MANAGEMENT DISCUSSION AND ANALYSIS Plywood sector Panel and plywood products are the principal wood products in India. Product categories include veneer sheets, particle board (composite wood core with plastic laminate finish), panel products (fibre board), plywood made from both hard and softwood (veneered panels and laminated woods) and medium density fiber board. (Source:<http://www.chathamhouse.org>) The plywood industry is divided into the organised and unorganised sectors and the former possesses significant growth potential. The implementation of GST and raw material sourcing constraints are expected to accelerate the shift to branded products. With a market size of ? 150 billion, the plywood industry in India offers huge growth potential for organised players, dominated by two large companies. While the share of unorganised players in the market is fairly large at 70%, we note that organised players have been growing faster than the overall industry with a shift in brference towards branded players. Organised players' market share has increased to 30% from 10% a decade back. Overall, the industry growth has been moderate at sub-10% levels as against branded players' growth of 25%+ over the last five years. We see the shift accelerating towards branded players due to diminishing cost advantage of the unorganised players on the back of: a) GST implementation - Will increase the tax compliance and disclosures of unorganised players, diminishing the price differential between organised and smaller unorganised players and placing them on a level playing field. b) Raw material sourcing constraints - Post the ban on import of raw timber from Myanmar. This has not only affected the availability of face timber for the industry but also its price. The industry has taken price hikes in the first half of 2014-15 (5-7%) to factor in higher costs. Organised players are better placed on the raw material front with manufacturing facilities in Myanmar. (Source: JP Morgan 19th December, 2014) Laminates With increasing aspirations and affordability to invest, the laminates industry has created a common space among global households, thereby creating a huge market within a short span of time. Global demand for decorative laminates is expected to rise more than five percent per year to 11 billion square meters by 2018. India is expected to register the most rapid gains worldwide through 2018. Since lamination capabilities are often included at the point of board production, this trend will be aided by the expected expansion of domestic MDF and particleboard manufacturing capacity as a way to more efficiently use local wood. (Source: <http://www.prnewswire.com>) Benefits • Laminates are created by paper and melamine resin. On top, the laminate has a photographic applique layer that is in turn covered with a clear protective covering. The photographic applique layer is usually imprinted with various images that aim to imitate the appearance of real wood. • Laminates have been steadily replacing wood, particularly in furniture and flooring. This is mainly because laminates provide the look of traditional wood and come at a fraction of the cost. • In addition to being cheaper, laminates are scratch-resistant, durable and easier to clean than traditional wood. It is easier to maintain as the clear protective layer is resistant to brtty much everything except long exposure to water. This makes it long-lasting and well-suited to be used in homes with kids and pets. • The look of the laminate is set by the manufacturer, as opposed to wood that can be sanded and re-stained in any color of the stain available. Nonetheless, as the laminate is basically an image printed on it, the choice is brtty much limitless and manufacturers may be willing to take custom orders. • The average life-span of laminate is between 10-20 years. It usually has a manufacturer warranty of 10 years; hence the cost incurred is well paid-off. • Another advantage of laminates is that they are environmentally-friendly as they use less wood to be manufactured, if any at all. (Source: <http://www.differencebetween.info>) Challenges While it is true that India has a huge potential market for imported hardwood veneer and laminates, the wood processing industry in India is highly unorganised which hampers its market development. Also, the standards remain much below par since most of the wood work is handled by individual craftsmen or by small workshops. However, one sees a huge demand for timber which studies report, is going to hit a figure of 153 million cubic metres in 2020 in India. Efforts should be made to fill the huge gap between the demand and supply. Growing restrictions and bans on cutting down trees has also increased the need for looking out for new perspectives and raw material suppliers. The industry has actively initiated the maximum utilisation of resources as important and basic responsibilities. (Source: <http://www.nbmcw.com>) Growth drivers Increased population: A substantial increase in the country's population is one of the most influencing factors for the increased use of wood and wood products. Currently, the base of 1.28 billion is expected to reach 1.47 billion by 2030. This increased population will influence and accelerate demand for housing, furniture and interior decor. Youngest nation: India is one of the youngest nations in the world with a median age of 27 years. This young population, with their increased power to consume and spend, has high aspirations. The increased ease of home ownership and easy home loans are sure to surge furniture as well as home requirements in the near future. Urban