The Indian plastics industry made a promising beginning in 1957 with the production of polystyrene. Thereafter, significant progress has been made, and the industry has grown and diversified rapidly. The industry spans the country and hosts more than 2,000 exporters. It employs about 4 million people and comprises more than 30,000 processing units, 85-90 per cent of which are small and medium-sized enterprises.

Demand from original equipment manufacturers (OEMs) has led to producers focusing more on delivering products customized in line with end-user needs. Moreover, the Indian plastics industry has started manufacturing specific items to meet customer requirements. Design, style, and pattern are set based on the requirements of customers in export markets.

Additionally, the Indian uPVC doors and windows market is expected to grow at a CAGR of 7.0% during 2015-2020. The major drivers of the Indian uPVC doors and windows market are increasing new housing construction and replacement activities, which have contributed to the growth of this market. Another important factor that drives this market is their tangible and intangible benefiting features, such as the uPVC doors and windows are thermal, and water- and wind-resistant. They are corrosion-free. These doors and windows are termite free, highly sound insulated, dustproof, highly durable, and need no maintenance. They are energy efficient and could save energy up to 25% to 30%.

The Indian plastics industry offers excellent potential in terms of capacity, infrastructure and cheap labour availability. It is supported by a large number of polymer producers, and plastic process machinery and mould manufacturers in the country. Among the industry’s major strengths is the availability of raw materials in the country. Thus, plastic processors do not have to depend on imports. These raw materials, including polypropylene, high-density polyethylene, low-density polyethylene and PVC, are manufactured domestically.

Company Overview

Dhabriya Polywood, a manufacturer of UPVC and PVC doors and windows was incorporated under the erstwhile Companies Act, 1956 in the year 1992. The Company has taken the credit of launching for the first time in India some exquisite products like PVC Folding Doors, PVC Designer Doors, PVC Fencing, Wood Plastic Composite Panels. The Jaipur based company has close to 20% market share in the organized PVC and UPVC doors and windows market and competes with aluminium doors and windows manufacturers.

It has three plants in Jaipur and two in Coimbatore. Utilization at these plants is 45-55%. It is setting up another plant in Bengaluru to be commissioned in this Financial Year.They will be shifting the Coimbatore plants here.

Recently, the company has introduced artificial Italian marble under the brand Dstona. It costs around one tenth of the original Italian marble and still delivers 25% EBIDTA margin. Dhabriya has created this niche product and is the only manufacturer in India. 

Key Advantages

1. Benefit from GST since the rate applicable on PVC sheets for doors and windows is 18% compared with 28% in case of aluminium sheets. 
2. Increasing awareness to protect the environment, thus a shift from wood to PVC.
3. Introduction of artificial Italian marble under the brand Dstona, which is a niche product only Dhabriya Poly makes. 
4. ISO 140001:2004 and ISO 90001:2008 Certifications
5. The company had no pledged shares as of 31 March 2017.

Key Fundamental Problems

1. The company has really low Debt service coverage ratio: FY17 -0.66,FY16-0.47 AND FY15:0.33.
2. The company has taken large amounts of new debt in the past three years :2017- Rs.4.924 crore and in 2015 - Rs.9.59 crore.
3. The remuneration of directors and management to is on the higher side, around 30%
4. The company has not given any dividends to its shareholders yet.

Analysis of Financial Statements

2014-15

1. The receivables to revenue ratio was 25%, which was 4% higherthan FY14 (21%). However, this is still a healthy number.
2. The company generated net cash flow from operations of around Rs.4.94 crores.
3. Raised new borrowings of Rs.9.59 crore, and paid off old borrowings worth 10.15 crore. Purchased fixed assets worth Rs.4.52 crores and made interest payments of Rs.2.97 crores. The company also sold Fixedassets worth Rs.1 lakh and received interest on its loans worth Rs.15.33 lakh. The company also took working capital loans worth 24 lakhs.
4. The company paid remuneration to directors worth 75.35 lakh.
5. The company had the following related party (Key Management Personnel and their relatives) transactions on the books:
   1. Salary to Employees - Rs.58.68 lakhs
   2. Interest Payment - Rs.4.32 lakhs
6. The company had the following transactions with entities that KMP exercise significate influence / control over:
   1. Sales of Goods -Rs.1.05 crore
   2. Purchase of Goods-Rs.1.117 crore
7. The company also has unsecured loans worth Rs.4.03 crore from directors.
8. The company’s previous year tax liability is Rs.1.18 crore however the cash tax outflow for this year is Rs.61.12 lakhs.
9. The company also has Trade Receivables of Rs.2.83 crore from subsidiaries and enterprises over which the KMP have significant control over.

