Rushil Décor Limited (RUSHIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Rushil Decor Q3 FY '25 Earnings Conference Call hosted by Asian Market Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhatia from Asian Market Securities Private Limited. Thank you, and over to you, Mr. Karan.

A very good afternoon, and welcome all to the Rushil Decor Q3 FY '25 Earnings Conference Call hosted by Asian Market Securities. From the management side, we have with us Mr. Rushil Thakkar, who is the Managing Director; Mr. Keyur Gajjar, who is CEO; and Mr. Hiren Padhya, who is CFO. I now hand over the call to Rushil Thakkar for his opening remarks. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. Thank you for joining Rushil Decor Limited's earnings conference call for the third quarter ended 31st December 2024. I would like to extend my gratitude to Asian Market Securities for organizing this call and to all participants for joining us today. Along with me, our CEO, Mr. Keyur Gajjar; and our CFO, Mr. Hiren Padhya are present. We have shared and uploaded the earnings presentations on the exchanges, and we hope you have reviewed the material. Let me begin with an overview of our performance during the quarter. In MDF business, total volumes was 64,800 cubic meters in quarter 3 financial year '25, reflecting a decline of 10% quarter-over-quarter and 1.7% year-over-year. This reduction was influenced by a planned maintenance shutdown at one of our facilities and a slowdown in the domestic demand during the Diwali holiday season. Export volume, however, increased by 15.6% quarter-over-quarter and 38.2% year-over-year, supported by strong demand in the international markets. Branded realization for MDF remained stable and our focus on value-added products continue to yield the result with these products now accounting for 54% of the MDF business revenue in quarter 3 financial year '25. On the operational front, the capacity utilization for MDF was optimized at 87% during the quarter. Additionally, the Andhra Pradesh facility operated at 91% capacity utilization and is steadily progressing towards optimizing capacity utilization levels, which will further strengthen the output and the operational efficiency. Furthermore, we are also seeing the benefits from the implementation of BIS certification standards, which are helping reduce imports. Turning to Laminate segment. Total volume was 768,409 sheets, reflecting a growth of 2.2% quarter-over-quarter and 4.3% year-over-year. Export volumes showed a strong increase of 20.5% quarter-over-quarter and 13.8% year-over-year. However, domestic laminate volumes saw some pressure during the quarter and capacity utilization was 83%. On the strategic front, the Jumbo Laminate expansion project in Gandeagar is on track with operations expected to commence by the end of quarter 4 financial year '25. This facility with an annual production capacity of 2.8 million sheet is designed to cater the preliminary to export markets such as USA, Europe, Australia, et cetera, where we continue to see strong demand. Our ongoing efforts to expand our distribution network have resulted in addition of over 50 new retail distributors during this quarter, further strengthening the company's presence in the domestic market. Additionally, participation in the global exhibitions and targeted customer engagement has laid a strong foundation for expanding our geographic footprint and revenue base. Looking ahead, we are focused on further improving the operational efficiencies, scaling our export footprint and enhancing the product mix to align with the market demands. We remain confident in capitalizing on global opportunities and delivering sustainable value to our stakeholders. I will now hand over the call to our CFO, Mr. Hiren Padhya, to provide the overview of our financial performance.

Good afternoon, everyone. Thank you, Mr. Rushil, and a warm welcome to all participants. I'm pleased to present an overview of our company's financial performance for the third quarter of and 9 months ending December 31, 2024. For Q3 FY '25, revenue from operations was INR 2,117 million, a decline of 0.7% year-on-year and 8.1% quarter-on-quarter. EBITDA for the quarter was INR 273 million with an EBITDA margin of 12.9%. Profit after tax was INR 115 million with a margin of 5.4% -- for the 9 months FY '25, revenues from operations was INR 6,672 million, a growth of 9.3% year-on-year. EBITDA for the period was INR 827 million within EBITDA margin of 12.4% and profit after tax was -- which was INR 353 million with a margin of 5.3%. Coming to MDF business. In Q3 FY '25, the MDF business revenue was INR 1,514 million, a decline of 2.5% year-on-year and 10.3% quarter-on-quarter. Export revenue in this business showcased a strong growth, rising 50.9% year-on-year and 16.2% quarter-on-quarter, which is driven by a strong demand in international market. MDF EBITDA was INR 234 million with an improved EBITDA margin of 15.2% in Q3 FY '25. For 9 months FY '25, MDF revenue grew 8.9% year-on-year to INR 4,949 million, with an EBITDA margin of 13.5%. Now coming to Laminate. In Q3 FY '25, the Laminate business revenue was INR 486 million, a decline of 1.7% year-on-year and 3.4% quarter-on-quarter. while export revenue increased by 3.2% year-on-year and 17.5% quarter-on-quarter. The EBITDA margin for laminate was 7.7% during the quarter. For 9 months, FY '25, Laminates revenue grew 4.3% year-on-year to INR 1,460 million and EBITDA grew 5.2% year-on-year to INR 145 million with a margin of 9.9%. Furthermore, the net debt-to-equity ratio as of 9 months FY '25 stood at 0.44. This is reflecting our commitment to maintaining financial stability and disciplined capital management. Thank you for your attention. That concludes my remarks. I would like to now open the floor for questions and answers.

