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MAK Plywood Industries Pvt Ltd Investment Memorandum

June 2015

Bangalore

© 2015 Rehbar Financial Consultants Private Limited

Table of Contents

I. Executive Summary .......................................................................................... 2

Investment Highlights

Financial Highlights

II. Company History ............................................................................................. 3

III. Factory Details.................................................................................................. 6

IV. Board of Directors ............................................................................................ 8

V. Management Team .......................................................................................... 9

VI. Industry Analysis ............................................................................................. 10

Porter’s five force analysis for Indian Plywood Industry

VII. Risk Analysis ................................................................................................... 12

VIII. SWOT Analysis ................................................................................................ 13

Strengths

Weaknesses

Opportunities

Threats

IX. Financial Summary .......................................................................................... 15

X. Appendix .......................................................................................................... 16

Historical Sales Data

Strategy and Implementation

Management’s Income Projection Statement

XI. About Rehbar Financial Consultants ............................................................. 20

Business Analysis & Deal Structuring

Due diligence

Control Systems

Comprehensive Solution

Network

Professional & Experienced Team

XII. Disclaimer ....................................................................................................... 23

MAK PLYWOOD INDUSTRIES PVT LTD - JUNE 2015 2

Executive Summary

MAK Plywood Industries Pvt Ltd is a part of MAK Group, headquartered in Mangalore with more than INR 150

crore of annual turnover. MAK Plywood Pvt Ltd is in the business of manufacture and trade of face veneer and

branded plywood since 1982. Trojan Plywood, the premium brand created by MAK Plywood Industries Pvt Ltd,

counts among the most respected brands of plywood in South India. Trojan’s plywood range is used in high end

cabinetry, fine furniture and exquisite interiors. The end clientele of the business include architects, interior designers

and home owners.

Currently they have 3 plywood brands under the banner of Trojan – the regular Trojan brand which accounts for 75%

of all sales is priced at Rs. 92 per sqft, Trojan Platinum priced at Rs. 105 per sqft accounts for 20% of the sales while

Trojan Signature priced at Rs. 130 per sqft accounts for the rest. They will be launching one more brand now – Trojan

Ultima (Rs. 80 per sqft) which will be have a lower price point compared to the other Trojan products.

The plywood production of the factory is branded and sold separately in the Western and Southern regions. The

company has taken a strategic decision to gradually move away from interest bearing debts (realizing that sharia does

not approve of interest bearing debt structures) and the current round of funding is the first step in this direction. The

marketing arm of the company for the South India region is raising Rs. 8 crore from investors to fund the working

capital requirements of the marketing and sales business of their flagship brand of plywood – Trojan Plywood. To

facilitate the investment in a structured manner, a separate Limited Liability Partnership will be created to take in the

investment. This LLP will be responsible for all the marketing and sales business of MAK Plywood in the South

region for which it will receive a 6.5% commission on sales. Another source of revenue for the LLP is the 6.5%

commission derived from sales of lower priced plywood brands whose manufacturing is outsourced to other factories.

Investment Highlights

Total Investment amount – Rs. 8 crore

Minimum Investment amount – Rs. 5 lakh

Investment tenure – 1 year

Investors’ profit sharing ratio in the company – 80%

Expected annual return on investment: 21.3%

Financial Highlights

Description Conservative

Scenario

Likely Scenario Management

Projections

Annual truck sales of Plywood No of trucks 720 840 960

Annual Commission earned Rs Crore 3.2 3.7 4.1

Bad debts Rs Crore 0.24 0.20 0.19

Selling expenses Rs Crore 1.22 1.40 1.59

Net profit Rs Crore 1.70 2.05 2.35

Investor's Return on Investment % 15.6% 21.3% 22.4%

INVESTORS ARE LIKELY

TO EARN A MONTHLY

PROFIT OF RS. 1.8 LAKH

FOR RS. 1 CRORE OF

INVESTMENT.


Company History

Please click the above video to view a short clip on the history of MAK Plywood Pvt Ltd

Mohammad Arabi K (MAK), hailing from Kumble, Kerala (border of Karnataka) had humble beginnings when he

started with a small sawmill – ‘National Wood Industries’ in 1982 in Kasargod. Looking at the high demand now

arising for plywood in the industry, he started a plywood manufacturing factory in 1989 in the name of ‘National

Boards’. Over the next two decades, he began to expand the manufacturing capacity by setting up more manufacturing

factories – Universal Industries, Kumble in 1989, Uniwoods, Kumble in 1992, Wood Crafts, Kumble in 1992,

Darwesh, Kumble in 1993, National Wood Products, Kunjthur in 1994, Mailatty Wood Industries, Kasargod in 1996,

MAK Plywood Industries, Coimbatore in 2000, Best Wood Industries, Cochin in 2004 and Pioneer Plywood

Industries, Coimbatore in 2011. He also started a resin manufacturing company in 1993 in the name of ‘Bharat

Chemicals’, Kumble, the end product of which was used both for his factory and available for sale for the other

plywood manufacturing companies. They were doing business in a lot of brands earlier and decided to consolidate in

2000 and work in only 4 chosen brands – MAK Ply, Nature Ply, Omega Ply and Cosmo Ply. In 2007, they decided to

go with a single brand all over India and that is when ‘Trojan’ was conceptualized. He started dabbling in the export

market in 1992 and continued till 1999. The peak time for the Plywood business for MAK Group was from 1992-99

during which time they would have 70-80 trucks per month of local sales and 30-40 containers per month of exports.