2015-16

1. The receivables to revenue ratio was 28%, which was 3% higher than FY15 (25%). However, this is still a healthy number.
2. The company generated net cash flow from operations of around Rs.4.97 crores,which is not a substantial increase from FY15 because the Total revenue fell by 4% in FY16.
3. Paid off old borrowings worth Rs.4.37 crore.Purchased fixed assets worth Rs.7.11 crores and made interest payments of Rs.Rs.4.18 crores. The company also sold Fixed assets worth Rs.80 thousand and received interest on its loans worth Rs.15.06 lakh.The company took new long term borrowings worth 4.93 crore and new Working Capital borrowings worth 3.77 crore.
4. The company paid remuneration to directors worthRs.1.098 Crore.
5. The company had the following related party (Key Management Personnel and their relatives) transactions on the books:
   1. Salary to Employees - Rs.25.2 lakhs
   2. Interest Payment – Rs.8.26 lakhs
6. The company had the following transactions with entities that KMP exercise significate influence / control over:
   1. Sales of Goods - Rs.47.44 crore
   2. Purchase of Goods-Rs.1.49crore.
7. The company also has unsecured loans worth Rs.6.41 crore from directors.
8. The company’s previous year tax liability is Rs.1.88 crore however the cash tax outflow for this year is Rs.83.3 lakhs.
9. The company also has Trade Receivables of Rs.2.68 crore from subsidiaries.

2016-17

1. The receivables to revenue ratio was 24%, which was 4% lowerthan FY15 (28%).
2. The company generated net cash flow from operations of around Rs.6.91 crores, which isa substantial increase from FY16 because the Total revenue increased by 17% in FY16.
3. Paid off old borrowings worth Rs.7.42 crore. Purchased fixed assets worth Rs.10.57 crores and made interest payments of Rs.Rs.3.10 crores. The company also sold Fixed assets worth Rs.9.61 lakh and received interest on its loans worth Rs.13.47 lakh. The company also sold long term investments worth Rs.63.5 lakhs.
4. The company paid remuneration to directors worthRs.1.098 Crore.
5. The company had the following related party (Key Management Personnel and their relatives) transactions on the books:
   1. Interest Payment – Rs.2.68 lakhs
6. The company had the following transactions with entities that KMP exercise significate influence / control over:
   1. Sales of Goods - Rs.1.107 crore
   2. Purchase of Goods-Rs.24.26 lakhs.
7. The company also has unsecured loans worth Rs.4.86 crore from directors.
8. The company’s previous year tax liability is Rs.1.94 crore however the cash tax outflow for this year is Rs.93.74 lakhs.
9. The company also has Trade Receivables of Rs.7.58 crore from subsidiaries.

Points to Note

• The company has very high debt, thus the debt payments are also very high, and the company has continued to take on more debt which might turn out to be dangerous.
• The company has a pending dispute at CIT Appeal - II, Jaipur regarding an income tax payment of Rs.4,74.150regarding FY12.
• The company has Bank Guarantees given to third parties for contractual obligations worth Rs.1.66 crores and bank guarantees on behalf of subsidiary companies worth Rs.1.911 crores.

Conclusion

The company has had good growth trajectory over the past three years: Sales have seen a CAGR of 22% and Net profit has increased at a CAGR of 33%. However, there a few things like high debt, high trade receivables and related party transactions which seem to be red flags.

CA.BinoyJ.Kattadiyil