[Operator Instructions] We have a first question from the line of Kaustav Bubna from BMSPL Capital.

Could you just give a summary of the total capacity for MDF in 2024 calendar year-end? And what is the expected capacity to come in, in 2025? And if you could split that between organized and unorganized. That's my only question.

So I think you are talking about industry capacity, right?

Yes, yes, yes.

So it looks like by this financial year-end, it will be around 4.2 million [ CBM ]. And expected, I think organized and unorganized -- rather, I would say, [ continuous ] and static base. So it will be around 2.2 million capacity will be from [indiscernible] and balance from the static base. So we can say around 60% capacity is still from the continuous base production.

Okay. So you said 4.2 million cubic meters this year in 2025. What was it in 2024?

I think it was somewhere between 3 million, 3.4 million.

Okay. So about a 35% increase capacity in this year? Correct?

20% to 30%, I guess.

[Operator Instructions] We have our next question from Ankit [ Gulia ] from Gulia Capitals.

Just wanted to understand that overall, the complete industry is facing some operating margins as a pressure. What is your view in terms of a broad perspective of the industry whether the operating margins in the coming quarters can improve from here? Or are there going to be more or so in this range only?

So, you're asking for Rushil? Or you would like to understand the overall market scenario in terms of our industry?

I am asking specifically for Rushil in light to the overall industry, but it is specifically to Rushil, only.

Okay. Okay. So compared to last quarter, the overall margin has decreased by around 1.5% this time. So as we said, there is a couple of reasons. First is like the MDS quantity is already down by 10%. And along with that, the value is also down by 10%. Where the reasons mainly are as already given by Rushil in his opening remarks. First is like overall market position is already affected. And secondly, the shutdown, which we have planned. And third is the seasonal effect of Diwali. Similarly, in terms of Laminate also, our plant is situated in Gujarat, where the Diwali is the main festival. So practically, I think 2 weeks plant remains close. So both bids had already affected the overall, I mean business volume as well as that has affected the margin also. If you just understand the present capacity utilization in terms of all these segments are in the range of 85% to 90% as of now. when we are already crossed the breakeven point and any further -- I mean, increase in terms of capitalization will give better margin and vice versa. So here, this quarter, there's a slight reduction in terms of capacity utilization. So because of this reason, mainly, I think this has affected. And so far as overall scenario which -- what we are thinking is like though there is a reduction in terms of margin this particular quarter. Next quarter, that is the Q4 FY '25, we are very much hopeful in terms of better performance, both ways in terms of overall volume and the margin also. Last time, we had already given the guidance in terms of overall margin. Rushil, therefore as a whole, ha given overall margin guidance of 12% to 14%, which we will definitely achieve. In terms of MDF, they've given the guidance of 13% to 14%. And in terms of case of laminate, it was 10% to 12%. Now coming to laminate, again, if you see this quarter specifically, the margins are around, I mean, 8%. But if you see the last three quarters overall margin, which is in the range of 10%. So there is a small -- I mean, plus and minus, starting from 8% to 12%. So overall, we will definitely maintain the margins which we have given as a guidance. Secondly, if you consider this particular quarter, then I think this is what we are going to achieve. But if you're asking for the next couple of quarters, next financial year, then there are a couple of things which is definitely positive. First is like capacity utlization wise, we will definitely improve than what we have achieved so far. So additional capital utilization will definitely give us a better margin. Second, the diluted product, again, we are slowly, but firmly increasing the volume and in terms of value also. So our target in terms of diluted was 50% and 55% in terms of quantity and value. In terms of value, we have already achieved 54% as of now. Quantity, again, it is in the range of 44%, 45% as of now, which we would like to achieve 50%. So first BIS standard now government is already committed. So we are very much hopeful that I think this will be implemented as early as possible. So this will also have a positive impact that I think you can understand. Fourth and fifth is if you consider next financial year. So our new projects of laminate that is Jumbo side. This, we are targeting to, I mean, start production in the month of March, then the margin for this particular product is better than what is existing margins. That is around 10% to 11%. Here, the new project margin would be in the range of 14% to 15%. So after considering all these 4,5 aspect, we are -- first, we would like to maintain whatever guidance we have given for this financial year. And so far as next year is concerned, definitely we will improve and whatever we have achieved this financial year.