In 1999, the company faced a lot of problem from the labor union because of which they had to close down some of

their manufacturing units. Due to this problem, the export business also came to a halt. The main export market for

him was Gulf, specifically Dubai. In 2003, he re-started the export business and set up a trading company in Dubai in

the name of ‘Arab MAK Plywood’ which was closed in 2009 due to the severe recession in Dubai. From 2007 to 2011,

the entire manufacturing for ‘Trojan’ brand of plywood was done at MAK Plywood Industries. By 2011, he

consolidated all the manufacturing operations also into one entity – MAK Plywood Industries Pvt Ltd, Kunjathur

https://www.youtube.com/watch?v=FLwqfIct-CM&feature=youtube_gdata_player


shifting the entire manufacturing for Trojan brand to this new manufacturing unit which was made with the latest

technology and strategic location, close to the Mangalore port (30 km from the port) to optimize transportation costs

(since the Gurjan material imported from Myanmar is received at the Mangalore port) while retaining only two entities

as separate from all the initial ventures – ‘Best Wood Industries’ and ‘Pioneer Plywood Industries’. The earlier factory

in Coimbatore, MAK Plywood Industries was about 250 km away from the nearest port and hence the transportation

of Gurjan which is one of the most important raw material for the Trojan brand was proving to be very high. The

reason for retaining these two entities was that there was a demand for the initial 4 brands from the dealers and hence

they decided to continue with these brands to cater to the existing demand for them. Gurjan, which is a crucial raw

material of the final plywood manufactured by them, was imported from Myanmar. In 2014, the Myanmar government

banned the export of Gurjan timber. To overcome this problem, which they had already anticipated, they set up a

manufacturing unit in Myanmar in 2013 so that the manufactured veneer could then be imported to India to be then

used for the plywood manufacturing. They are one among 13 Indian manufacturers who have been able to successfully

set up the manufacturing plant in Myanmar and this gives them a strong competitive edge. As on date, the MAK

Group manufactures and sells 150 trucks across the three existing factories. The capacity in the Kunjathur factory

which is the sole supplier of the ‘Trojan’ branded plywood will be enhanced to 140 trucks from the earlier capacity of

90 trucks from Feb-15; the plant investment has already been done.

The market share of premium plywood material such as Trojan is only 25% while the remaining 75% of the market

share is captured by the medium to low price range products. In order to capture a portion from this large market

which ‘Trojan’ is unable to tap, they introduced a medium price range product in the name of ‘Troygold’ in 2014.

‘Pioneer’ factory, Coimbatore is used for the production of this product alongside the 4 other old brands.

The factories of Cochin and Coimbatore produce the 4 other brands which are sold mostly in Kerela and Tamil Nadu

by the factory itself. These are products which fall under the medium price range unlike Trojan which is a premium

quality brand. Currently, the production cum sale from these two factories is 60-70 trucks per month including

Troygold.

MAK Group ventured in the field of construction in 1995. Till date, they have completed 12 projects in residential,

commercial and mall segments totaling a built up area 10,00,000 sqft so far. Currently, there are 3 projects under

construction with a built up area of 4,00,000 sqft.

Trojan brand was started in 2007 with the intention to have a single premium brand across the country. The plywood

industry in India had been largely a commodity industry. In the late 90s, with the introduction of big brands such as

Greenply and Centuryply, the industry witnessed a transformation where it was no more an industry selling mere

commodity products. The brands were able to attract good premiums and were able to establish a strong brand recall

value among the potential customers. In this environment, MAK Group realized that the future of the industry is in

the branded segment. Thus, they made a conscious effort to shift from an unbranded manufacturing entity to a

premium brand manufacturing and marketing company. ‘Trojan’ brand was created to facilitate this transition. Since

then, huge investments were made by the MAK Group in building this brand which includes establishing teams and

offices across South India dedicated solely towards promoting and marketing the brand of ‘Trojan’.

The first step which was taken to support the brand was the overhaul of the factory which included upgradation of

the manufacturing facility and setting a professional production team at the plant. Initially, the factory at Coimbatore,

MAK Plywood Industries was being used for the production of this product. The entire machinery in the factory was

upgraded with the old machinery being replaced by new machinery. A professional production team was hired in the

factory which ensured that the production quality could be brought up to the standards of a premium quality product.


The first marketing and sales office was opened in Mangalore in June 2008 itself and this was immediately followed

with opening of marketing offices in Bangalore and Chennai in the same year. They also invested heavily in a massive

marketing campaign through hoardings, wall paintings, in-shop brandings, etc to create the brand awareness.

Until 2011, when the scope of sales for the Trojan product was limited to South India, mainly Karnataka and Tamil

Nadu, the production capacity of 60 trucks per month from MAK Plywood Industries, Coimbatore was sufficient to

cater to the existing demand. In fact, the same factory was also being used to produce the other products as well.

However, in 2011, a conscious strategic decision was made to go beyond the existing markets and explore the markets

in Andhra Pradesh, Maharashtra, Gujarat and MP for which there was a necessity to significantly ramp up the

production capacity as well as upgrade the quality and consistency of the product. In lieu of this, the Coimbatore

factory was closed and a new factory was installed in Kunjathur near Mangalore (strategically located close to the port

to reduce the transportation costs of the imported raw materials) with a state of the art machinery which included

double pressing (pre-press) technology (after Century, this is the only other factory in the entire South India to host

such an advanced technology) and a production capacity of 90 trucks per month, in the name of MAK Plywood

Industries Pvt Ltd.

Alongside the ramp up on the production side, the group which was, as any other family business, managed primarily

by the family members took a strategic decision to move towards a more professional organizational structure where

the execution was handed over to highly experienced professionals from the industry while the overall company

policies and performance was monitored by the family. This ensured an optimum blend of professionalism in

execution and adherence to long term company vision with minimal agency problems.

In 2012, as planned, marketing offices were opened in Bombay and Cochin. They also started placing marketing teams

in important strategic areas such as Pune, Hubli, Madurai and Visakhapatnam in the same year. In 2013, two more

marketing offices were started in Hyderabad and Coimbatore.

Current factory production is 90 trucks a month. Average utilization of the South zone marketing office (comprising

of Karnataka, TN, AP, Telangana and Kerela) has been about 60 trucks per month while that of West zone

(comprising of Maharashtra, Gujarat, Rajasthan and Southern MP) has been 25 trucks. Due to this scenario, the factory

capacity was running at almost its complete utilization and hence the expansion was done to support the expected

growth in the sales.


Factory Details

Please click the above video to view a short clip on the Trojan factory production processes

We visited the main factory in Kunjathur (near Mangalore) which manufactures the entire plywood requirement for

Trojan brand. In very rare cases, they can also source the Trojan brand plywood from the Coimbatore factory (got

about 3-4 trucks from the Coimbatore factory in the last whole year).

