Duroply Industries Limited (DUROPLY.BO) Q2 FY2026 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I am pleased to welcome you on behalf of Duroply Industries Limited and SKP Securities to Duroply Industries Limited's Q2 FY '26 result 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.

Good morning, everyone. Thank you, Chirag. And a warm welcome to everyone today for our earnings webinar for second quarter FY '26. On this call, I'm joined by Mr. Vijay Kumar Yadav, who is also our CFO. On the business front, Duroply closed the second quarter revenue at INR 104.4 crores, a 15% growth over the same period last year and up by 11.6% from the previous quarter. The business reported a profit before tax of INR 2.67 crores, up by 133% from the same period last year. For the quarter, revenue from in-house manufactured goods stood at INR 52.8 crores, down by 6.1% over same period last year and up by 6.8% on quarter-on-quarter basis. Revenue from contract manufactured -- manufacturing stood at INR 51.58 crores, a 49.4% growth on a year-on-year basis and up by 17.1% on a quarter-on-quarter basis. Gross margin this quarter stood at 34.8%, marginally down from 35.6% during the same period last year and up from 34.1% in Q1 FY '26. This was not -- this shift was largely due to higher growth rate in the contract manufactured goods. Our EBITDA margin for the quarter stood at INR 6.46 crores, a 61.5% increase from the same quarter last year and a 20% growth over the previous quarter. In margin terms, EBITDA margin stood at 6.2% of sales as compared to 4.4% in the same period last year, up from 5.8% in Q1 FY '26. If you look at the half yearly performance, our revenue stood at INR 197.96 crores, up by 12.7% -- 12.7% in the same period. The business reported a profit before tax of INR 4.55 crores as compared to INR 2.41 crores in the same period last year. Revenue from in-house manufactured goods stands at INR 102.3 crores, down by 3.3% from the same period last year. Revenue from contract manufacturing stands at INR 95.65 crores, marking a 37% growth over the same period. Gross margins in H1 FY '26 34.8% as compared 35.2%. On the product mix for the quarter, Duro segment saw a 5% growth rate on a year-on-year basis and a 16% growth on a quarter-on-quarter basis. Our mid-segment brand, Tower, continued to showcase robust growth with a 61% growth on a year-on-year basis and a 9% growth on a quarter-on-quarter basis. On a half yearly basis, Duro products saw growth of 3.8%, whereas Tower grew by 53%. And we are relooking at some of our marketing efforts to ensure that the growth in our premium offering grows -- the premium product starts growing faster, and we expect to see results of the same in the near future. We are quite pleased with how this quarter turned out for us. The demand side has been soft in the first half of the year, and we're still growing faster than the industry average, and our growth rate is consistent in the mid-teens. Our focus is to keep driving operational and strategic efficiencies and so that's what our aim is. We have also hired very aggressively, increasing our talent pool, and this is an investment which we are confident that will pay results for us in the near future. I now request Vijay to take you through some of our other financial metrics. Vijay, you are not audible.

Hello.

Yes, you are now audible.

Good morning, everyone. Let me take you through some of the key financials during H1 '26 with the comparison of H1 '25. Employee cost is at 12% of sales as compared to 11% during H1 '25. Marketing expenses is 2.5% of sales as compared to 3.6% of sales during the same period. Finance expenses is 2.3% of sales as compared to 2% during same financial year period H1 '25. Debtor holding days is 44 days of sales as compared to 47 days. Inventory holding period is 166 days of consumption against of 165 days of H1 FY'25. Creditor days is 107 days as compared to 117 days. Cash conversion cycle is 103 days. Return on capital employed on an annualized basis is 9.8%. So these are the key financials during this period. Thank you, sir.

Yes. Let's open the floor to the questions, please.

[Operator Instructions] We have the first question from Nishita.

Yes. So I just wanted to understand that you mentioned that our own manufacturing is down by 6.1%. So is there any reason for that? What is our capacity utilization currently? And if there is any CapEx plan in the future?