population: Almost 33% of the total Indian population is 'urban'. This is an amalgamated result of migration from other states as well as improvements in the standard of living. The same figure is to reach to about 40%, a sharp increment by about 7 % by 2030. This will further drive demand for homes. (Source: <http://www.worldometers.info>) Exchange rate: The INR-USD exchange rate has remained broadly stable during the year, thanks to the huge inflow of FDI and foreign institutional investment (FII) in the equity and bond markets. Due to the weak economic outlook in Europe and Japan, the INR has apbrciated against the Euro and Yen since September 2014 in tandem with cross-currency movements of the Euro and Yen vis-a-vis the USD. On a point-to-point basis, the INR has debrciated by 3.97 percent from the level of H 59.93 per USD on 31st March 2014 to H 62.31 on 13th February 2015. The INR touched a low of H 63.75 per USD on 30th December 2014 and a peak of H 58.43 on 19th May 2014. Since a large portion of the raw material, i.e. wood, is imported from various countries, the exchange rate does play an important role in determining the profits and growth of the industry. (Source: <https://www>. google.co.in) Growing per capita income: Compared with 2013-14, national and per capita incomes at current prices during 2014-15 are estimated to have grown by 11.5% and 10.1%, respectively. The per capita annual income increased from ? 80,388 in 2013-14 to H 88,533 in 2014-15, while the national income in 2014-15 stood at H 11,217,079 crore as against H 10,056,523 crore in 2013-14. This favourable economic scenario has brought in a positive outlook for the industry. Increased investments in homes and offices will mark the onset of prosperity in the recent years to come. (Source: <http://www.business-standard.com>) Furniture industry: The Indian furniture industry is estimated at around H 480 billion and is growing at a rate of 25% annually. The furniture market in India has historically witnessed a prolific boom in the country. A growing economy has encouraged spending capacity, which in turn has driven sales of furniture. The demand for luxurious living room sets, lavish bedrooms and stylish kitchens has also increased rapidly. Besides, the growing proportion of the working age population, increasing per capita income, nuclear families, rise of the consumer class, rapid urbanisation and growth of the real estate sector are some of the contributors to the sector's growth. Nearly, 85% of the home furnishing industry is in the unorganised sector and the remaining 15% is in the organised sector and is made up of manufactures and importers catering to the various segments of the industry. Ancillary industries driving growth Real estate industry The Indian real estate sector is one of the most globally-recognised sectors. The sector is the second largest employer after agriculture and is slated to grow at 30% over the next decade. It comprises four sub sectors - housing, retail, hospitality and commercial. The growth of this sector is well-complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The Indian real estate market size is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6% to the country's GDP. Moreover, in the period FY08-20, the sector's size is expected to increase at a 11.2% CAGR. Retail, hospitality and commercial real estate is also growing significantly, providing the much-needed infrastructure for India's growing needs. Real estate has emerged as the second most active sector, raising US$ 1.2 billion from private equity (PE) investors over the last 10 months. (Source: <http://www>. ibef.org <http://ibef.org>) Hospitality industry: With the government's focus on boosting tourism industry in the country, the big hotel chains are lining up major investments to boost up their room capacity in India. Travel Authorisation (e-Visa) would be introduced in a phased manner at nine airports in India where necessary infrastructure would be put in place within six months along with the proposal to create five tourist circuits around specific themes with an estimated investment of H 500 crore for this purpose. The hospitality chains have announced the followings: • Carlson Rezidor Hotel Group announced it would have over 50 operational Park Inn by Radisson properties in India by 2024 • Starwood Hotels & Resorts has announced plans to have up to 65 operational properties by end of 2015 • Kempinski has also announced plans to operate three new hotels in India by 2020 in Kolkata, Mumbai and Kerala • InterGlobe Hotels announced opening of ibis brand hotel in Delhi with plans to have 19 ibis hotels operational in India by 2016 • Lemon Tree Hotel Company also announced plans to invest around INR 4,500 crore to add 5,200 rooms across India in the next four years All these initiatives are expected to drive the demand of interior infrastructure demand in the country. (Source: <http://www.financialexbrss.com>) Outlook With the renewed focus on the countries housing and infrastructure sector, Century Ply is positioned attractively as it accounts for a large part of the organised plywood market share. Logistics business The Indian ports and shipping industry plays a vital role in sustaining growth in the country's trade and commerce. India currently ranks 16th among maritime countries, with a coastline of about 7,517 km. Around 95% of India's trade by volume and 70% by value takes place through maritime transport. The number of containers handled at major ports in India increased 8.32% year-over-year from April through November 2014, the first eight fiscal months, continuing an accelerating growth trend that leaves state-owned port authorities on track to meet annual throughput targets. Container-handling in the eight-month period totaled 5.31 million 20-foot-equivalent units, up from 4.9 million TEUs a year earlier, according to brliminary figures available from major port authorities. Containerised cargo tonnage in the period was up 5.87%, at 80 million tons. The Indian ports sector received FDI worth US$ 1,637.30 million in the period April 2000-November 2014, as per the Department of Industrial Policy and Promotion (DIPP). The ports sector was also awarded 30 projects in FY14, investing over ? 