A plywood has three components in it – face veneer (which is always made of Gurjan timber) is imported from

Myanmar for Trojan products. Earlier, they used to import Gurjan timber from Myanmar but lately the import has

been banned by the Myanmar government. They have set up a factory in Myanmar for manufacture of face veneer

and core veneer from Gurjan timber there. This face veneer is then imported to India where it is used in-house or

sold to other factories. The signature brand is completely made of Gurjan while the platinum brand has 50% Gurjan

and the rest is Redgum and the normal Trojan brand uses Gurjan veneer only for the face veneer. The expected

monthly production of the face veneer at the Myanmar factory is 50 containers which is much higher than their in-

house requirement. It is imported at their Cochin factory (close to port) and Gandhidam, both hubs for the plywood

production in India. They have large warehouses at both these locations for storing all the product and from here, it

is distributed to various regions. Apart from the face veneer, the Myanmar factory also produces 20 containers of

Gurjan core veneer which is completely utilized for the in-house production of the premium brands of Trojan plywood.

They have a separate peeling unit for the Gurjan timber even in their factory (the timber for which is imported from

Vietnam).

Face core veneer is the second item that goes into the plywood – this is the sheet just below the face veneer – several

small pieces perpendicular to one long face veneer. This has to be smooth and uniform for a good final look. For

https://www.youtube.com/watch?v=S-tOAuCxIvI


Platinum and Signature brands, the Gurjan itself is used for face core veneer. In the Trojan brand, most of the times

the Redgum (Eucalyptus) is used for face core, sometimes Neem and Tulip are brought for production of these

exclusively. The Neem is bought from Mysore but it is not easy to procure this. Tulip is bought from South America

aain exclusively for face core veneer. This is the major raw material constraint which the factory faces most of the

times. It is difficult to get the Tulip in the winter season – Dec and Jan. This has to be planned very well in advance,

since it takes about 2 months for the shipment of Tulip to reach the factory. Proper planning of the raw material is

the key to ensure the availability of this raw material. A lot of times, the face core sheets are purchased from outside

– from Kerela, Lucknow etc.

The Eucalyptus (mostly Redgum) core is scarce during Oct and Nov of every year since the Cauvery water is released

in these months and farmers avoid cutting during these times due to logistic issues. The entire Redgum is bought from

the areas in and around Mysore, directly from farmers or through some agents. They have also set-up a peeling factory

(2 peeling machines) in Mysore about a year back whose production capacity per month is 45 trucks. In fact, one of

the peeling machines is not being used now since there is an over-capacity of peeling in the factory already. There are

3 peeling machines for 4 ft veneers and 1 peeling machine for 8 ft veneer (used for face veneer and otherwise). Each

peeling machine can manufacture 1 truck of plywood per shift (12 hrs). Currently they are using the peeling machines

for one shift only again due to over-capacity. Drying machines – 8 chambers two (one of which started only a month

back) and 4 chambers two (of which one is dedicated for face veneer) – this is operated for 24 hrs – 5 trucks per day

of core plywood capacity. This seems to be a capacity constraint as of now – only 130 trucks per month capacity.

Next is assembly work which is the most labor intensive work – 2 shifts of 12 hrs – all of these are contract workers

paid on piece-work basis. There are a total of 70 people working in this – 35 in each shift – most of them from Orissa.

Sunday is only for maintenance - no production on Sundays. One table has 4 people – one table can make 100 plywood

sheets in a shift of 12 hours which means 3 tables make 1 truck per shift. They have around 8 tables for assembling

implying 150 trucks capacity in a month. Sometimes, there is a labor shortage, especially during the 2-3 festival months.

Next process in line is the Cold press for which they have 1 machine which has a capacity for 1500 sheets per day that

is 5 trucks per day. After this, the material is sent to hot press. The factory has 2 machines for hot press (one is just

getting commissioned). The new press does not have the auto loading and unloading system. Hence, capacity for the

old one is 90 trucks per month while that of new is only 50 trucks per month.

Boiler is used for heating the oil which is used for heating purposes for drying and hot press. They have one boiler

right now and one more will be installed in a month’s time. The new hot press and the new dryer can be used only

after get this new boiler.

Resin plant has one kettle which implies a capacity of about 7500 kg of resin production per day implying a capacity

for 4 trucks in a day which implies 120 trucks in a month. It is very easy to increase the capacity but just installing one

more kettle (for which there is sufficient space in the chemical plant).


Board of Directors

Muhammad Arabi Kumble (Chairman & Managing Director)

Abdul Muneer (Director)

Mohiyuddin Ashfaq (Director)

Sarfraz T (Director)

Mr Mohiyuddin Ashfaq is Director – Marketing and will be the Managing Partner

of the LLP which will take in the investment. He has done his BBM from

Mangalore University. He has 9 years of factory experience managing factories in

Kunjathur, Coimbatore and Cochin for MAK Plywood Pvt Ltd. Since 2009, he

has been heading the marketing of South Region which has witnessed a healthy

CAGR of 20% under his leadership. He has been successful in increasing brand

awareness of the Trojan brand through a variety of branding. He has taken

strategic steps to bring professionalization into the organization through hiring

professional management, implementing ERP and training programs for the staff.

Mr. Abdul Muneer, aged 37 years, son of the Chairman, is a Director at MAK

Plywood Pvt Ltd. He did Management of Business Administration from Christ

College, Bangalore in 2000. Since then, he has been involved in the management

of plywood manufacturing at the factory and overlooking the marketing efforts.

Since 2010, he has been heading the infrastructure and real estate arm of MAK

Group – MAK Infra Realty. MAK Infra Realty, under his leadership has executed

some landmark residential and commercial projects across Bangalore, Mangalore

and Kerela. He envisions taking MAK Infra Realty to be among the top five real

estate developers in Karnataka by the year 2020.

