Duroply Industries Limited (DUROPLY.BO) Q1 FY2026 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm pleased to welcome you on behalf of Duroply Industries Limited and SKP Securities to Duroply Industries' Q1 FY '26 Results Webinar. We have with us Mr. Akhilesh Chitlangia, MD and CEO; and Mr. Vijay Kumar Yadav, CFO. This webinar is being recorded for compliance reasons. During the discussion, certain forward-looking statements must be viewed in conjunction with the risks that the company faces. We will have Mr. Chitlangia's opening remarks and a Q&A session. Thank you, and over to you, Mr. Chitlangia.

Thank you so much. Good morning, everyone, and thank you for attending our earnings webinar for the first quarter FY '26. On this call, I'm joined by Mr. Vijay Yadav, our CFO. Duroply was founded in 1957 and has over the years built a brand in the industry, quality, which has been maintained. Duroply recently celebrated the start of the 60th year in operation. We feel proud to have played a small but meaningful part in India's growth story over the last 6 decades. On the business front, Duroply closed its first quarter revenue at INR 93.5 crores, a 10.3% growth over the same period last year and down 15% (sic) [ 12% ] from the previous quarter. The business reported a profit before tax of INR 1.88 crores, up by nearly 50% from the same period last year. This quarter, revenue from in-house manufactured goods stood at INR 49.5 crores, flat over the same period last year and down by 17% on a quarter-on-quarter basis. Revenue from contract manufacturing stood at INR 44.1 crores, a 24.9% growth on a year-on-year basis and down by 5.5% on a quarter-on-quarter basis. Gross margin this quarter stood at 34.1%, similar to Q1 last year and down from 34.9% in Q4 FY '25. Our EBITDA margin for the quarter stood at INR 5.39 crores, a 31% (sic) [ 34.6% ] increase from the same quarter last year and 0.5% degrowth over the previous quarter. In margin terms, EBITDA margin stood at 5.8% of sales as compared to 4.8% in the same period last year and 5.1% in Q4 FY '25. On the product mix, Duro segment saw a 2% growth rate on a year-on-year basis and an 18% degrowth on a quarter-on-quarter basis. Our mid-segment brand Tower continues to showcase robust growth with a 45% growth on a year-on-year basis and a 5.5% degrowth on a quarter-on-quarter basis. Overall, this quarter was challenging on the demand front, especially on the premium product range. The war situation in North India had a big impact on our business as North India is our strongest market. Improvement in profitability margins was driven by better operating leverage. I now request Vijay to take you through some of our other financial metrics.

Thank you, sir, and good morning, everyone. We will discuss some of the key financials. The gross margin is 34.1% as compared to 34.9% in Q4 '25. Employee cost is 11.9% of sales as compared to 11% in Q1 '25 and 9.5% in Q4 '25. Marketing expenses is 2.2% of sales as compared to 3.3% of sales in Q1 '25 and 4.2% in Q4 '25. Finance cost is 2.3% of sales. Debtor turnover ratio is 44 days as compared to 47 days of last year. Inventory turnover days is 149 (sic) [ 159 ] days as compared to 165 days of Q1 '26. Registered days is 117 days as compared to 90 days of Q4 '25. As a result, cash conversion cycle is 113 days for Q1 '25. Thank you, sir.

[Operator Instructions] First question is from the line of Udit Gajiwala.

Sir, can you please explain regarding the timber cost, what was your pricing in the North for the quarter? And how do you see the year panning out for the same?

Udit, our timber cost largely remained flat. For our in-house manufactured, we are dependent on imports, not so much on domestic timber. And on imports, we did not see any price escalation. However, in Q2, in the domestic procurement market, there are rumors of a cost increase happening. Timber cost has started going up, which is very consistent with this time of the year with the rains. But nothing out of the ordinary -- we don't expect anything out of the ordinary, the type of challenges that was faced in the last 2, 3 years. We expect this year the timber cost to be reasonably moderated and no shocks coming the way it did in the last 2, 3 years.

And sir, what will be the differential in cost versus the domestic and your procurement from imports?

