Sarda Plywood Industries Ltd (BSE Code-- >516003):

CMP---> Rs.27.85

Suman Mukherjee

Sarda Plywood became a public limited company, with effect from 1974. It is into two business segments---Plywood and Tea. The company has both: tea gardens and manufacturing facility for making plywood in Assam , where the good quality timber pours in from the 7-sister states of North-East. Besides, the plywood industry works in tandem with tea industry here. It is because tea is packed in plywood boxes and transported throughout India and exported to the whole world. Hence the boom in the tea industry could be associated with the boom in the plywood sector. Besides, since the company has its own plywood making facility, hence it can get cheap material for packing the tea containers. Also, since Assam is prone to earthquakes, hence often houses here are made of wood and plywoods. This automatically will drive the local demand for the plywood industry(reducing the transportation cost to a great extent) as the real estate sector gets into top gear.

PLYWOOD SECTION:

Sarda Plywood specializes in manufacturing Block Boards, Water & Fire Resistant Plywood, Flush Doors, Veneers, Decorative Plywood etc. Its DURO brand is famous throughout the globe. DURO Brand consists of:

DURO Block Boards

DURO Fireshield

DURODOOR Flush Door

PUMAPLY

DUROPLY

DUROTEAK

DUROFLEX

DURO Nature's Signature

Duroply plywoods are bonded with specially formulated synthetic resin adhesives. Duroboards are blackboards made from seasoned timber while Pumaply is a water proof, heat and termite-resistant plywood. DURO Nature' Signature is premium veneers and plyboards, used mainly as decorative ply. Thus the entire range of plywood used in Indian households and industries are manufactured here. All its products are of high quality and are sold through an extensive distributor and dealer network spread across the country.

TEA:

The company has set up a Brught Leaf Tea Processing Factory at Jeypore , Assam . This has an installed capacity of 37 lakh kgs per annum, which is set to increase this year due to good production. During the financial year 2004-05, the company produced 39.01 lac kgs. of Tea as against 38.50 lac Kgs. in the previous year. But this year the expected production target will be around 50 Lakh Kgs. With the tea industry booming now, and with crop failures in Kenya , the company is set to rake in huge profit in the March, 2006 quarter. This is supported by the fact that since tea being a seasonal industry, the maximum benefits are obtained during this time every year. The company mainly caters to the low price segment.

Mergers & Acquisitions:

Sarda Plywood Industries Ltd is amalgamating P S Plywood Products Pvt Ltd with the Company. Post merger, the equity capital of the company will go up from 3.65 crores to 6.65 crores. The merger would give a boost to both the topline and bottolines. The revenues are set to increase considerably, as P S Plywood is a profit making company.

Future Projects: The company is setting up a plywood manufacturing and a laminates manufacturing factory at Uttatanchal subject to availability of requisite permissions and / or licences from the appropriate authorities. Estimated project cost would be Rs 55 Cr (approx). Since Uttaranchal falls in the list of backward states, and hence the company is expected to get much tax concessions here.

FINANCIALS: The company made a net profit of Rs.45 Lakh against 8 lakhs in the same quarter previous year. This is going to increase considerably this quarter due to buoyancy in the sectors in which it performs. For the nine-months ending December, 2006, the company has an EPS of Rs.4.95. For the whole year the company is likely to post an EPS of around Rs.7�Rs.8. This might push the stock to above Rs.100 in the medium to long term. The way the real estate stocks are rising, no one can predict the price as of now; except sitting and watching the scrip rise and rise and rise�...

Shareholding Pattern: The promoters' holding is almost steady at around 44.53% for a number of quarters. This shows that the company has chance to show spectacular performance in the days to come. This should be a multi-bagger for the future.

INVESTMENT RATIONALE:

With the increasing stress on infrastructure development (government announcing special pack in this budget) and boom in construction or real estate sectors, demand for quality plywood products will increase in the coming quarters. This is an indirect play on the Real Estate sector.

The company is fully prepared to meet these challenges. Besides with the tea industry booming after the drought in Kenya and FM announcing Rs.100 Cr package, this is stock is likely to shoot in the days to come.

The company paid a dividend of 10% last year and the stock trades at a considerable discount to its Book Value.

Moreover the company has huge assets, both in the Tea and Plywood business.

Hence investors can take position in the counter, with a price target of around Rs.120 to Rs.250 in the days to come. This is a very good company, but with less investor friendly management.