Research on Wood Sector

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Chapter 1

Executive Summary

The Project was about analyzing Indian Wood companies. The analysis

comprised of detailed analysis of companies business line, shareholding

pattern of the company, press releases and the impact of this press

releases on the stock prices. The research has helped in understanding

how dierent companies function and operates, its arious competitors.

The growth aspects of the company was determined by going through the

annual reports, as well as Inestor Presentation. The result of !"#$% was

found on the &'( website in the corporate )lings. The research was

conducted by going through arious management interiews to )nd out

what they will be doing in the coming years and what their long#term

goals are.

!or )nancial analysis of the company, it was re*uired to go through the

Income 'tatement, Pro)t + oss of the company. -arious calculations

were undertaken to )nd the )nancial ratios, aluation ratios of the

company. These ratios helped in understanding the )nancial iability of

the company. The research helped in )nding out arious sources from

where the company generates reenue and what the break#up of the

reenue is and also epenses carried out by the company on its /esearchand deelopment. The information for the research was taken from the

companies0 o1cial website and from arious other websites such as

/esearch bytes, money control etc.

$


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Chapter 2Introduction

2.1 Introduction to the Industry:

The international wood industry has become more comple due to

globalisation, production assortment and the deelopment of

technologies. (nironmental protection also plays a major role to

the deelopment of this sector 2processed materials, naturepreseration, etc3. (uropean, 4ustralian and 5'4 manufacturers

compete with the imported 4sian products that are cheaper. The

industry has responded to these threats by enhancing productiity,

targeting niche markets and improing *uality, design and

marketing. In many companies, the production process consists of

the assembly and gluing of particleboard which is coated with a

decoratie coering such as a eneer. The leel of skills inoled is

not as sophisticated as in craft work. 6eertheless, the skills are

important particularly in respect of the operation and maintenance

of computer numerically controlled machines, )nishing techni*ues

and in the case of soft furniture, the sewing, cutting and pattern

making.

The method of working, howeer, is as important as the actual skills

of the operaties. 'peci)cally, 7working in cells0 has been shown to

be more e1cient in reducing lead times and in optimising machine

utilisation. These working arrangements, howeer, re*uire a high

degree of multi#skilling on the part of the production operaties.

The deelopment of craft skills is essential for the surial of the(uropean furniture industry. 8raft skills are necessary to produce

high *uality, intricate furniture items based on solid wood.

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The market for such products is less sensitie to price than the

market for mass produced furniture constructed from wood

composites and it is a market therefore which can be successfully

eploited by the (uropean companies. The increasing compleity of the industry means that it re*uires a cadre of uniersity *uali)ed

professionals to proide many of the technical, superisory and

management functions. :esign and marketing hae become the

twin pillars on which any successful deelopment strategy for this

industry must be based.

The diersity of India0s range of forested areas is a distinct

adantage for the country0s wood industry. The country has anabundance of dierent kinds of forest growth such as tropical

hardwood, deciduous, eergreen and coniferous forests. The wood

industry produces a wide ariety of items such as decoratie and

constructional plywood, hardboard, particleboard and )breboard.

Wood and wood#based products are demanded by seeral

segments including defence, railways, furniture and indiidual

consumers. ;oweer, the rapid depletion of the forest resources

has dealt a blow to the industry0s future prospects. The industry is

also highly fragmented and unorganised that leads to problems in

the demand#supply chain.


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2.1.1 Forest Situation & Outlook

$n $=%9, the >oernment of India established a goal to raise the

forested area to one third of India0s land mass. 'ubse*uently, a

number of eorts were made to limit human and animal pressure

on forests and reforest key areas. ;oweer, the pressure from

humans to harest wood for fuel and other uses along with the

clearing of land for agriculture, coupled with persistent use of forests as a source of fodder for animals, hae preented the

goernment from reaching its goal. In addition to $.9 billion

inhabitants liing in an area that is one#third the size of the 5nited

'tates, India has large cattle and goat populations that graze widely

and consume forest resources.

4ccording to the 9?$$ !orest 'urey of India, forests coered just

99 percent of India of which 9.% percent is dense forest de)ned as a

tree canopy density of @? percentA $? percent is moderately dense

de)ned as a tree canopy density of B?#@? percentA and = percent isopen forest de)ned as a density of $?#B? percent. These )gures do

not dierentiate tree coer by typeA hence parks, orchards,

mangroe areas, and plantations are counted as part of the forest

coer, suggesting that actual forest coer is well below 99 percent.

