow space in the middle layers and hence preparing lower density/weight of finished product. Those are sold for lower price.
Since year 2000, there is a supreme court ruling saying , there will be no new plywood mfg. license issued. Only the existing players can continue. Most of the players in unorganized industry are not licensed players and do the business the way they do. Introduction of GST would impact these players the most as they will lose a good portion of their low sell price advantage.
Current Status & Future Plan of Uniply
- Company’s main markets till date have been Karnataka, Tamilnadu,Kerala in south & Punjab, Rajasthan in North & few other states and it did 172 odd cr. of business in 2014 and 127 cr. in 2015.
- Out of a market size of say 6000 cr. GreenPly does ~1500 cr. and Century ~1000 and Uniply is at no.3 in organized space at ~170 cr, other major players are Archiply and sharda ply, and the rest of market is all with small and unorganized player leaving a wide scope of improvement for Uniply.
Keshav’s vision for Uniply’s improvement is based on these lines of thought.
- Increasing Plant utilization - Currently capacity is utilized at only 40% level leaving huge scope for growth without capex.
-Keshav and his team have partners (from Investment banking contacts?) in various parts of the world to take care of the sourcing of raw material and present some advantages in sourcing as compared to previous management. Uniply’s earlier management was doing ok, when raw materials were sourced from Burma, but business started faltering after raw material was sourced from Vietnam.
- Doing better business in Andhra - Keshav is form Andhra, and with the big construction going on in Andhra after new CM and new Capital being built are known stories. This helps Uniply to focus on project business and scale up sales. Currently Uniply does about 12 cr. sales per year from Andhra compared to market size of ~60 cr. leaving good scope for growth.
- Currently the company has 12 dealers across the southern region and company plans to have 30 dealers very soon, dealer agreements are in place and a senior person hired from a competitor is leading this effort.
- Company plans to focus on brand building through TV ads, wall paintings etc and also work with architects, contractors and via promotions etc. In the last 20 years, company has never done ANY kind of promotion. and the brand is built on the single premise that they supply quality goods. Company has good manufacturing process built by previous management and the business goodwill is built on that premise. The company has hired an Adv. agency for the first time in history of the company and they are working on a campaign. Company intends to keeps the sales & marketing budget in range 4-5% of revenue going forward.
- Acquisition & Capex Plans - Company currently has 1 main plant and 2 sub facilities, all in Chennai. Ply is transported to far off places like Punjab,Himachal in north and Maharashtra in west regions from the Chennai facility adding significant cost burden and distribution inefficiencies. So company plans to acquire 2 more small mfg. units 1 each is north and west spending at about 20-25 cr. to facilitate efficient mfg. & distribution.
- High cost of borrowing - Old management had borrowed capital from banks at cost of 17%, which is way too high than standards rate and new management thinks the borrowing cost can be improved a lot in short time and also they have started paying off debt (from 115 to 90 cr. in last 3 months). So aggressive debt repayment is also among top priority.
- End of this FY, management expects a good top line growth and top notch industry standard bottom line margins.
- Starting July’15, company is going to introduce a new product line which will be of global industry standard. Currently none of the Indian products are in that category and most export order(if any) are specially manufactured to cater to the order.
- With this, the company is also setting itself up as a possible exporter to Australia & New Zealand where it has advantage in shipping cost (closer to India) compared to Chinese players. In 2-3 years company sees >30% revenue coming from exports.
- As per Keshav, Uniply purchase was made for 3 primary reason, he can source raw material cheaper, he can sell better and can sell to more countries.
Company posted a fantastic last Q in terms of margins , posted 6.2 cr. of EBITA on a 27 c.r of revenue & 3 cr. of NP (no tax paid due to accumulated losses?)and turned to profit for the full FY15 from a loss of 2.95 cr. for FY14.
I am expecting it to get to a ~10% EBITDA (industry top player standard ?) on a sustainable basis over next 2-3 years.
Am expecting it to reduce debt significantly as indicated by mgmt.
Welcome feedback/brickbat/brain storming the idea.
Disc: Brought recently with a low PF allocation %tage, might add more once price stabilizes, it’s been on circuits for few days now.