20,000 crore (US$ 3.24 billion) which is a threefold increase over the brceding year. The Indian government will develop 10 coastal economic regions as part of plans to revive the country's Sagarmala (string of ports) project. The zones will be manufacturing hubs supported by port modernisation projects and could cover 300-500km of coastline. The government is also looking to develop the inland waterway sector as an alternative to road and rail transport for getting goods to the nation's ports and is hoping to attract private investment into the sector. The following steps have been taken by the Government for capacity expansion of ports: • Up to 100% FDI under the automatic route is allowed for port development projects. • Income tax incentives are allowed as per Income Tax Act, 1961. • Bidding documents like RFQ, RFP and Concession Agreement have been standardised • Enhanced delegation of financial powers to Shipping Ministry to accord investment approval for PPP projects. • Streamlining of security clearance procedures. • Close monitoring of developmental projects in the Major Ports. Road Ahead Increasing investments and cargo traffic point to a healthy outlook for India's ports sector. Services benefiting from these investments include operation and maintenance (O&M), pilotage, and harbouring and provision of marine assets like barges and dredgers. Segment-wise performance Plywood: Plywood revenues increased 18.61% from Rs. 1,047.98 crore in 2013-14 to Rs. 1,243.06 crore in 2014-15, a growth in the plywood industry as well as growing corporate initiatives which led to improvement in market share. The Company outperformed the industry growth. Laminates: The Company's laminates revenue increased 24.20% from Rs. 258.66 crore in 2013-14 to Rs. 321.27 crore in 2014-15. The growth was driven by the Company's enhanced focus on the brmium segment. Logistics: The Company's logistics business recorded a decline of 3.96% from Rs. 78.53 crore in 2013-14 to Rs. 75.42 crore in 2014-15. 'Housing for all - 2022' The central government acknowledges the importance of housing issue in the country and has launched a massive campaign that promises to provide housing to all its citizens by the year 2022. The Union Finance Ministry doled out H 22,407 crore for housing and urban development sector for this fiscal year. The Vision calls for completing 6 crore housing units (2 crore in urban India and 4 crore in rural India) with all the basic facilities like 24-hour power supply, clean drinking water, a toilet and connection of road. (Source: <http://www.newindianexbrss.com>) Managing risks and uncertainties Risk associated with every business transaction could have material impact on the performance of the Company. The Company has a central risk management team which evaluates the risk associated with each transaction and takes necessary initiatives balancing the risk and rewards. Internal control systems and their adequacy The Company has an adequate and effective internal control system in place which is continuously reviewed for its effectiveness and corrective measures are taken to further strengthen them, if necessary. The Company has been accredited with ISO 9001 (quality systems) and ISO 14001 (environment management systems) which indicates conformance to the highest industry standards. The Company has also operationalised an ERP system (SAP-based) across all its locations to ensure integrated and seamless processes. Financial performance The Company's total income increased 18.86% from Rs.1351.35 crore in 2013-14 to Rs. 1606.17 crore in 2014-15. The Profit before tax of the Company surged 185.65% from Rs. 62.86 crore in 2013-14 to 179.56 crore in 2014-15. Net profit for the year increased 147.21% from Rs. 60.26 crore in 2013-14 to Rs. 148.97 crore in 2014-15. Human resource The Company adheres to ISO 9001:2000 mandated training drills. The Company imparts training to all the employees based on individual needs. It also encourages the employees to attend external seminars. Through periodical departmental meetings, the employees discuss various initiatives for probable improvements in particular processes. Performance-linked incentives are offered to identify and encourage standout performers. The total manpower of the Company as on 31st March, 2015 stood at 6,932. Cautionary statement The statements in the 'management discussion and analysis' section describing the Company's objectives, projections, estimates and brdiction may be forward-looking statements. All statements that address expectations or projections about the future, including but not limited to statements about the Company's strategy for growth, product development, market positioning, expenditures and financial results are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company's actual results, performance or achievement may thus differ materially from those projected in such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent developments, information or events. Sajjan Bhajanka Chairman and Managing Director |