Hope price advantage enjoyed by unorganised manufacturers would diminish gradually
Plywood manufacturers in the organised sector expect the rollout of the goods and services tax (GST) to boost their sales in a market dominated by the unorganised sector. In the Rs 25,000-crore Indian plywood market, the unorganised sector has a market share of 60-65 per cent.
With the Centre favouring GST introduction from April 2016, the adoption of a uniform taxation regime through this reform may favour these players. Organised players in the segment include Greenply, Century Plywood, Kitply, National Plywood and Uniply Industries.
Keshav Kantamneni, chief executive of Uniply Industries, said the introduction of GST would result in “goods being taxed at every level, thereby creating a level playing field for the organised manufacturers, and would also make inferior-quality plywood less competitive”.
The price advantage enjoyed by unorganised manufacturers would diminish gradually, making high-quality plywood competitive, he said. Existing manufacturers pay 16 per cent excise duty and four per cent sales tax on their products.
According to the Federation of Indian Plywood & Panel Industry, lowering of excise duty to less than 10 per cent would force the unorganised plywood units to make excise payments regularly.
The Bengaluru-based Indian Plywood Industries Research & Training Institute also expects the rollout of GST to make things tough for the unorganised sector, as inferior-quality plywood would become less competitive. This would also lead to a reduction in the import of low-cost Chinese plywood in the coming years.
Plywood demand meanwhile is set to witness a jump owing to a rise in real estate demand and the Centre’s plan to establish smart cities and other urban infrastructure projects. As against 5-6 per cent growth seen last year, it is expected to clock double-digit growth in the current fiscal year.
Top producers, therefore, are expanding capacity and are increasingly looking to acquire manufacturing units in the northern and western regions, where the demand is anticipated to come from.
For instance, Uniply is targeting a nine-fold jump in turnover in the next five years, up from the Rs 172 crore in the last fiscal. Green Ply Industries is currently expanding its Rajasthan laminates factory plant, and is open to considering new investments in its plywood factories located at Kolkata and Nagaland.
Also, with labour costs going up in China, producers there are losing out to competition from India, Vietnam and Indonesia. This is helping Indian manufacturers to plan capacity additions and step out aggressively to source raw material, said Naresh Tiwari, president, North India Plywood Manufacturers Association.
The protracted slowdown in Chinese domestic plywood demand had resulted in companies there reducing capacity and some even shutting down their units due to the imposition of a ban on logging of high-quality wood in Myanmar, the source of the most-preferred wood.
As a result, low-cost producers in India are either sourcing veneers (facing layers) from established players or through imports, and binding them with rubber plantation wood, bamboo and other materials, which has poor durability.
The Supreme Court in 2000 had stopped the Union government from granting fresh licences to wood-based processing industries. Also, there is a domestic ban on logging, and most of the raw material is being procured from Africa, Vietnam, Laos and Papua New Guinea.