Okay. So Nishita, our own manufacturing goods is down this year because the premium product offering hasn't grown as aggressively as it should have. And that's one of the key reasons. In -- so I think in the second half of the year, we'll see a big improvement on that side as the premium product offering starts to grow. So second -- in fact in quarter 2, there was some positive movement on the premium product side as compared to this first quarter. The factory is standing at about 70% -- 68% to 70% utilization. And we are doing some rebalancing, continuous improvements, et cetera. So without major CapEx, I think our annualized capacity, which stands at about INR 260 crores per annum can go up to INR 300 crores to INR 320 crores. So that's the focus on that side.

Okay. So like when do you see that happening, the annual capacity going from INR 260 crores to INR 300 crores to INR 320 crores? Will it be done by FY '26 end?

By mid of FY '26, we should be in a position to be in that direction, yes.

Mid of FY '27, you mean?

Yes, mid of FY '27.

Okay. Okay. Understood. Also, my next question was, you mentioned that we are doing marketing initiatives to grow our premium segment. So -- and currently our marketing expense is 2.5% of the sales. So do you see that expense increasing and if it is, then by how much is it going to increase?

So Nishita, if you look over the last few years, we've been spending close to 3.84% of sales on marketing. A large part of our brand awareness that we wanted to do in the trade particularly to give confidence to the trade that we have backed -- we've gone to a very tough phase. So we are now out of that phase. So that part of our marketing strategy is over. We expect our total marketing spend to be about 3% to 3.3% of sales. So there would be a slight uptick towards later in this year, but not more than that. We are focusing on getting our influencers, the right quality of influencers onboarded. I think that's more critical for us. And a lot of manpower has been pushed into the market. So the training and development is happening right now as we speak. So both of those combined should help the movement in the premium segment offering to happen.

Okay. And what is our employee expense currently? And is that going to increase?

Our employee spend, as Vijay mentioned, was at 12% of sales, which is on the higher side and in the near future should come down.

Okay. Understood. And my last question is if you would like to give any guidance on the revenue growth and if the margins are sustainable at 6%?

Our revenue growth is for a mid-teens growth. So anywhere in the range of 13% to 16% is what we're aiming for this year and we are on track for that. And I think margin at about this 6% probably might even go up further to over 6.5% in the coming quarters, especially fourth quarter, that's what we're looking for.

Okay. Anything for FY '27, if you can, any [indiscernible] on this?

Nishita, I think, again, a mid-teens growth and then another 0.5 to 1 percentage point improvement in the operating margin.

[Operator Instructions] We have the next question from Saurav Khara.

What is your [current] assessment of the Indian plywood industry?

In what terms sort, Saurav, in terms of demand or...

Yes, yes, demand or structural changes happening?

As we are aware, there was an implementation of the quality control order by the Government of India, which has restricted a large amount of imports that used to come into this industry. And because of that, a lot of importers had hoarded months and months of inventory. Now we're towards the end of that hoarding of inventory, and we expect demand for the domestic manufacturers now in the second half of the year to improve. Having said that, the industry is currently growing at 5%, 5.5%, maybe 6%. So that's the growth rate that the overall industry is at. I think this growth rate would stick to maybe about 6%, 7% in the coming years. We are looking to grow at about double the industry growth rate. I mean, 2.5x to 3x the industry growth rates. If you take 5% as the industry growth rate, then we are on track to grow at about 15%. From a consumption perspective, we don't see any major slowdown. I hope that answers your question.

Yes. Sir, what percentage of imports contribute to the domestic industry?

Saurav, now import has become virtually impossible because of the quality control order.

What was the percentage?

I think 15-odd percent would have been imported.

This will drive the industry growth?

I think so. See there are two things. One, there's a very big uptick in construction activities, which has happened. I think the changes in GST, though not impacted our industry, but it has made other industries for construction much more attractive. And the way there is the urbanization or from rural to semi-urbanization happening, all of that is going to drive growth for home interiors. And people are now preferring plywood, especially in the premium segment or the mid-segment because of its longevity as a product solution. So there will be growth in this industry. That will continue.