Muhammad Arabi Kumble, aged 64 years, is the founder of the MAK Group of

Companies and Chairman and Managing Director of MAK Plywood Industries

Pvt Ltd. He started plywood manufacturing in 1989 under the banner of National

Boards in Kumble. In the year 1992, he turned the company into a multi-national

entity by starting exports. In 2007, in keeping with the industry trend of moving

from commodity to banded marketing, he made the bold move of launching the

Trojan brand. Apart from the building material industry, MAK group also operates

in the construction industry and has successfully completed many commercial and

residential projects in Kerala and Karnataka.

Mr. Sarfraz T, aged 41 years, is a Director at MAK Plywood Pvt Ltd. He has 8

years of experience working with Honeywell India before he joined MAK Group

in 2005. He headed the infrastructure vertical of MAK Group for 5 years initially

and since 2011, he has been involved in the plywood marketing and production

business. He is currently managing the Myanmar factory which is one of the 13

manufacturing units set up by Indian companies in Myanmar. He also overlooks

the marketing operations for the sale of Trojan Ply in the West India region. He

has been very instrumental in taking MAK Plywood Industries Pvt Ltd to the

position of a leading supplier of face veneer in India.


Management Team

Sundaram Subramaniam (VP Sales and Marketing)

Mr. Satish Chandran P (GM Production)

Mr. Sathish Chandran aged 50 years, completed his Diploma in Mechanical Engineering from ITI Kannur in 1985.

He has over 25 years of production experience with top industry players such as Mysore Panels and Boards(1986-

1998), Century Plyboards (2001-2007) and Kitply Industries, Assam (2007-2009).

S Krishnamurthy (GM Technical)

Mr. S. Krishnamurthy aged 54 years, is the GM (Technical) of MAK Plywood Industries Pvt Ltd since Nov 2011. He

holds a Masters Degree in Chemistry from Sri Venkateswara University. He has rich experience in resin technology,

quality control and process control. He was also associated with Veneers Mills, Archid Ply Ltd. and Century Ply Boards.

Mrs. CV Jessie (GM Admin)

Mrs. C.V. Jessie aged 51, did BA from RV College of Engineering. She has over 25 years of administrative experience

within the plywood industry. Prior to joining MAK, she worked with Kitply Industries (until 2008).

Raashid Sherif (GM Human Resources)

Mr. Raashid Sherif aged 28, completed B.Com from Baldwins Methodist College, Bangalore and did PGDM-HR,

IMT Ghaziabad (2011-13). After working as CEO of an Islamic finance institution for one year, he joined MAK.

James Rappai (Regional Manager)

Mr. James Rappai aged 45 is the Regional Manager (Kerala & Madurai) of MAK Plywood Industries Pvt Ltd. A

Bachelor in Arts (Madras University), he has over 20 years of experience working with Mayur Ply, Vam Organic

Chemicals, Kores India Limited and Jubilant Organosys and Shri Bajrang Ispat & Plywood Ltd.

Manikantan Arjunan (Regional Manager)

Mr. Manikantan A aged 39 is the Regional Head (Bangalore & Rayalasema) of the company. A Bachelor in Arts (St

Josephs College, Bangalore), he has over 15 years of experience in the high pressure paper based decorative industry

and engineered wood panel (plywood) industry with market leaders.

Chandrashekhar Iyer (Regional Manager)

Mr. Iyer, aged 46 is the Regional Manager (Chennai & AP/TS) of the company. An MBA from University of Pune,

he has over 23 years of experience in the building materials industry and has served with reputed organizations like

Bell Ceramics Limited, Century Plyboards India Limited, Elementto Paints & Wall Papers Pvt Ltd and Innovar Floors.

Mr. Subramaniam S, aged 46 years, is Vice President – Sales & Marketing of MAK

Plywood Pvt Ltd. He holds a degree in Bachelors of Science (Physics) and Masters

Diploma in Business Administration (Services & Marketing Management). He has

an experience of about 25 years in the field of sales and marketing of engineered

wood panels and surface decorative products in various geographic markets. He

joined the Company in July 2012, prior to which he was employed with Shirdi

Industries Limited as Deputy General Manager – South Zone. His experience also

includes Century Plyboard (I) Limited as Assistant General Manager (2002 – 2008)

and Novopan Industries Limited (1992 – 2002).


Industry Analysis

The share of the organized players has been increasing across all the building materials sector and plywood is no

exception to this. The share of the organized players was 20% in FY11 which has grown to 30% in FY-14 and is

expected to increase to 50% by FY-20. This bodes well for established brands in the market such as Green ply, Century

ply and in our case, Trojan Ply. The organized plywood market is highly concentrated with only 5 players constituting

63% of the total organized market. Of this, 50% of the market is shared by the two largest players – Century Ply and

Green Ply. The unorganized market, on the other hand is highly fragmented and enjoys excise wavers and other

benefits due to their small scale industry status. However, rationalization of excise duty and VAT across India helped

the organized players to take some of the market share of the unorganized players. Other factors which are in favor

of the organized market are the Myanmar’s ban on the timber export, increased brand consciousness among the

customers and the much awaited implementation of the GST.

There are three qualities of products in the plywood industry and the Indian market has primarily been dominated by

the medium and low quality categories. Traditionally, the premium segment has been catered to by the organized

sector while the next two categories is mainly served by the unorganized industry players. However, this trend has

been shifting with greater urbanization and rising middle class creating more space for the organized sector even in

the lower quality markets. A large unorganized market at present can be seen as a huge opportunity for organized

players to capture a bigger market share in times to come.

Myanmar has some of Asia's largest remaining expanses of forests, from the slopes of the Himalayan foothills in the

north to steamy rainforests in the south. Myanmar was the only country to export raw teak logs from natural forests

rather than plantations. However, the forest cover shrank almost a fifth, to 47% of land area in 2010, from 58% in

1990, according to Myanmar Forestry Ministry data. Therefore, the country banned the export of raw timber logs

from April 1, 2014. Though a new law prohibited the export of all raw tree logs, it did not stop firms from processing

timber in the country and exporting it. Hence, probably the main intention of the ban on raw timber logs was to create

more jobs internally for Burmese citizens as prior to the ban the Myanmar Investment Commission (MIC) started

giving licenses from December, 2013 itself to build wood processing factories in the country. Myanmar’s ban on

timber export put Indian plywood players at a huge disadvantage as they were heavily dependent on Myanmar for raw

timber. Consequently, Trojan Ply along with big players such as Century Ply boards and Green ply Industries have

started to build factories in an industrial zone in Dagon, Rangoon to bring face veneer to India. Now, unorganized

F Y - 1 1 F Y - 1 4 F Y - 2 0 E

20%30%

50%

80%70%

50%

ORGANIZED PLYWOOD SECTOR

Organized Sector Unorganized sector


and small players are heavily dependent on these companies for procurement of face veneer in addition to raw material

procurement from other countries like Vietnam, Indonesia, Thailand, Germany, etc.