So import on a per unit basis is at par with domestic, but what happens is the inward shipping cost of taking the material from the, let's say, the UP belt or from North Andhra to Rajkot, which is where our plant is located, that makes it very expensive. And that's why we are better off today being on import. Landed cost with the inward freight, the imported is slightly cheaper for us. However, there are different quality parameters, and we still need to use the domestic timber. But yes, that's the main reason why import is viable for most plants that are based out of the western part of the country, which is dependent on -- which is close to a port.

Okay, sir. And just secondly, you mentioned in your opening remarks about some slowdown that you are witnessing in the premium segment. So was it purely because of this temporary situation in North? Or do you think it will be prolonged for coming fiscal?

So yes, one was the situation in North India. That definitely had a part to play. And the premium segment largely goes to the HNI segment where a lot of bungalows are constructed. The Tower segment, we are focusing largely on contractors that are taking material on turnkey basis, furniture manufacturers and even some cases in projects. There, we did not see any decline in the volume. It came only from the premium segment. There is a little sluggishness in demand. I think the premium segment will start growing again. The July numbers are in already. So the premium segment is moving back into the right direction. It was largely, I think, driven by what happened in the North.

Understood. And sir, just lastly, if you can touch upon any sense in terms of the unorganized competition, given the timber cost, they still continue to be under pressure, but do you see that easing up by the end of the fiscal?

More than that, I think the challenge is going to come with the implementation of the QCO norms by BIS, a lot of imported material that used to come into the country, that has not happened over the last quarter. That will actually help the branded segment, which will also help the unorganized segment because the unorganized segment was facing tremendous pressure on selling because of these imports. So the unorganized sector and the organized sector, both are expected to do well going ahead because as the loading of the inventory was done in the fourth quarter across every segment by traders, a large part of the inventory has now been flushed out. So now I think the demand will start moving in the right direction for both organized and unorganized. However, with the growing per capita income, the organized sector should get a faster growth rate.

[Operator Instructions] The next question is from the line of Jayashree Bajaj. Jayashree, please unmite yourself and ask your question. [Operator Instructions] I think there's some issue with Jayashree.

I think if she can put it in the chat box, that might help.

Jayashree, can you put your question in the chat box? Yes. She is there.

What was the volume growth in Q1? Volume growth was about 9-odd percent. Has the company taken any initiative towards digitization and automation? How are these strategic investments translating operational efficiencies, new market advantages? So Jayashree, we recently have adopted a new Salesforce application and using that for better tracking of our sales team and getting them to be more effective on ground. We are also automating a lot of our back-end processes to reduce manual intervention. So those are the type of things that we are working on. I hope that answers your question on that. But largely, we are really focusing on getting the productivity of our sales force. Our current sales force substantially increased through just better planning tools and monitoring tools.

Jayashree, do you have any follow-up questions? Just want to know who is your competitor in the market?

We compete with the organized sector. And in that there are multitude of brands. We also compete with the unorganized sector because our retailers are multi-brand outlets. They keep -- they stock the unorganized sector, and they also stock material from other brands. So we are basically competing with everyone. On the premium segment, we compete with brands like Greenply, Century Ply and then there are other mid-segment brands out there. And every local market has their own -- Eastern India, there's a brand by Austin Plywood. In North, there are other brands. In South, there are other brands. So every regional area has a different brand. So yes, I hope that answers your question.

Next question is from the line of Shreyans. How will EBITDA margins improve going forward since we intend to invest in marketing and sales force? What is our target margin for FY '27?

So Shreyans, okay, if you see our EBITDA margins have been continuously improving quarter-on-quarter for the last 4 or 5 quarters. And this is in spite of us investing on sales force and marketing. Sales force is -- and marketing, both our investments and we are getting -- so we are getting better at optimizing them. I think this quarter, our marketing spend was lower. Our marketing spend this year will be at about 3.5% of sales on overall average. And over the years, that will start coming down as the revenue starts going up further. As for the sales force, we need to invest for this year as well as for future years so that the employee cost will always be slightly on the higher side. Our target margins for FY '27, it would be in the range of 6.5% to 7%. That's what we are aiming for. 6.5% would be the bare minimum that we would be looking to do.

Harshit Singhania is asking, is there any guidance for future growth and capacity utilization? And also the cash conversion cycle is increasing. So is that a matter of concern?

