Duroply Industries Limited (DUROPLY.BO) Q3 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 Limited -- Industries Limited's Q3 FY '26 Result Webinar. We have with us Mr. Akhilesh Chitlangia, MD and CEO; and Mr. Vijay Kumar Yadav, CFO. Friends, this webinar is being recorded for compliance reasons. And during the discussion, there may be certain forward-looking statements, which must be viewed in conjunction with the risks that the company faces. We'll have Mr. Chitlangia's opening remarks followed by a Q&A session. Thank you, and over to you, Mr. Chitlangia.

Good morning, Navin, and good morning to all participants today. Thank you for hosting this once again, Navin. Good morning, and thank you for attending our webinar for third quarter FY '26. On this call, we also have Mr. Vijay Kumar Yadav, our CFO. Duroply was founded in 1957 and over the years, has built a strong brand in the industry, and it's recognized across the country for its high quality of -- high standard of quality, which we have maintained over the years. Duroply recently celebrated its 69th year in operation, and we are proud to have played a meaningful part in India's [Technical Difficulty] over the last 6 decades. Third quarter revenue at INR 93.05 crores (sic) [ INR 93.06 crores ], a 3.6% growth over the same period last year, down 11% from the previous quarter. The business reported a profit before tax of INR 1.37 crores, up by 13.7% from the same period last year. For the quarter, revenue from in-house manufactured goods stood at INR 60.7 crores, a 11.6% growth over the same period last year and up by 15% on a quarter-on-quarter basis. Revenue from our contract manufacturing sites stood at INR 32.3 crores, down 8.7% on a year-on-year basis and down by 37% on a quarter-on-quarter basis. Gross margin this quarter stood at 37.1%, up from 34.2% same period last year and up from 34.8% in Q2 FY '26. Our EBITDA for the quarter stood at INR 5.4 crores, a 23.7% increase from the same quarter last year, though down 16.4% from previous quarter. In margin terms, the EBITDA margin stood at 5.8% of sales as compared to 4.9% in the same period last year and 6.2% in Q2 FY '26. If you look at the 9-month performance, our revenue stood at INR 291 crores, up by 9.6% (sic) [ 9.7% ] in the same period, and the business reported a profit of INR 5.92 crores as compared to INR 3.6 crores. Revenue from in-house manufactured goods stood at INR 163 crores, up by 1.8% and revenue from contract manufacturing stood at INR 128 crores, marking a 21% growth over the same period. Gross margin saw a significant improvement, standing at 35.3% as compared to 34.7% in the same period. Overall, this has been a very challenging quarter for us, which has been hampered extensively by the environment-related restrictions and construction in our core market of North India and in particular, Delhi and the NCR areas. That has been very challenging for us. And now I'll request Vijay Yadav to take us through some of the financials.

Thank you, sir, and good morning to everyone. Let me take you some of the key financials for the last year. For 9-month FY '26, employee expenses is 12.2% of sales as compared to 11.1% for 9-month FY '25. Marketing expenses is at 2.8% of sales as compared to 3.6% of sales for the same period. Finance expenses is 2.4% of sales as compared to 2% of sales for the last year same period. Debtor for 9 months is at 45 days of sales as compared to 43 days for the last year. Inventory is at 182 days of consumption as compared to 165 days of FY '25. Creditor days is 101 days as compared to 84 days of FY '25. As a result, cash conversion cycle is at 125 days for the 9-month FY '26. Our ROCE on an annualized basis is at 11.85% as compared to 10.64% of the previous year. So these were the brief of the key financials. Thank you, sir.

Thank you, Vijay, and we would be more than happy to take any questions that you may have.

Thank you, Mr. Chitlangia. Thank you, Mr. Yadav. Friends, we now open the floor for the Q&A session. [Operator Instructions] We take the first question from [ Nishita Shanklesha ].

So I had two questions. So one is that in the previous call, you mentioned that our own manufacturing will get better in H2 FY '26 as the premium product segment grows. So what is an update on that? Do we see any traction on the premium product segment?

So yes, Nishita, there is a traction on the premium product segment. For this quarter alone, there was a big shift from our contract manufacturing to our in-house manufacturing. We had higher revenues from our in-house manufactured goods, which is a significant shift. On a quarter-on-quarter basis alone, the in-house manufacturing goods was up nearly 15%. And that is a reflection that there has been a movement in the right direction for the company, which is also reflected in the increase in our gross margin.

Understood. So like can you give a bifurcation on how much revenue will be -- like got from in-house manufacturing and from contract manufacturing, if possible?

Yes. For this quarter, as I stated earlier, our in-house manufactured goods stood at INR 60.7 crores and contract manufacturing stood at INR 32.3 crores.

INR 33.2 crores?

INR 32.3 crores.

INR 32.3 crores, right? Okay. Understood. And my next question is, you mentioned that we'll end the year FY '26 at 6.5% EBITDA margin earlier. So in this quarter, we had 5.8% of EBITDA margin only. So do we still see that happening? Do we still like see us ending 6.5%?

We will be somewhere in that direction, between 6% to 6.5%.

Okay. So like how -- what will drive this EBITDA margin growth in Q4 FY '26?

Well, we expect the revenue to be slightly better in the fourth quarter as well. Quarter 3, we saw a significant challenge, especially in North India, which is our core market related to the pollution ban. So there is that. Second is also our gross margins have started improving. And I think with a combination of both will allow us to hit that number for the year.