[Operator Instructions] The next question is from the line of what from Mithul [ Praswad ] from QR Advisors.

I just wanted to ask this quarter, the MDF margins have improved, right, quarter-on-quarter? I just wanted to understand, is there less pressure from imports? And because of the BIS standards getting implemented, I think, from Feb 1st, are we not seeing any more imports slugging into the market? And number 2 was on the raw material cost. I think there was quite a lot of pressure because of the increase in raw materials for the last few quarters. Has that stabilized? And what is your view for the next year? And any revenue kind of growth number or guidance for FY '26 that you would be having?

I just want to answer on the first query about the import. As such we don't see significant volume of imports because of freight issue as well as anticipating the standard implementations. So very, I mean, marginal import was there in this quarter. I will talk about the raw materials. The raw material prices for this quarter was stable for us, and we also see stable raw material prices for this quarter as well. And talking about the next financial year, yes, our new plant will be up on the role by the end of Q4 2025. So we expect the revenues of more than INR 100 crores to INR 125 crores out of that new plant from Laminate and it will be all our specialized products. So we see a better margin of 12% to 14% in that as well. And coming to the first part, which you were I think asking question that the margin for this quarter in terms of MDF was better than the last quarter, right? So yes, it is almost 1.5% to 2% higher than the last quarter. So there are -- as Rushil has already said, we could maintain the raw material cost. So there is no specific increment in terms of the wood cost. Secondly, now our plant is established, both the plants. So we are just having a very good efficiency in terms of the usage of material also. So that way, we are having this better efficiency that has impacted the margin positively. Secondly, in the current year figures, we have got a small figure of around INR 2 crores in terms of the -- I mean, recently, which is accrued from the local government that is under the dish. And third will be, we have a lot of export also, if you could see the last three quarters export the overall margin in terms of export has already improved. And I think the way we are seeing the, I think, future of exports in terms of MDF specifically, and the new project of Laminate, I think it will further improve.

So going forward to this answer, I would address that last financial year-end, we had a domestic export obligation going on. which we have completed last year only. And now our strategy is really simple to focus both on value addition products, more to export as well. So our margins on that front will keep on improving that way.

Okay. So I remember there was some talk of raw materials visibility being an issue. So you don't see that kind of being there? Because I'm just trying to say as the margins -- on the MDF side.

Yes. In the South, currently, we don't see a pressure over the good prices or RMC prices. We are very much stable with the prices and we will be focusing on the strategy to make it stabilize like we'll keep it stagnant.

Okay. Okay. And what about the demand in India for MDF? Has that started to pick up? Last quarter was not great, right? So -- and also wanted to understand the exports to which countries are you doing this?

I will answer the question for exports first. For typically MDF, we are exporting to countries majorly in the Guld, then Israel than a few parts of Africa. For the domestic market after the lowry and the festive season, now the market is picking up. I mean, demand is there.

Demand is good. Sir?

yes. It's slowly, gradually moving on.

We have our next question from the line of Rishikesh Oza from RoboCapital.

My question is with respect to the value of the product. What are guiding for FY '26? Are we maintaining our volume contribution guidance from value-added product to 65% for FY '24?

I think in our last call, we said that we will maintain 60% for 2025, '26.

Okay. And what can be our MDF capacity utilization for '26?

So we'll obviously try to maintain above 90% for the next year. The overall blended capacity. So currently, we are at somewhere standing around 89% in this quarter. And our target is to maintain it above 90% for upcoming quarters as well.

So if we are to do 60% volume contribution and assuming similar realization and around 20% capacity utilization, will it be fair to say that our value-added revenues can be upwards of INR 500 crores next year?

Approximately, yes.

Okay. And for FY '26. So basically FY '26 would be new plant -- INR 100 crores, existing laminates might remain flat and MDF revenues can grow 20%. Would that fair?

Can you just repeat the question because the voice got [indiscernible].

Sure. So I was asking if FY '26, the new plant might contribute around INR 100 crores and Laminate is expected to flat the existing capacity. And the MDF revenue segment can be expected to grow at 20% plus?

Yes. So typically, first, we go on the new plant, as I rightly said that our expected revenue is more than INR 100 crores to INR 125 crores from the new plant. Laminate plant is -- with the quantity, what we already have will remain stagnant. But the product mix always changes. So we have always a better opportunity to change the product mix and get some more additional revenues out of it. And third is MDFCS, we will be doing the 60% of value addition next year. So accordingly, the margins and the realization will improve that way. And also, we consider that after BIS implementation is done, we will have a chance to make a price hike on that as well.

