India has always been a predominantly plywood consuming country as against the world-wide trends. The ratio of Plywood v/s Other panels (MDF, PB) demand in India is 80:20 where as it is almost opposite like 20:80 in developed and mature markets world over. Value wise the Plywood market is worth Rs 25000 crore v/s MDF/PB markets of Rs 6000 crore as estimated vague by Industry analyst and associations. Continuing to the past trends plywood industry capacities are growing at a very high speed thanks to sustained demand in the plywood sector.
In coming years, the plywood manufacturing capacity is set to rise by 25-30 percent where as market demand is growing at 9-10 percent YOY growth. Punjab, Haryana, UP and Rajasthan are set to have approximately150 new units within 2018. This rise in number of Plywood plants will create pressure on sales prices and volume growth of each unit. The market in 2018 is not expected to bounce back because there is hardly any sign of growth or demand pick up in reality sector. Compared to anticipated demand the rise in supply will provide cheaper plywood to customers and will lead to margin pressure on plywood factories.
The pressure on sales is set to drive the Indian plywood market in favors of buyers hence creating an additional challenge to organized industries despite of GST implementation. The small and mid-segment factories will have to spend more to sustain the growing competition during 2018 and 2019 because of huge flow of plywood, boards and doors in markets. Those who are entering in plywood manufacturing with a notion of decent profit-making sector will confront the reality by 2018 end.
The plywood industry is set to witness big change in FY 2018-19 when Cheque payments will be preferred over cash. The coming FY will be a defining year for brands who are expanding capacities and introducing economy brands in plywood category to expand their market penetration in each consumer segment. Despite of GST that was implemented from July 1st 2017, the unorganized or informal sector is continuing its old practices of working in unreported manner. This has been causing huge blow to the branded segment players due to the price gap between tax compliant company and non-tax paying company.
The Indian market is slowly tilting in favor of such companies who have sales teams, trust and wider network. The mid segment players who are maintaining a fine balance in controlling cost, quality of products and decent brand spending are expected to fare better in channel network in coming time. In long run, the success will come to organized players who have been waiting for GST, E way bill and a level playing field where taxes for a big firm and a smaller firm has huge difference.