Currently, unorganized players enjoy excise waivers and other benefits due to their small scale industries (SSI) status

and clandestine sales. Thus, the inequitable indirect duty structure provides a huge price advantage to unorganized

players over organized players. Following the proposed implementation of GST, this large indirect tax differential is

expected to narrow down, bringing organized and unorganized players on an even tax platform. GST will address the

complexities and inefficiencies of the current indirect tax framework through a robust technology platform. Post GST,

clandestine business will become almost impossible. GST will address double taxation, cascading effects and regional

disparities in tax rates.

There have been some unfounded fears in the plywood market that the plywood might get substituted with MDF.

Medium-density fibreboard (MDF) (substitute for cheap plywood) is an engineered panel product manufactured by

breaking down hardwood or softwood residuals into wood fibres, combining it with wax and a resin binder. Being

manufactured from 100% agro-forestry timber, it is also eco-friendly and an ideal substitute for solid timber and other

non ecofriendly panels. It has superior properties of bonding, edge cutting and moisture resistance, making it a perfect

substitute for cheap plywood. MDF is mainly used for indoor furniture, windows, doors frames, handicraft items,

display stands, ceilings, carvings, partitions, etc. The material is widely used by furniture manufacturers since it is

directly comparable with cheap plywood in terms of pricing with better quality.

MDF forms 64% of total panel products globally against less than 3.5% in India. Plywood currently accounts for

~95% of the panel industry in India, as housing furniture accounts for most of the demand for timber products in

India. The growth in the MDF segment has remained very subdued in the last few years. The MDF segment has

grown at a meagre 5% CAGR from | 3,000 crore in FY11 to | 3,500 crore in FY14. The subdued growth has been

largely due to low acceptance level of MDF on part of Indian consumers. An affinity towards plywood, non-durable

& non-water resistant nature of MDF, standard size of MDF (8*4) leading to greater wastage and lack of skilled labors

to handle MDF are a few reasons for the low acceptance level of MDF in the Indian market.

Porter’s five force analysis for Indian Plywood Industry

Based on the above industry analysis, we can summarize the five forces for the Plywood industry as follows:

Rivalry among existing competitors – High to moderate

Bargaining power of suppliers – Moderate (The raw material required for plywood manufacturing is

abundantly available except for face timber, which is largely imported from Myanmar.)

Threat from substitutes – Low to moderate

Bargaining power of buyers – High to moderate

Barriers to entry – High to moderate (The business is also protected by the entry of fresh players on account

of the long gestation period needed to break even, limited availability of face veneer, brand recall and

distribution reach enjoyed by organized players, large investment in branding and thin margins)


Risk Analysis

S.No Risk description Risk Mitigation steps

1 Macro-economic reasons – primarily the downturn in the construction industry.

Diversification of the products and introduction of lower end products to ensure lower correlation to the downturn in construction industry.

2 Lower secondary sales – lower leads/sales from the in-house marketing team due to inefficiency creeping in the team.

Effective incentive schemes were launched recently to encourage high performance.

Conscious churning of the bottom 10% performers in the marketing team.

3 Customers switching their brand loyalty Incentivization schemes in place to attract and retain the influencers such as architects/carpenter/contractors in the industry.

4 Lower primary sales – dealers start giving preference to other plywood brands.

Dealer incentivization schemes such as TOD (turn over discount) in place.

5 Mismatch in the values and mindset of new entrants compared to the corporate culture of Trojan – this risk magnifies especially owing to the conscious churning policy of the company

1 month of compulsory training to all new joinees to get them accustomed to the new corporate culture.

6 Difficulty in timely procurement of raw material for the factory.

Scarcity in the future raw material availability is predicted before-hand and the material is stocked sufficiently to address the same.

7 Bad debts – customers defaulting or delaying the payments.

Stringent procedures and policies in place to appoint the right dealers. Security cheques are taken from the dealers at the time of appointment. Credit policies have been tightened lately.

8 Important personnel leaving the company. Decentralization of work. Operations are getting more process driven rather than personnel driven. Sufficient bonus and salary increments done to retain the top personnel.

9 Entire production for Trojan comes from a single factory. Any untoward incident in the factory such as labor unrest or mal-function of important machinery will impact the sales significantly.

Production capacity is much higher than the requirement. A back-up production facility is available in Coimbatore in case of a break-down in the main factory.

10 Quality failure in the production will lead to

sales returns, thus impacting the total sales

realization.

Recently appointed a quality expert in the factory (on

the pay-roll of the marketing firm) to ensure quality

consistency.


SWOT Analysis

Strengths

Strong experience: Backed by 33 years of industry experience

Strong quality control: Owing to complete in-house production; no production is outsourced.

Strong raw material sourcing: One of the only 13 Indian plywood manufacturers to have factories in

Myanmar ensuring uninterrupted supply of major raw material (Gurjan)

Operating in lesser volatile markets: Unlike NCR and Mumbai where the real estate market volatility is high

exposing the plywood industry to immense fluctuations, Trojan operates in much lesser volatile South region.

Experienced management team: Management team with more than 100 years of marketing experience.

Good labor practices: such as maintaining diversity among the labor (very few locals), OHSAS certified

implying excellent employee welfare practices.

Strong systems and processes: Increased management efficiency owing to effective policies and systems such

as CRM in practice.

Best industry certifications: BIS, ISO, FSC, OHSAS for consistency in quality and best industry practices.

Weaknesses

Dependence on the factory: Entire procurement of finished products is from the in-house factory.

