Even after 30 days under GST rule, Wood Panel trade is struggling to overcome on the doubts and issues related to GST compliance input claims, need of capital and price impacts. The product price dynamics is changing but no big impact on market changes are visible yet. Few products have become costlier and few have turned economical causing negations and new terms between buyers and suppliers.GST law has changed the way Indian businesses were operating in last 30 days and the impacts are visible in mindset of people.
Distributors and dealers are avoiding purchases and maintaining low stocks, hence as a result the material demand in markets for Plywood, Laminates, B, MDF, ACP or Doors has fallen by 50 percent. “One nation One tax” concept is being appreciated widely but has certainly caused huge disruption in plywood industry and trade that will require 6 months to 9 months time for being settled down. It is just 30 days and changes have begun to occur. After a market tour during July 12th to July 27th by the team of Ply reporter the impact is narrated below:
In short span of 30 days after July 1st, the entire wood panel industry has strengthened its belief on positive side of GST. A large fraction of the wood panel business sphere is keeping strong hopes on reduction of slab in coming weeks which has been preventing the full blow effect on demands.
ONE PRESS UNITS:
The one press MSME units are highly stressed and panicking. The pressure is also generated by negative talks questioning the existence of MSME or 1 press ply units in GST era. These small factories are so badly hit that neither they are able to approach their customers with 28 % tax nor customers are able to align with them on new terms all of sudden. The dispatches from single press units have reduced by 60 percent and pressure of compliance and billing formalities has created an uncertain road for them. In 30 days of tenure, the MSME units are trying to find clue for survival and price mechanism.
SMALL SCALE DOOR MAKING UNITS:
There are 2500 organized, unorganized, medium, small, micro door manufacturers in India. Eighty percent of the Door units are small and majority of those, with whom The Ply Reporter’s team met were in a dwindle whether to enroll in GST or go for composition scheme. The small sized door producers whose factories are in less than 2000 sq. yard area are hit due to demand or payments but not worried. In a nutshell these door manufacturers, making 25-50 doors per day, are temporarily hit but see no much impact on their business as usual.
TWO PRESS UNITS:
The cost of taxes and their compliance is not adding up to the current price for two press units as well but the painstaking is lesser. Their situation with respect to books and capital reserves is volatile but certainly not blank as in case of majority of SSI’s. They are in a fix that how to restructure their whole working model with two presses and take a position in the market. The dispatches has reduced by 50 percent from such units in spite of the fact that they have softened their prices and not rigid on terms. GST is a dampener for these 2 press small scale units but they are planning to accept the change by reducing cost and increasing production further.
THREE PRESS UNITS:
These units are in a better situation than the other two types because they have a wider customer base in different states. The 3 press units are certainly aware
of the advantage they have in coming days but they are struggling to secure capital and streamlining their paper work to get the smooth adaptation of GST regime. The 3 press plywood units have seen a drop in dispatches by 40 percent but are quickly gaining strength to make a comeback. This category has learnt and also has taken bank funding to utilize their maximum potential of factory capacity and skill set. The three press units have faced only one struggle - how to convince the traders to accept new prices and new payment terms. But they are the most optimistic and started smiling in just 30 days.
FOUR OR (FOUR +) PRESS UNITS:
The biggest achievers after GST are this category because they have not seen much volatility in sentiments against them. In last 30 days, majority of 4 press plants have started day-night working on reshuffling of their plants, machines and new product lines. The 4 press plants also have been hit after 1stjuly and demands have come down by 30-35 % due to uncertainty in market but they are clear in their thoughts and planning to increase production and quality. The 4 press plywood plants have started replanning their markets as they feel that GST will benefit them the most. Majority of the unit owners in this segment feel that the GST gain is going to be maximum for them which is very opposite to the thinking of big brands.
MID SEGMENT PLY BOARD BRANDS:
The mid segment plywood manufacturers, who have presence in a dozen or more states are witnessing a price resistance from distributors that has led them to pass on some discounts in these 30 days. The mid segment brands have adopted a cautious approach and are still undergoing through re-structuring their pricing and placement. In last 30 days, with many of the mid segment brands, The Ply Reporter has spoken to, in conversation it seemed that they have clearly understood their future roads and will be implementing few new things to mark the position. The dispatches from these mid-segment brands are reported to be down by 30 percent but they are highly optimistic of quick recovery in August, once the prices are re-formulated.
ORGANISED PLYWOOD BRANDS:
After 30 days of GST, Branded and organized plywood manufacturers looks stronger and confident. Their distributors too have expressed confidence despite dull market demands. The factories of branded panel products too have reported a drop of 20-30 percent in dispatches as a shake-up post GST. During last 30 days in July, organized brands have passed on their excise benefits after charging extra GST to markets. The trade has responded positively to the organized brands so far and hence none of the branded players have reduced production hours despite of low demand post GST. The activities of outsourcing cheap products and high efforts for creating channel network have been seen by the organized players throughout in July.
DECORATIVE LAMINATES:
The decorative laminates market was hit in July as initial 2 weeks were more about discussion on Price reduction. Since GST slab for Decorative Laminates was reduced and brought under 18 % slab hence the market waited for new price from laminate manufacturers. In July the lifting or new orders did not see much but in the last week of July it established that HPL demand will recover faster than any of the products category. Overall HPL segment has seen a price pass on by 10 percent by almost entire segment.
The mid segment laminate manufacturers have witnessed tremendous pressure to match the price drop at par the big brands. The 30 days under GST has given indication that HPL industry & trade cannot be the same in coming few quarters.
FILM FACE PLYWOOD:
Entire film face plywood category is witnessing a big shift in terms of market work culture; it is seen in the feedback received on this topic. The benefit of getting full input on materials has attributed to quick rise in organize work practice in this category. The demand for film face plywood has not seen much dent barring initial week shake up. Finding the impact on film face ply category in ‘30 days after GST’ indicate one clear outcome, i.e Film face has gained the fastest acceptance of GST impacts among all above mentioned products.
PLY REPORTER VIEW:
The GST law has changed the perception among people that market does not pay taxes. The biggest benefit wood panel industry has witnessed in last 30 days is ‘Traders have come to terms to charge taxes extra from customers’ which is the most significant change GST has brought in. The Ply Reporter believes that SSI units will have to align with organized buyers if they want to remain in this line. Mid-sized plants have lot to gain and they have convinced themselves to embrace the new working model. A lot shall change before 2019 believes the wood panel trade and no one has doubt any more.