B


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4dditionally, a signi)cant portion of India0s tree coer lies in

mountainous areas aboe an altitude of B,??? meters, making it

di1cult to access. 8onseration eorts appear to be helping to

stem the loss of forested areaA between 9??= and 9?$$, forestedarea was irtually unchanged, dropping by just


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Fi!ure 1: India"s total imports o# $ood and $ood%roducts y value

India has long sought to augment its domestic wood supply throughthe importation of logs. >oing back 9? years when imports of alueadded wood products were eectiely banned, logs were one of theonly wood#sector products that could be imported. ogs enjoy alower tari and satisfy the general policy of shifting alue additionto India wheneer possible. While logs comprised a signi)cant 2@%percent3 portion of the alue of India0s wood product imports in9?$


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hardwoods that are perceied to be more resistant to termites and

decay. 8onsumers also hae a strong preference for dark tropical

woods. Teak is typically seen as a benchmark with respect to grade

and prices of other wood species.

Dajor imported wood species are teak, meranti, and mahogany.

:omestic farmed and plantation timber includes teak, eucalyptus,

and poplar, spruce, pine, and )r. India imports small *uantities of

temperate hardwoods such as ash, maple, cherry, oak, walnut, and

beech for commercial and home interiors and furniture, some of

which is made for eport. Wood imports are epected to continue

rising, but the moe away from logs and tropical woods will likely be

slow. (en as Indians become aware of foreign woods, the

perceied bene)ts of importing logs and the cost of foreign woodsare often cited as reasons for maintaining the status *uo.

6eertheless, India is a potential market for imported wood

products, including 4merican species, but eporters should be

prepared to start small and be patient.

/ising incomes and real estate deelopment are boosting demand

for imported hardwood and softwood lumber arieties for use in

building projects as interior decorating materials and furniture.

India0s smaller Ftier# twoG and Ftier#threeG cities are emerging

markets, with a growing housing supply and need for interiormaterials and furnishings. India0s )rst home stores hae opened

oer the past few years, introducing customers to new concepts in

home decoration. 6ew stores include ;omecentre, :urian, (ok,

;omestores, and ;ometown. (#business is also emerging as an

increasingly important marketing and distribution channel for both

raw wood materials and )nished wood products. India has an

estimated $9? million actie internet users and online retailing is

the fastest growing retail segment.

2.1.) *istriution:

@


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!or wood logs and lumber, wholesale markets remain the most

important distribution channel for medium or small#sized processors

and interior design companies. ;oweer, large construction projects

and manufacturers prefer to purchase directly from woodmanufacturers and importers. !inished consumer wood products

2Hoorings and furniture3 targeted at domestic markets are mainly

further distributed through professional building material markets

and specialized showrooms to urban consumers. India is

increasingly becoming a market where imported woods are

conerted to higher alue products such as furniture for eport.

Fi!ure 2: India"s total imports o# +o!s and $ood

%roducts y cate!ory


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2.1.) ,.S. $ood and $ood %roducts in India:

In 9?$


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otal 1' 11 2' '4)4 4)

Source: *irectorate 5eneral o# Forei!n rade6 (inistry o#

Commerce

2.1.4 ari7s:

Taris India has reduced taris on wood and wood products to

facilitate imports. India0s bound tari rate 2the highest tari India

can apply and still comply with its World Trade Jrganization

commitments3 for wood products is set at B? percent, while the

applied rates of most wood products range from % to $% percent.

India has traditionally kept taris low on log imports 2% percent3relatie to processed wood products in an eort to shift alue

addition 2domestically produced lumber from imported logs3 to India

and reduce haresting in India. :espite the preferential tari

structure, logs0 share of India0s forest product imports has been

declining oer the past decade. With the increase in real costs for

almost all the components of production, i.e. energy, resins,

chemicals, and transportation, saw mills are looking to more

processed woods or rough sawn lumber as options to sae on costs.

Fi!ure ): India"s total imports o# +o!s and $ood %roductsin 201) y country

$?