Lower diversification in product portfolio: Unlike the larger plywood companies where the product basket

includes laminates, veneers, prelam boards which are higher margin products thus compensating for lower

margins in plywood, Trojan lacks such a diversification.

Logistics problems: Single production but multi-state marketing operations leads to logistics issues which

ultimately also leads to lower turnover for the distant markets.

Lack of a strong value proposition vis-à-vis established brands: Difficulty in shifting loyalty from existing

brands due to this.

Opportunities

Exploring raw material sourcing tie-ups in Vietnam: Are in the process of getting into tie-ups with Eucalyptus

production factories in Vietnam.

Potential to grow: Lot of unrepresented regions where the company plans to expand into along with

increasing market penetration in the existing markets.

Diversifying the product portfolio: Launching lower price range products such as Troygold Star and Trojan

Ultima and specialized products such as calibrated plywood.

Factory automation: Factory is in the process of automation which will result in a greater product quality

consistency and lower labor dependency.

Threats

Real estate slowdown: Strong correlation to the performance of real estate/construction engineering implies

a slowdown in the plywood sales due to correction in the real estate industry.

Labor intensive production: Labor intensive processes at factory means that they are vulnerable to risks from

labor unrests etc.

Raw material price fluctuations: Timber prices are volatile in nature exposing the industry to volatile margins.

Influx of local brands: Local brands get aggressive with prices and branding exercises to challenge the

established brands.


Growth of substitute products: Products such as MDF and particle boards have been expanding their market

share in the furniture segment.

Stringent environment laws: Increased environment consciousness and green campaigns are a threat to the

raw material procurement.


Financial Summary

The average monthly plywood sales in FY-15 were about 52 trucks – 45 trucks from factory production and 7 trucks

from the outsourced manufacturers. The historical sales figures are given in the appendix while the projections for

the sales in the next fiscal are mentioned in the table below. The sales from the factory production are expected to

increase from 45 trucks to about 55 trucks in FY-16. The reasons for this increase are explained in the sections on

‘Strategy & Implementation’ and ‘Management’s Income Projection’. A major driver for this expected growth is the

removal of the bottleneck of production capacity constraint at the factory through the capacity expansion from 90

trucks per month to 150 trucks per month (some of the production is also sent to the West India business).

Projected Business Profits in FY 16

Area

Units Conservative Likely Management

Projections

Factory Production - Trojan Plywood

Expected annual truck sales No of trucks 600 660 720

Sales realization per truck INR lakh 7.0 7.0 7.0

Total annual sales proceeds INR crore 42 46 50

Commission on the sales % 6.5% 6.5% 6.5%

Commissions received in a year INR crore 2.7 3.0 3.3

Outsourced Production - Troygold etc

Expected annual truck sales No of trucks 120 180 240

Sales realization per truck INR lakh 5.5 5.5 5.5

Total annual sales proceeds INR crore 6.6 9.9 13.2

Commission on the sales % 6.5% 6.5% 6.5%

Commissions received in a year INR crore 0.4 0.6 0.9

Cumulative Financials

Total annual commission earned INR crore 3.2 3.6 4.1

Expected percentage of Bad debts % 0.5% 0.35% 0.30%

Annual Bad debts INR crore 0.24 0.20 0.19

Selling expenses (salaries, travel expenses etc)* INR crore 1.2 1.4 1.6

Net profit INR crore 1.70 2.05 2.35

Investor's profit sharing ratio % 80% 80% 80%

Annual profit to the investors INR crore 1.36 1.64 1.88

Average credit cycle months 2.5 2 2

Working capital requirement INR crore 8.8 7.7 8.4

INVESTOR'S ANNUAL RETURN ON INVESTMENT % 15.6% 21.3% 22.4%

* Selling expenses will include salaries, bonus/incentives travel expenses and mobile expenses of sales executives and

ASMs only


Appendix

Historical Sales Data

Area FY-13 FY-14 FY-15

Plywood truck sales from factory production – Trojan Plywood

Kerala 5.12 5.45 7.53

Hubli 2.70 3.71 3.85

Coimbatore 7.53 8.74 9.42

Bangalore 9.23 10.81 11.00

Andhra 3.92 4.54 5.54

Chennai 3.08 1.36 2.47

Madurai 5.00 7.00 4.73

Total Sales from factory 36.58 41.61 44.52

Plywood truck sales from outsourced manufacturing – Troygold etc

Kerala 0.01 0.27

Hubli 0.57 1.27

Coimbatore 0.20 0.60

Bangalore 3.28 2.34

Andhra 0.38 0.84

Chennai 1.37 2.35

Total Sales from outsourcing 2.70 5.81 7.66

TOTAL PLYWOOD SALES 39.28 47.41 52.18

Strategy and Implementation

The company has consolidated operations at Kunjathur and Coimbatore for manufacturing. Their marketing

operations are in place in all the four southern states and the branches have been organized as below for focused

working.

a. Bangalore & Rayalaseema.

b. Hubli and North Karnataka.

c. Chennai along with Telangana and Rest of AP (excluding Rayalaseema)

d. Coimbatore.

e. Kerala and Madurai.

Experienced management

The management team has requisite mix of having academic backgrounds from the wood based panel product industry,

business management, commerce, human relations etc. They hold qualifications in engineering, chemical engineering,

business management, finance and accounting.


In addition, the management team has considerable relevant experience in the wood based panel products industry,

with the Promoters having extensive knowledge and around 30 plus years of experience in connection with the

sourcing and manufacturing of plywood and block board. The vision and foresight of the management enables the

company to explore and seize new opportunities and accordingly position themselves to introduce new products to

capitalize on the growth opportunities in the wood based panels sector.

Cost efficient sourcing and locational advantage

The company’s cost efficient manufacturing and supply chain management results in a significant reduction in their

operational costs. The key raw materials for the manufacture of the products are timber and resins. The location of

their current manufacturing facilities gives them a significant competitive cost advantage in terms sourcing our raw

material and manufacturing. Their investment in a unit in Myanmar and Malavalli ensures sufficient and uninterrupted

supply of raw material.

