The GST regime is set to bring in bounty for the plywood makers.
Contrary to the belief that the plywood makers have been short-changed, suffering a GST rate of 28% against the industry expectation of 18%, the organised players like Century or Greenply are set to benefit as the unorganised players controlling 80% of the market would lose their tax-free status.
"We had been managing duties to the extent of 28% so the tax burden for us hasn't gone up. But the small-scale industries (SSIs), which controls most of the sector, enjoyed excise duty exemptions. But under GST, this is history now and everyone has to pay tax," Sajjan Bhajanka chairman of Century Plyboards told analysts.
There are more than 2,500 SSIs in the plywood industry and most of them are above the GST exempt limit of Rs 20 lakh, Bhajanka said.
"Because of favourable tax treatments, the SSIs were able to sell at 40% cheaper than organised players than us. But with GST, that price advantage would get lost. In that case, customers would prefer organised players because of better quality and after sales services," he said.
With seven manufacturing plants and an aggregating capacity of 209,420 cubic metre, Century is a leading plywood player in India.
And with strong brand equity and robust distribution network, Century commands 15-30% premium over its competition in the organised sector.
While that might have restricted its growth in past, likely wiping out of the unorganised market would help Century and other large players expand their markets exponentially.
The existential crisis of the SSI units has even impacted timber prices.
"The Punjab government has failed to give out licences for new plantations. There were few takers because threats from GST and withdrawal of exemptions to SSIs have led to apprehension about the survival of the SSIs post GST. Timber is now available at 50% less price because of this," he said.
The threat to the existence of the smaller players is so high that the Century head, being the president of Federation of Indian Plywood and Panel industry has asked the government to bring down GST to 18%.
"We want the SSIs to survive and in my capacity as an industry association representative we have asked the government to reduce this rate to 18% otherwise SSIs would be badly hit," he told analysts.
...& ANALYSIS
- Despite a GST rate of 28% against the expected 18%, the organised plywood makers are set to benefit
- The unorganised players controlling 80% of the market would lose their tax-free status