Okay. And lastly, you said the new plant can do 14%, 15% EBITDA margin. So is that possible from the first year itself that is FY '26 from the new plant?

So first year, initially for the first two quarters, it will be more on the trial and error basis. So we'll be taking out some products on the trial basis also we'll be optimizing the capacity slowly, slowly. So first year, the margin should be around 10% to 12%, but for first two quarters. But later on, on the second half of the year, yes, we can expect the 12% to 14% margin.

We have our next question from the line of Resha Mehta from GreenEdge Wealth.

So fairly new to the company. I'm not sure if you've already covered in your opening remarks, but just if you could comment on why has there been a volume degrowth of 14% in MDF in the Indian market. And also 11% degrowth in Indian market for Laminate. So what's the reason for such high volume degrowth in the Indian market for both MDF and laminate?

So first of all, for MDF, we speak, we have always seen this growth during the Diwali season and the festival season because rather people would enter into their new home or they will be just seeking for their raw material after the good day start. So it is always -- this has been a trend of the Indian market. So we don't see any kind of abnormality for this. And at the same point of time during the quarter when the Diwali is over, we see a spike in our sales as well. So this is a counter effect. It's not something which is not been observed throughout the industry. So this is a nominal impact. And talking about the Laminate the same reason follows that as well because when in Gujarat, the Diwali is considered to be a bigger festival. So our plants are also down for 15 days. But market degrowth, we don't see. We have a good amount of order books getting filled now after the Diwali and the inquiries are now getting converted into orders as well.

But from a seasonality standpoint, if you're saying that Diwali is typically a slow quarter for us, and that would generally tend to be true for all quarters 3s, right? So we are doing a Y-o-Y comparison. So if -- so Diwali last year would have also been subdued, right? So just not able to reconcile this?

So if you see our last year's MDF sales are slow in terms of quantity, it's more or less sale same volume like total volume was around 1.4 lakh and export was 45. So altogether, it was 1.85 -- 185,000 -- sorry, I'm talking about 9 months. So if I talk about large quarter, it was 65,895 [ CBM ] and this year, the same quarter, it is 64,800. Second thing, there was some maintenance at the plant. These are the two major reasons.

So maintenance at the plant would have lost you how much of volume would we have a quantification there?

So roughly estimated value of 4,000 CBM approximately around INR 11 crores.

Okay. Okay. And how do you see the demand for both these segments, MDF as well as Laminate currently in the market? Do you think it has slowed down over the last 2, 3 quarters or is it getting even worse?

I think it's -- as I said earlier, that after 15 January, now we can see pursing market. So it's improving also in export market, too. And I also would like to add a few things that whenever the new capacities in the market come, they come with a slightly challenge for the old players. So anyways, some of the capacities are also absorbed by the peer competitors as well. So this is not a very big challenge for us because MDF has a CAGR of 20%. And every year, if we see an 800 cubic meter plant coming into the market, it is rightly absorbed in the market. And it takes hardly 1 or 2 years to stabilize everything, but this is not a big effect of what we see.

And even if you see our 9 months MDF sales it was 75% last quarter of our capacity last year in the last 9 months. In these 9 months, it's almost 85%.

Okay. And the other thing, so while we're saying that MDF imports have greatly reduced or they are not big number to the overall MDF demand in India now. So then what gives us the confidence that, let's see, once BIS kicks in, we would be able to raise prices.

Definitely, like in the last quarter, we take some take around 2% to 3% average and it's still maintained. So we don't see any problem. Even import is also expensive nowadays and import is completely negligible because it's not even 4,000, 5,000 CBM a month. So if we look at Indian capacity it's 4.2 million. And secondly, after implementation of BIS I'm sure there will be the importance of brand and other value-added products. And for that, I'm sure there will be some further price increase.

So currently for MDF, would it be right to say that the challenge is definitely the high supply that the new capacity that have come in and also the subdued demand.

Yes, sir, I agree. Capacity is coming up and demand is also growing at a good pace. But as I said last time, for like last year, we almost achieved 75% of our capacity. And this year, we have achieved 85% and we want to go further.

Right. And just the last one, laminate. If you look at the price realizations of the export market, those have come down. That's seen a degrowth of 9%. And even for 9 months, I've seen a degrowth of 7%. So any particular reason over here that we are seeing a decline in price realization in export markets for Laminates?

Usually, it's all about product product mix. In fact, we didn't see any price reduction or price increase in last quarter. Even freight were consistent. So it's just some of the product mix on -- so change of product mix may lead to this kind of things.

If it's purely product mix and got nothing to do with demand or increased competition in the export market? No, no, no. In fact, we are now -- once we have a new laminate size, then we'll be able to have better realization.