Capacity expansion for enhancing manufacturing capabilities

Since the consolidation and commissioning of the plant at Kunjathur, the Company has steadily looked at expanding

its manufacturing facilities and capacities in regular periodical intervals and in planned phases, to keep abreast with

the growing demand for plywood products. In the current calendar year, the Company has implemented the second

phase of its expansion and diversification program at its manufacturing facilities in both Kunjathur and Coimbatore.

Introduction of Products & Brands

Besides manufacturing Trojan Plywood and Block Board, the company has started promoting Trojan Signature and

Trojan Platinum with reasonable success. Troy Gold has been introduced to cater to the value for money segment,

which is about 45% of the plywood industry. With the expansion at the Kunjathur unit, they will be producing Trojan

Ultima, Trojan Calibrated Plywood and Trojan CSFF to add to their existing range. This will give more pocket share

from the same customer. They also plan to introduce doors by the second quarter of 2015. CSFF will get them an

entry in a project at the initial stages during construction, with doors and plywood providing support later.

Strengthen the brand value and create awareness for the products

Since 2008, the Company has been marketing the products manufactured under the brand name of 'Trojan'. Although

relatively new in the plywood industry, the brand has steadily gained recognition among consumers which is reflected

by a continued volume growth in the sales figures over the course of the last three financial years. The Company is

expected to continue to further strengthen the position of their brand and to create awareness for their products

through a variety of aggressive brand promotion exercises in the media. In this regard, they have participated in all

local exhibitions held in Kerala, Tamil Nadu and Karnataka.

Influencer Incentive Programs

Further, as a part of their promotional initiatives for creating inroads with influencers, they have implemented

influencer incentive programs. These initiatives cater to the carpenters, contractors and Architects at various locations,

ensuring a regular flow of business from them.

Specification

Any project commercial or residential follows a system of BOQ and specifications. They have started to aggressively

ensure strong specifications for their brand. This is expected to keep giving them regular repeat business from various

influencers.


Introduction of Schemes for Channel Partners

The company has introduced schemes on primary offtake from time to time to keep the interest of the channel

partners. They also intend to introduce annual incentives (TOD) to keep alive their financial interest in a competitive

market.

Introduction of Systems & Processes

The company has implemented an accounting software and a CRM system developed by POSibolt. Their CRM system,

coupled with their strong internal and external control mechanisms facilitates their management and personnel to take

informed decisions in managing customers and supply chain across all products, locations and divisions across all our

operational areas in a more efficient manner.

Implementation of Credit Policies

Since July 2014, the company has designed, communicated and implemented credit policies. As a result initially they

had a correction and there was a lag in sales. Now the same is in line and is not expected to see a lag in either sales or

payment from customers.

Management’s Income Projection Statement

The management’s projection of average sale in the year 2015 – 16 is 75 trucks while we (RFC) have assumed the

likely scenario of 65 trucks per month for deal structuring (which is depicted in the graph above). Given below are

steps taken by the management to achieve their mentioned target of 75 trucks:

Kerala

a. Many un-represented areas for expansion, like Trivandrum, Kannur, Kottayam and Kollam.

b. Appointment of staff in Trivandrum and Malappuram to generate demand in these markets.

c. Kerala is an influencer based market. Architects have a major say in deciding brand to be used. Appointment

of a key account manager in Calicut to generate demand from the influencers.

Madurai

a. Currently they have one sales person out of Madurai to cater to the entire belt. Appointment of two persons,

one in Thirunelveli and one in Madurai to boost the secondary sale to feed the primary offtake from dealers.

FY-13FY-14

FY-15*FY-16*

-

50

100

150

200

250

Annual truck sales of Trojan Plywood

FY-13 FY-14 FY-15* FY-16*


b. The above will also take care of unrepresented areas like Nagercoil, Toothukudi, Ramnad and Kanyakumari.

c. A major customer Theni Plywood did not do business for 4 months, thereby resulting in a loss of 5 trucks

per month. This was due to stalemate on price increase. The same has been resolved and now the current

sale is back to 4 trucks per month.

Coimbatore

a. Additional manpower to be appointed in Erode.

b. Unrepresented areas like Karur, Hosur, Kangayam, Dharapuram, Tirupur, Nilgiri, Mannargudi, Tiruvarur,

Nagapattinam, Mayavaram and Karaikal will be explored for additional business. Necessary manpower to

support the same will also be appointed.

Bangalore

a. The godown at Bangalore will be used for expanding the dealer penetration. The godown to be shifted from

Electronics City to Mysore Road. This will make the godown accessible to small dealers. To appoint 50

dealers across Bangalore. Each dealer will contribute about 1500 NA, resulting in 35000 NA or about 10

trucks of primary sale. The product will be sold at a premium of 2,5 % over direct factory supply to make

the godown sustainable.

b. Project Manager to be appointed to generate specifications with major architects doing commercial projects.

Chennai & AP TS

a. Appointment of a regional manager to take care of daily operations.

b. Trojan BWP and Ultima being targeted to break inot these very competitive markets.

c. Strategic focus on Vijayawada, the new state capital. To appoint a senior person at BH/ASM level to generate

confidence and secondary sale in the market. To appoint one more person initially to support the efforts of

the ASM.

Rayalaseema

a. Two new people appointed in Anantapur and Nellore to support the existing ASM.

b. Rayalaseema has improved in averages from 2 to 4.5 trucks per month.

c. The company has identified 6 new areas in Rayalaseema to appoint direct dealers. Thereby taking the total

primary counters to 12.

Other tasks carried out

a. Influencer scheme in case to case basis across the regions. Currently in Kerala & Hubli/Belgaum for

Architects and Carpenters in Chennai.

b. Introduction of Troy Gold, Troy Gold Star, Film Faced and Trojan Ultima. Film faced is the first plywood

product to be used in any construction. This will give an early entry into the project. Followed by door, and

plywood our mind share hence pocket share will increase in the entire project.

c. With the above introduction the company has product available across the price spectrum. The project team

has been advised to ensure that no single project is lost for want of a good pricing.

d. The company will also be introducing 16 mm calibrated plywood in due course to cater to the demands of

the mechanized furniture manufacturers.


