The 32-year-old Keshav Kantamneni surprises you when he says he is acquiring a Chennai-based plywood company.
He is a computer engineer from Chennai who went to the Kellogg School of Management, Northwestern University, to pursue his MBA, developed apps to buy veterinary products (which he sold at a profit) when he was still in college, and joined a financial services company in New York after graduating. He returned to India three years later and set up Globality Partners with Prof Bala V Balachandran, JL Kellogg Distinguished Professor of Accounting & Information Management and founder & dean of the Great Lakes Institute of Management in Chennai.
Balachandran is the chairman of the company; Kantamneni is the CEO. Globality Partners advises corporates on M&A and other finance and investment issues. The firm, which was formally launched in 2012, also focuses on cross-border activity and has established strategic partnerships with execution teams in over 27 countries because of the Kellogg connections.
So, how did Kantamneni end up buying Chennai-based Uniply Industries? With his background, one would assume he would go in for IT services or an e-commerce company. Plywood belongs to the old economy. When Uniply, a wood panel manufacturer, gave Globality Partners the job of finding a buyer, he saw the kind of potential the company offered. The company was promoted by technocrats from the plywood industry; it had good brands and an extensive dealer network. It has three factories in Chennai with almost 1,000 regular and seasonal workers. The promoters were struggling with the problems the industry faced and wanted to venture out.
Kantemneni decided to make a bid for the firm in his individual capacity. He asked the Globality Partners team to exclude him from the transaction, and started doing the maths to buy it himself. Having decided it is a good investment, Kantamneni quickly moved in and acquired the promoters’ holding of 36% in a R126-crore deal. The company closed 2013-14 with a turnover of R172 crore. However, Uniply owes banks R55 crore and other creditors R50 crore. Kantamneni, who is using his own funds for the transaction, is unfazed, and says he has already reduced its outstanding.
Indian plywood industry is over 75 years old. It was established mainly for producing tea chests. It has grown over the years to make other plywood-based products mostly for the interiors. The industry is highly fragmented, dominated by the unorganised sector. It is estimated at R20,000 crore, with most of the production coming from small manufacturers. The organised sector is dominated by a few large companies which have plants at multiple locations, and which have to invest heavily in brand-building and also offer ISI-marked products. They constitute around 30% of the industry. Some of the well-known players in the industry are Kitply Industries, Century Plyboards, Greenply Industries, National Plywood Industries, Sarda Plywood Industries, Mayur Plywood and Uniply Industries. There is a large price difference between the unorganised sector and the organised one. Quality is highly suspect in the unorganised sector.
Kantamneni has to deal with several inherited problems which go with the industry, including acquiring raw material as logging is not allowed any more in the country with the exception being the plantation sector.
Kantamneni says, “The Supreme Court ruled against setting up wood-based companies in 2000. Luckily, Uniply was established in 1996. The neighbouring Myanmar, which was a good source, also stopped logging two years ago. We have to import all our requirements of wood.”
Uniply has been strong in south India. The other south-based manufacturer in the organised sector, Sharon Plywoods, has been taken over by the Birla-owned Century, which is the market leader. How will Kantamneni compete with such established players? As the industry has to import all the raw material, and logging is banned in most countries, exchange fluctuations has an impact on its profitability. Kantamneni is confident he can deal with this. “We see the advantages of arbitrage. Globality is networked in 27 countries. We have an office even in Albania. We can source wood directly from forests instead of depending on agents and middlemen. We have started doing it.”
He is convinced that with increasing prosperity, people will start demanding interiors with better quality plywood.
Another problem plaguing the industry is lower-priced imports from China. “Prices in China are hardening. This is the right moment for us to move in. Uniply has been exporting its products and has won awards. We will expand on that.” The imminent introduction of the GST is another reason Kantamneni feels positive about the future. “This is going to happen quite soon. The unorganised sector will lose most of the price advantage it enjoys. That will create a level-playing field for us.”
Kantamneni has big plans for the company. He is getting machinery to expand product range. He plans to add value to Uniply’s existing business and strengthening supply-chain linkages. He is reaching out to each and every dealer across the country to re-engineer the entire business process, cut down wastages, improve delivery mechanism, and generate consumer awareness to help them make informed choices. Uniply is already number two in Punjab. He wants to acquire manufacturing facilities for commercial ply in Punjab and expand Uniply’s dealership network from the current 22 to 35 there.
“There is a good future in manufacturing,” declares young Kantemneni.
sushila.ravindranath@expressindia.com
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