What is the industry size currently?

The plywood industry size is estimated at about INR 30,000 crores to INR 35,000 crores.

Out of this, organized and unorganized...

70% is unorganized. The unorganized stood at about 80% about 7, 8 years ago, which has now become 70%. And so there is a shift towards the organized.

In terms of raw material risk, do you face any price volatility risk?

So India is overall short on timber. And that is one of the major inflationary pressures we have faced. Currently, raw material in India from timber is coming from plantations, farmer plantations happening in various parts of the country and also from imported timber. So imported timber or imported raw material, that has a risk on the U.S. dollar side and whether -- how global trade was developed and the freight, shipping industry, how that develops. But the Indian timber industry -- the timber supply, there's a lot of competition or there's a lot of demand for that. And we don't have enough plantations happening, though, in the recent 3, 4 years, various industries, including the wood panel industry, the paper industry, all have taken many -- various initiatives working with the Government of India to boost plantation of timber in India.

Do you have 3 to 5 years growth plan where we want to reach our -- in the company?

Saurav, our aim is to grow at about 15% CAGR for the next 4 years, 3 to 4 years. 15% to 18%, yes. But let's take 15% on the safer side.

Are you trying to diversify to any other segment more?

Not for another year, 1.5 years.

We have the next question from Nishita.

So I just wanted to understand about the product mix. I actually missed your opening commentary or the product mix. How much is the -- how much does the premium segment contribute to the overall product mix?

The premium segment currently stands at north of 50%. It's actually close to 66%.

Okay. And do we plan to increase this contribution?

So the premium segment is growing, right? It's still growing at a modest rate, but it is growing. So in terms of -- our focus is to get the growth rate up, but our mid-segment offering, which is something we started only 3 or 4 years ago. The basis for the growth rate of that will be much faster as we've seen over the last 2 to 3 years. But I think over the next 2, 3 years, the 66% of premium will eventually settle on a 50-50 simply because the base on the mid segment is much lower.

50% will be from premium segment and 50% from the mid segment?

Correct. But that will take 2 to 3 years for it to reach that ratio, 2 years.

Okay, understood. And how much does the premium segment has higher margin than the mid-segment, by how much is the margin -- what is the margin now between the two segments?

At a gross level? See, the entire 100% of the mid segment is coming through our contract manufacturers. Some part of the premium segment does come from the -- very small but some part of it also comes from the contract manufacturers. But on average, the gross profit margin on the contract manufacturing side stands at about 22%. And on the own in-house manufacturer stands at about 44%.

44%?

Yes.

[Operator Instructions] We have the next question from Saurav Khara.

Sir, what is the market size of premium segment?

Premium segment market size, let's say, INR 30,000 crores is there. So then about INR 5,000 crores to INR 6,000 crores would be the premium segment, 15%.

15%?

15% or 20%.

15% to 20%. And what is our addressable market, total addressable market?

Total addressable market, if we remove the bottom end of the unorganized sector, would then be about INR 20-odd thousand crores.

Are we planning for any exports?

No, sir, as I mentioned earlier, until the quality control order didn't come in place, India was importing quite a large amount of its plywood requirement. That can only happen when export countries have access to cheaper raw material. Even in India today, a large part of our raw material base is imported. So on the export side, as a country, we're still very uncompetitive and exports is not a clear focus area for us.

[Operator Instructions] Thank you very much. That was the last question in queue. As there are no further questions, I would like to hand the conference over to Mr. Chitlangia for the closing remarks.

Thank you. Thank you, everyone, for joining our earnings [indiscernible] for Q2 FY2026. Our growth rate this quarter was at 15% and the investments that we've been doing, the improvement in performance, the company is moving in the right direction. Our focus is to build a robust organization that can deliver long-term results on a consistent basis. And we continue to keep offering high-quality products to our customers and drive shareholder value. And we look forward to seeing everyone at the next earnings call. Thank you.

Thank you very much. On behalf of SKP Securities Limited, 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.

Thank you.