About Rehbar Financial Consultants

Rehbar Financial Consultants Pvt Ltd is an investment bank operating within the Sharia restrictions. We help

businesses raise funds to support the growth of their businesses while providing a Sharia compliant avenue for

investment to potential investors. Following are the core competencies of RFC:

Business Analysis & Deal Structuring

Analyzed around 200 businesses already across all sectors

SWOT analysis

Industry analysis

Porter’s Five forces Industry analysis

Risk analysis

Peer comparison

Financial analysis

Fair deal structure

Due diligence

Promoter background check

Financial due diligence

Legal due diligence

Feedback from industry peers

Feedback from suppliers

Feedback from clients

Control Systems

Legal loan agreement vetted by experienced corporate law professionals

Security such as unsigned cheques and property papers

Strict terms of use of funds administered through mechanisms such as joint accounts

Comprehensive Solution

Long term financing/investment partner to the business/investor

Overall business consultancy to optimize the use of funds in the business

Handholding both parties from initiation to monitoring and finally exit of the investment.

Network

Nearly 15 professionals and businessmen part of the core team

Strategic tie-ups with institutions such as Idafa Investments Pvt Ltd and TASIS

Very strong business and active investor network


Professional & Experienced Team

MH Khatkhate

Mr. Mohammed Hussain Khatkhatay is among the eminent Islamic finance

professionals in the country. He did an MBA after doing his BTech from IIT

Bombay. He has more than 35 years of experience in the field of Islamic banking

and finance. A financial engineer by profession, Mr. MH Khatkhatay has developed

some of the most innovative products for the Indian financial market. Currently he

advises a number of Indian companies in the areas of finance, product structuring,

private equity and insurance.

Sherif Kottapurath

Mr. Sherif Kottapurath is the Founder and CEO of iCalibrator Pvt. Ltd. and

POSibolt. He is a B.Tech from BITS Pilani. Mr. Sherif was formerly the CTO of the

India Engineering Center of Sun Microsystems and has more than 27 years of

experience in the IT industry in India and USA. Leveraging his vast experience and

diversity of skills, Mr. Sherif has been a mentor to numerous successful IT

professionals. He is on the Board of Directors of several companies and is the

promoter of several educational and social ventures.

Ahsan Ali

Mr. Ahsan Ali did his MS from Arizona State University, Tempe, US, and worked

in the US for about 14 years. He returned back to India in 2005 to be closer to his

bigger family and contribute towards deserving social causes. He’s a board member

of The Lifeline Foundation, an Islamic Micro-finance organization. He also serves

as the General Secretary in LEAD Trust (http://www.leadtrust.in), an educational

NGO dedicated to provide opportunities to bright and underprivileged students.

Ashraf Mohamedy

Mr. Ashraf Mohamedy is the Founder and Managing Director of Idafa Investments

Pvt Ltd which he established in 1994. Idafa Investments Pvt. Ltd is considered to

be among the pioneers of Islamic Finance in India offering Shariah Compliant

(Islamic) Wealth Management solutions. Some of the services offered by the

institution are Equity investments, mutual funds, portfolio management, tax

planning and retirement planning – all the Sharia way! He is also actively involved in

a lot of Dawaa activities and is involved with the work of Mercy Mission in India.

Syed Shahabuddin

Mr. Syed Shahabuddin is a Trustee of the National Pension Scheme. With over 40

years of experience in Banking and Finance, he has held positions such as that of

Managing Director of SBI Mutual Funds and Managing Director of the Clearing

Corporation of India Ltd. He has also been a member of RBI task forces. A Certified

Associate of the Indian Association of Bankers, Mr. Shahabuddin has helped

numerous entrepreneurs finance their businesses during his tenure with SBI.


For more information, please contact:

Mudassar Ali Baig

Email: [email protected] Call: +91 8105676677

www.rehbar.co.in

www.rehbarindia.com

Mufti Khalid Saifullah Rahmani

Mufti Khalid Saifullah heads the Sharia Board at RFC. He is General Secretary of

the Islamic Fiqh Academy, India and also a founding member and secretary of the

All India Muslim Personal Law Board and a member of the International Fiqh

Academy, Mecca. He is the Founder and Director of The Institute of Higher

Learning in Islam, Hyderabad. He has written about 100 books on a wide range of

topics and established more than 15 institutions of Islamic Education, Research and

Jurisprudence across the country.

Mudassar Ali Baig

Mudassar Ali Baig is the CEO at RFC. He did BTech from IIT Bombay and later

an MBA in finance from SP Jain Centre of Management. He has done CFA Level

II, USA and Certified Islamic Finance Executive course from Ethica Institute of

Islamic Finance. He has worked in the field of finance in various roles such as

portfolio manager at Prudential Asset Management and CEO at Bearys Amanah.

He also has experience in Private Equity working for Ascent Capital where he was

part of the team, managing about USD 500 Million.

Ali Sharif

Mr. Ali Shariff completed his MSc in Development Management from the London

School of Economics and Political Science with a Merit. He has also done a graduate

certification in Managerial Communication from Harvard University, USA and an

MBA from IIM-A. Ali worked for four years as a Supply Chain Management

consultant for Yantra Corporation and worked in their USA, UK and India offices.

Currently, he is working as a Management Consultant in the Government Utilities

Infrastructure and Development division of Deloitte Touche Tohmatsu India Pvt.

government.

mailto:[email protected]

http://www.rehbar.co.in/

http://www.rehbarindia.com/


Disclaimer

Mr. Mohiyuddin Ashfaq, the managing partner of the LLP which will take in the investments, was associated with

Rehbar Financial Consultants Pvt Ltd as a Director but has tendered his resignation to avoid any conflict of interest.

His resignation has been accepted by the Chairman of the Board of RFC. Also, Mr. Raashid Sherif, who was formerly

an employee of Rehbar, is now employed with MAK while he continues to volunteer his time for Rehbar. He has not

been involved from Rehbar’s side in preparing this Information Memorandum, again to avoid any conflict of interest.

All the information stated in the document is true to the best of our knowledge and we put in best of our efforts to

avoid any potential conflicts of interest in the deal. The investment is also subject to market risks, we request the

investor to read the document thoroughly before investing.

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