DUROPLY - DUROPLY INDUSTRIES LIMITED Share Price

Management's outlook for Duroply Industries indicates a cautious but optimistic approach for the future. For Q1 FY26, the company reported a revenue of Rs. 93.5 crores, reflecting a 10.3% growth year-over-year, though down 15% sequentially. Profit before tax stood at Rs. 1.88 crores, representing a 50% increase compared to the same quarter last year. The gross margin was stable at 34.1%, while EBITDA margin improved to 5.8%.

Key points provided by management include:

1. Revenue Sources: Revenue from in-house manufactured goods remained flat at Rs. 49.5 crores year-on-year, while contract manufacturing saw a 24.9% increase to Rs. 44.1 crores.

2. Market Conditions: There was a noted slowdown in the premium product range primarily due to a challenging demand environment exacerbated by a regional conflict in North India, which is a crucial market.

3. Cost Management: Management expects timber costs to remain moderated with no extraordinary shocks as seen in the past years. They also anticipate improvements due to new compliant materials entering the market.

4. Future Margins: The target for EBITDA margins for FY27 is set between 6.5% to 7%, with current investments in sales and marketing promised to enhance operational efficiencies.

5. Growth Strategy: Duroply is aiming for an asset-light model, focusing on increasing contract manufacturing volume while maximizing the utilization of its Rajkot facility, projected to increase from 70% to 85%.

6. Cash Dynamics: There is a concern regarding the cash conversion cycle, which has elevated to 113 days. Management is keen on reducing debtor days and has improved inventory turnover, indicating an effort to enhance liquidity and procurement terms.

7. Return on Capital Employed (ROCE): The company aims to reach a double-digit ROCE between 9% to 12% by year-end FY26, indicating a commitment to efficiency and profitability despite the dynamics of the competitive landscape.

Q&A Section Summary from Earnings Transcript

Question 1: "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?"
Answer: Our timber cost remained largely flat, as we primarily rely on imports, which didn't see significant price escalation. However, in Q2, domestic procurement may face a cost increase due to seasonal factors. We're not anticipating drastic changes like in the past two years and expect timber costs to be reasonably moderated.

Question 2: "Was the slowdown in the premium segment purely because of the temporary situation in North or will it be prolonged?"
Answer: Yes, the situation in North India contributed, particularly affecting the high-net-worth individual (HNI) market. Demand for the premium segment was sluggish, but it's picking up as July's numbers indicate a rebound, suggesting the slowdown will not be prolonged.

Question 3: "Do you see unorganized competition releasing up by the end of the fiscal?"
Answer: The implementation of QCO norms by BIS will impact unorganized imports, potentially benefiting both organized and unorganized sectors. Consequently, we expect demand to recover, driven by improvements in overall market conditions and consumer spending.

Question 4: "What was the volume growth in Q1?"
Answer: Volume growth for the quarter was approximately 9%.

Question 5: "Has the company taken any initiative towards digitization and automation?"
Answer: Yes, we've implemented a new Salesforce application to enhance tracking and efficiency of our sales team. Additionally, we're automating backend processes to minimize manual intervention, significantly improving productivity.

Question 6: "Can you clarify who your competitors are in the market?"
Answer: We compete with both the organized and unorganized sectors. Notable organized competitors include Greenply and Century Ply, while various local brands dominate different regions. Our multi-brand retailers stock both segments, contributing to our competitive landscape.

Question 7: "How will EBITDA margins improve going forward, and what is the target margin for FY27?"
Answer: Our margins have gradually improved over the past several quarters despite ongoing investments in sales and marketing. We aim for EBITDA margins of 6.5% to 7% for FY27, with expectations that marketing spends will decrease relative to revenue growth.

Question 8: "What is the guidance for future growth and capacity utilization?"
Answer: We maintain an asset-light model, expecting to utilize our Rajkot plant at around 70% capacity. We believe it can go up to 85% without significant issues as demand rises, thereby facilitating our growth plans.

Question 9: "Is the increasing cash conversion cycle a concern?"
Answer: The cash conversion cycle's increase is a concern. However, we've made progress by reducing debtor days, and while inventory days are high, we aim to lower them further. Improved creditor days should enhance quality and pricing power in procurement.

Question 10: "What are your targets for Return on Capital Employed (ROCE)?"
Answer: We aim for a ROCE of 9% to 12% by the end of the fiscal year. We are focused on maintaining a consistent growth trajectory while managing costs and maximizing returns from our investments.