Tuesday

16


April , 2019
The Indian Wood Products Company Ltd.
16:19 pm

Rajesh Agarwal


About the Company

The Indian Wood Products Company Ltd. (IWP), incorporated in 1919, is a Pioneer in manufacturing of Katha (Catechu) and Cutch in India. This Kolkata based company with over 99 years of experience is mainly into the business of production, processing and marketing of high quality Katha, Cutch and Catechins at Izatnagar, Bareilly (UP). IWP is a strong player in the organized section of Katha Industry in India with a market share of approx. 35%. The company also provides various Spices under ‘IWP’ brand name. Krishna Kumar Mohta is the Chairman of the company who looks after the overall management of the Company.

Investment Rationale

l Manufacturing Facilities ― To cater to the increasing demand for Katha, in 2001, IWP entered into exclusive job work arrangement with Kashmir Katha industries in Kundli, Haryana. In 2015, it entered into an exclusive contract manufacturing agreement with Nanhe Mal Agro (India) Ltd. in Daman-UT for making Katha for them. In 2016, the Company took a Katha manufacturing plant in Baroda on a 10 year lease agreement. It also has manufacturing facilities at international locations in Indonesia and Myanmar.

l Research and Technology ― IWP owns a research lab with modern plant and equipments for Pilot Plant scale research for continual improvement, product innovation & cost optimization.

l New Manufacturing Unit ― IWP has received the license to establish and operate in the State of Jammu & Kashmir from the Conservator of Forest, East Circle Jammu. The license received is for setting up of a new green field 100% premium Katha Manufacturing Plant on 35 canals of land allotted, on lease basis for a period of 37 years by the Small Industrial Development Corporation (SIDCO), Government of Jammu & Kashmir. Total cost of the project will be approx. Rs. 26 crore and the installed capacity of the proposed unit will be around 1200 MT.

l  Joint Venture ― The Company has one overseas joint venture namely PT Thea Universal a PMA (100% Foreign owned) in Indonesia is promoted by Agro Spice & Trading Pte Ltd., Singapore, which is engaged in the business of trading of Spices. PT Thea focuses into exports of spices and agro commodities. It has global reach with customers in USA, Brazil, Russia, Netherlands, Latvia, Turkey, Morocco, UAE, India, Nepal, etc.

About the Company

The Indian Wood Products Company Ltd. (IWP), incorporated in 1919, is a Pioneer in manufacturing of Katha (Catechu) and Cutch in India. This Kolkata based company with over 99 years of experience is mainly into the business of production, processing and marketing of high quality Katha, Cutch and Catechins at Izatnagar, Bareilly (UP). IWP is a strong player in the organized section of Katha Industry in India with a market share of approx. 35%. The company also provides various Spices under ‘IWP’ brand name. Krishna Kumar Mohta is the Chairman of the company who looks after the overall management of the Company.

Investment Rationale

l Manufacturing Facilities ― To cater to the increasing demand for Katha, in 2001, IWP entered into exclusive job work arrangement with Kashmir Katha industries in Kundli, Haryana. In 2015, it entered into an exclusive contract manufacturing agreement with Nanhe Mal Agro (India) Ltd. in Daman-UT for making Katha for them. In 2016, the Company took a Katha manufacturing plant in Baroda on a 10 year lease agreement. It also has manufacturing facilities at international locations in Indonesia and Myanmar.

l Research and Technology ― IWP owns a research lab with modern plant and equipments for Pilot Plant scale research for continual improvement, product innovation & cost optimization.

l New Manufacturing Unit ― IWP has received the license to establish and operate in the State of Jammu & Kashmir from the Conservator of Forest, East Circle Jammu. The license received is for setting up of a new green field 100% premium Katha Manufacturing Plant on 35 canals of land allotted, on lease basis for a period of 37 years by the Small Industrial Development Corporation (SIDCO), Government of Jammu & Kashmir. Total cost of the project will be approx. Rs. 26 crore and the installed capacity of the proposed unit will be around 1200 MT.

l  Joint Venture ― The Company has one overseas joint venture namely PT Thea Universal a PMA (100% Foreign owned) in Indonesia is promoted by Agro Spice & Trading Pte Ltd., Singapore, which is engaged in the business of trading of Spices. PT Thea focuses into exports of spices and agro commodities. It has global reach with customers in USA, Brazil, Russia, Netherlands, Latvia, Turkey, Morocco, UAE, India, Nepal, etc.

l Spices Segment ― IWP has entered in retailing of the packed spices in East & Central U.P. and Assam. IWP’s strong brand awareness of Katha would benefit its Spices segment, since there is overlapping to a great extent of traders involved in Katha & Spices.

l Subsidiary ― PT Sumatra Resources International, at Pangklan, West Sumatra Indonesia, is a subsidiary of the joint venture Agro Spice & Trading Pte Ltd. which is engaged in the commercial production of Catechins from Gambier extracts through solvent extraction and with the use of innovative technology. 100% production from this plant will be imported and consumed by the Company for manufacturing of better quality Katha. It is expected to benefit IWP by cost reduction and improved quality of Katha.

l Financials ― For the period FY13-18, its topline and bottomline grew at a CAGR of ~23% and ~62% respectively. Company has registered a robust growth in consolidated PAT by ~400% from Rs. 4 crore in FY16 to Rs. 16 crore in FY18. In Q3FY19 IWP’s standalone net sales declined a bit but its operating profit was higher by ~17% to Rs. 11.47 crore and its PAT increased by ~29% to Rs. 6.69 crore, YoY basis on the account of economies of scale, reduction in energy cost and higher quality Katha production.

l Recommendation ―The demand for quality Katha is growing significantly especially in Ayurvedic segment.  IWP’s rampant use of technology and economies of scale make it one of the lowest cost producers. Company’s expansion plan in the Bareilly plant, extensive marketing network, backward integration for an un-interrupted supply of major raw materials and risk management framework minimizes adverse impact on the business objectives and enhance its competitive advantage. Hence, we recommend a BUY on the stock with a Target Price of Rs. 110 with an upside potential of ~35% from the current level with an investment horizon of 9-12 months.

 

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