Okay. Okay. Understood. And like going forward, the current like revenue from in-house and contract, how do we see that going forward? Are we going to increase our in-house manufacturing more? What is the like percentage range that it will be in?

So in-house manufacturing will continue to improve I think in the fourth quarter as well. And for the next financial year, I think it's a little too early to say what would be the range, but we expect a 55-45 ratio mix to continue, which is what it currently is -- sorry, 60-40 ratio to improve slightly to 65-35 maybe next year, but it's too early for me to say. So we expect that this -- sorry, yes. Go ahead.

So currently, 60% comes from contract manufacturing and 40% comes from in-house?

No, no, no. I think -- just one second. 64% comes from in-house. That's what it was for this quarter. I think the 64% to 65% is what we're looking for the fourth quarter as well to be from in-house and 35% to be from outhouse.

[Operator Instructions] Nishita, do you have a follow-up question?

No. No. Sorry.

We'll take the next question from Tarun Rathi -- from [ Aswanth Rajan ].

So my question was with respect to the import [ scare ] that had reduced over the past few quarters over the last year, in fact. So what is the current scenario on that? And if we do see imports flowing in again in the future, how do we hedge ourselves for that risk?

Aswanth, this is related to finished goods, I'm assuming?

Yes.

Okay. So the finished goods import that was coming -- so now there is the QCO norms, which have been implemented since February or March of this year. So there is not much of imported goods that are coming into the industry currently. However, what has happened is that the unorganized sector has had a slight revival in the last quarter or so, in the last 5, 6 months on account of the cheap imports not coming. So it's not had an impact on the premium segment as yet. But the unorganized sector, especially it was Yamunanagar or Kerala, which was struggling because of the cheap imports, those industries have had a slight revival.

So given on the unorganized end, how do we see this for us? Are we seeing any stress on our volumes in any way? Or...

There is -- there was an expectation that there would be a significant improvement in the branded plywood segment, but the branded plywood segment has become a very competitive space right now. So there are some challenges on volume, especially in terms of financial liquidity in the building materials space overall has been a little tight from the channel partner side. But I think this is temporary, and I think the country is just going through a phase, and this will kind of sort out itself in the coming quarters or maybe over the next 1 year, hopefully. Having said that, for us as an organization, we've been very, very disciplined on our debtors and on that side. So we will continue to maintain that discipline.

[Operator Instructions] We take the next question from [ Henna Murah ].

Am I audible?

Yes. Loud and clear.

I just wanted to ask you on the timber front, right? We have seen inflation over the last 8 quarters or so. What we understand is at least plywood, those timber prices are sustaining where they are not going up. When do we see this coming off? Anything I think in Feb, can we expect maybe next quarter? Just wanted to understand from that.

So timber prices have stabilized, you're right. But I do not expect them to soften too much. I think they will be in this range for some time. We have to also note that a lot of wood veneer that comes into the country today is coming from [Technical Difficulty]. There is also the factor of the Indian rupee becoming weaker. And there might -- as a result, the domestic wood timber prices or demand could go up if the dollar continues to strengthen, and that would put again, pressure on the raw material prices. So it's very, very fragile and very difficult to say which way would it go. But currently, for the foreseeable few months, I don't see a major hike or softening in the raw material prices for the plywood industry.

Okay. Understood. So where would we be in terms of per kg? Would we be at INR 9 today in the north?

Ma'am, we don't produce timber -- we don't procure timber in the northern part of the country. So I would not be the right person to give an answer on that.

Okay. But any average price that you would know, I mean, what we would be working with?

No, I don't want to speculate on that.

Okay. Understood. And the second question is more on the demand front, right? I mean you did say that the competitive pressures are higher on the branded side. So would that also mean that the secondary demand where the consumption is still lagging and that's the reason for this entire vicious circle...

There are two parts to this. So our tracking of tertiary or secondary sales shows that there is a higher movement of secondary sales over last year, significantly higher, but that's not relating into our primary revenue growth for the time being. One of the reasons for that is the credit tightness that we maintain with our channel partners. And we've taken a conscious call that we will not chase revenue growth over fiscal discipline. So that has it a factor. Secondly, as I said, in the third quarter, we had the GRAP-4 restrictions in Delhi NCR, which was very extended in the month of December and then post Diwali as well. And compared to last year, this year, we've had, I think, more than 14 to 15 working days loss in Delhi NCR in surrounding areas. And as a result of that, the credit cycle becomes tighter. The cash flows for the channel partners and distributors become tighter because there's no construction happening, there's no flow of funds into them. And that's had an impact on us. And as an organization, more than 60 -- 55% to 60% of our revenue comes from northern part of the country. And so we are very sensitive to this. But I think fourth quarter onwards and then quarter 1 next year, I think we should be back on track.

[Operator Instructions] As there are no further questions, I'd like to hand over the webinar back to Mr. Chitlangia for his closing remarks. Thank you, and over to you, Akhilesh.

Right. Thank you, ladies and gentlemen, for joining our Q3 FY '26 earnings call. I really look forward to seeing you at the next earnings call as well. As I mentioned that this quarter was challenging, but the organization's gross margins have improved and our EBITDA margins are year-on-year improving, and we expect this performance to keep continuing. And look forward to seeing you at the next webinar.

Thank you very much, Mr. Chitlangia and Mr. Yadav for taking time out to interact with investors. We look forward to hosting you in the next quarter once again. Thank you very much, ladies and gentlemen. Have a lovely day.