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2.1.8 (arket 9ccess:

Wood and wood products can be imported into India without

*uantitatie restrictions. Imports of logs, sawnKsized wood, and sawdust from pine species from the 5nited 'tates are prohibited due to

phytosanitary concerns. Imports of other wood species in log form

re*uire an import permit from the Dinistry of 4griculture, which has

speci)ed the import re*uirements in the FPlant Luarantine

2/egulation of Imports3 Jrder 9??


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2.2 Introduction to the Company

The company is engaged in the manufacturing of plywood,

laminates, eneer, D:!, blockboards, doors. It also engaged in the

container freight station 28!'3 business managing the 8!' at the

Nolkata port and has @ manufacturing units with total capacity of

9?=B9? cbm at the end of the !"$B. The segmental reenue for the

!"$B is as followsM

'egmental /eenue 2/s.incr3

!"$B

2O3

Plywood @=.@<@@.B


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!rom the aboe table, it can be inferred that plywood business

contributes majority of the reenues for the company.

,pdatesM

• 'etting up a green )eld particle board unit at the eisting

8hennai plant which will use wastage from other plants to

make particle board. The company epects the sales from this

facility going forward to be /s.$9% crore and the same would

be sold to the furniture factories leading to both forward and

backward integration 28ape of /s.C? crore during the current

)scal3

• 4lso setting up a plant in aos for manufacturing and sourcing

of raw material 2eneer3 at a cheaper rate to maintain the

logistical adantage to be fully operational by :ecember9?$%

• Dyanmar plant set up last year has bene)ted the company to

source semi#)nished timber 2eneer3 and has bene)ted from

the same since Dyanmar goernment has banned eport of

raw timber which is aecting the plywood manufacturers

apart from 8entury Plyboards

(ana!ement %lansM

• 8ompany plans to focus on the plywood growth post the >'T

period 2implementation3 and it is epected to bene)t the

organized players like 8entury since the indirect duty

structure would be abolished and consumers would shift to

the branded players

• Plans to set up initial processing plants outside India at

strategic locations like 4frica in order to set up plants closer

to the raw materials and source the semi#)nished timber at a

lower rate and maintain higher margins

• Danagement epects the topline to grow in the range of 99#9%O in the current )scal owing to the strong olume growth

in the plywood and laminates segment

• 8ompany plans to franchise


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ey FinancialsM

Consolidated Financials

2/s.in 8rores3

9?$B#$% 9?$


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,pdates:

:emerger of the decoratie business 2laminates and eneer

products surfacing materials3 into a separate listed entity to

be called >reenlam Industries

8ompany has bene)tted from its outsourcing of plywood and

plans to increase the proportion of outsourcing to


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driers and )nancial analysis and compare with its peers in

the industry.

'.2 +iterature


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Inestments, /eturn on (*uity, 8ore Working 8apital etc. that

talks whether the company is performing well.

c3 'tudy about the company pro)le in detail inoling mergers +ac*uisitions, collaborations, risk factors, patents, marketed

molecules and other operations.

d3 Inestor presentations and press releases from the company

website to plot the eent calendar.

'.' (ethodolo!y

The type of research conducted was fundamental analysis. The data

collected were from the following

a3 &.'.( websiteb3 Danagement Interiewsc3 8orporate presentationsd3 8ompany0s annual report

$@


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e3 Derger + 4c*uisitionf3 'hareholding patterng3 ;istorical Luotes and :atah3 /eenue Trends

i3 /atio

Chapter )

9nalysis & Findin!s

).1 Financial o# $ood Sector

ale 2: India"s otal Imports o# +o!s and $ood %roducts yCountry ,S> (illion/

%artnerCountry 200 200 2003 2010 2011 2012 201'

$


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Dyanmar


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Source: *irectorate 5eneral o# Forei!n rade6 (inistryo# Commerce

ale ): India"s Imports o# $ood %roducts Excludin! +o!s/ yCountry ,S> (illion/

9?

%artnerCountry 200 200 2003 2010 2011 2012 201'

Dyanmar


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Source: *irectorate 5eneral o# Forei!n rade6 (inistry o#

9$

%artnerCountry 2002002003201020112012201'

8hina BB %< %9 ? $C9 $ermany $@ 9$ $%


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Commerce

Figure 5: Growth of Logs vs. Non-Logs Imports

Figure 6: Share of Logs vs. Non-Logs Imports

99


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Chapter 4

Conclusions &


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4.2


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9@@EA,


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C. -ilio!raphy

9C

Research on Wood Sector

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