Right. So for future growth, we've always maintained that our current aim is to be on an asset-light model. So we are working on establishing more capacities with contract manufacturers as our demand goes up. For our main plant, Rajkot, currently, we are at about a 70% utilization, that can go up to about 85% without an issue. So there is some headroom over there. And we are working on getting to those -- to that capacity by sometime this year. The cash conversion cycle is increasing, and it is a matter of concern. In a way, yes and no. So our debtor days in the last quarter, fourth quarter has substantially shot up. So we have reduced our days debtors significantly by 3 days, and it will come -- continue to come down in this quarter as well. As for inventory days, it is slightly on the higher side, but again, the trend is in the correct direction. Largely, where you see the reduction has happened has happened on the days creditor. Creditor days, which used to be 2, 3 years ago, 160, 170 days, which has now come down to the range of 90 to 100 days. And I think that's good for the company because if we pay our suppliers on time, we will get better quality material as well as better pricing power. So that is our current focus. The company has sufficient liquidity for this. And we also have warrants that were due to convert coming -- that will be converted within the next month or so. So yes, that's the reason why the cash conversion cycle is getting worse. Our aim is to pay better and get better procurement terms.

[Operator Instructions] Shreyans, kindly unmute yourself.

Shreyans, [indiscernible] the inconvenience if you're unable to unmute yourself. If you will just put your question in the chat box, that might be easier.

Shreyans is asking, GMs have not improved over the last 3 years and EBITDA margin guidance of 6%, 6.5% by FY '27 doesn't look that good. We did 6% in FY '23.

So okay. So gross margins, if you see our mix of in-house manufactured, which used to stand at about 70% of our total revenue, today is at about 60-odd percent. The in-house manufactured goods tend to have a much higher gross margin at about 42%. The trading, which used to be 30% has now gone north of 40%. This used to have a margin of about -- this currently has a margin of about 23-odd percent. So blended, the gross margin has remained flat. However, this has gone up at each product level. So -- and that's why you're seeing this to be flat is because of the mix shifting as the company's revenues are growing. We did 6% in FY '23, but the competitive landscape and the raw material cost that FY '24 and FY '25 that we have gone through -- sorry, one by one. So FY '23, we did 6%, but the landscape -- the competitive landscape has substantially gone up. The raw material cost pressures over the last 2 years have significantly gone up. That has also had an impact. In addition, if we want to continue to grow at 15% to 18% -- we grew at 15% last year. If we want to grow at 15% to 16% consistently over the next 3, 4 years, employee cost will be one of the major factors which will be under pressure because we are also having to recruit better quality people and retain our star performers. In terms of ROCE, our aim for ROCE is to hit double digits by end of this year, anywhere between 9% to 12% is the ROCE aim that we are looking for. And if you plan to become asset-light, that means outsourced manufacturing will increase, which are lower gross margin. Yes, the lower gross margin. However, the other manufacturing expenses, which come of running a plant such as labor and everything else associated with running a plant is not there. At the right time, when the volumes are large enough, we will then look at optimizing this further. But yes, the operating -- the gross margins are lower, but so are the operating margins of buying out. We do get 22% on the outsourcing. That's a really good healthy margin that we have. The ROCE margin for this FY '26 is anywhere in the range of 9% to 11% -- 9% to 12%, sorry.

[Operator Instructions]

And -- Sorry I just read one Shreyans's comments, and I'll just go back. This thing is 6.5% EBITDA is the minimum that we are aiming for this year. So our range is 6.5% to 7%, not 6% to 6.5%. Just saw that, so I thought I'd just reiterate that. Yes. Thank you.

If there's no other questions, then -- I think there was the last question in the queue. As there are no further questions, I would now like to hand the conference over to Mr. Chitlangia for the closing remarks.

Thank you. So the first quarter was challenging for us. The demand was muted. However, we posted a double-digit growth rate. We are focused on reducing our current asset -- current assets are working, the debtor days as well as inventory days. We expect our growth rate to again increase as the year goes on. We are relentlessly investing in our team, infrastructure and supply chain. And these investments are starting to bear fruits, and the same will continue with further improvements in our operating margin. I now look forward to welcoming all of you again at the next earnings call. Thank you.

Thank you very much. On behalf of SKB Securities, I would like to thank Mr. Chitlangia for their time, and we look forward to hosting you again. Thank you for joining us, ladies and gentlemen, and have a wonderful day ahead.