Duroply Indust.

Duroply Industries reported a revenue of ₹93.5 crores for Q1 FY26, demonstrating a 10.3% year-on-year growth. However, this represented a 15% sequential decline from the previous quarter. Profit Before Tax (PBT) saw a significant increase of nearly 50% year-on-year, reaching ₹1.88 crores. The company's EBITDA stood at ₹5.39 crores, up 31% from the same period last year, with an EBITDA margin of 5.8% of sales, compared to 4.8% in Q1 FY25 and 5.1% in Q4 FY25.

Revenue from in-house manufactured goods was ₹49.5 crores, remaining flat year-on-year but declining 17% quarter-on-quarter. Contract manufacturing revenue grew 24.9% year-on-year to ₹44.1 crores, though it saw a 5.5% quarter-on-quarter decline. In terms of product mix, the premium 'Duro' segment experienced a 2% year-on-year growth but an 18% quarter-on-quarter degrowth. Conversely, the mid-segment brand tower showed robust performance with a 45% year-on-year growth, despite a 5.5% quarter-on-quarter degrowth.

Gross margin for Q1 FY26 was 34.1%, consistent with Q1 FY25 but slightly down from 34.9% in Q4 FY25. The improvement in profitability margins, particularly EBITDA, was attributed to better operating leverage. Employee costs increased to 11.9% of sales from 11% in Q1 FY25 and 9.5% in Q4 FY25, reflecting investments in talent. Marketing expenses were optimized, reducing to 2.2% of sales from 3.3% in Q1 FY25 and 4.2% in Q4 FY25.

Timber costs remained largely flat for in-house manufacturing, which relies on imports. Management noted that imported timber, on a landed cost basis, is slightly cheaper than domestic timber for their Rajkot plant due to inward freight costs from other regions. While there are rumors of a cost increase in the domestic procurement market for Q2 due to rains, the company expects timber costs to be reasonably moderated this year without significant shocks.

The quarter was challenging due to muted demand, particularly in the premium segment, which was impacted by the 'war situation' in North India, a key market for HNI customers. However, the mid-segment continued to show strong growth. The implementation of Quality Control Order (QCO) norms by BIS is expected to benefit both organized and unorganized sectors by restricting imported materials, which previously put pressure on the unorganized segment. Management anticipates demand to move in the right direction, with organized sector potentially achieving faster growth due to rising per capita income.

Duroply is investing in digitization and automation, including the adoption of a new Salesforce application to enhance sales team tracking and effectiveness. Backend processes are also being automated to reduce manual intervention. The company maintains an asset-light growth model, planning to establish more capacities through contract manufacturers as demand increases. The Rajkot plant currently operates at 70% utilization, with a target to reach 85% utilization sometime this year.

The cash conversion cycle is increasing, which management acknowledged as a concern. Debtor turnover improved to 44 days from 47 days last year, and management expects further reductions. However, creditor days significantly increased to 170 days from 90 days in Q4 FY25, contributing to the worsening cash conversion cycle. The company's focus is on improving procurement terms by paying suppliers on time to secure better quality materials and pricing power.