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Did you know? - In wood panels industry in India, MDFs contribution is only around 20-30% and plywood accounts for 70%; however, worldwide 45-50% is MDF, 45-50% particle board and minuscule contribution from plywood.
The usage of MDF is expanding rapidly in India and being a capital intensive industry, there are a handful of major players.
Below, we have shared notes from Q1 FY 23 concall of Rushil Decor which is a major player in the MDF and the laminate segment. Sometime back, the company completed a major expansion in the MDF space and is now gradually improving the capacity utilization. Hope you find the details useful in your search of investment opportunities.
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Rushil Decor - Notes from Q1 FY 23 con-call
- In the quarter, several positive points emerged for Rushil Décor. The ever increasing experience combined with an excellent team delivered one of the most fabulous results for us.
- The MDF segment showed a very significant growth in terms of EBIDTA and overall profitability with capacity utilization. We have been striving to increase the capacity utilization at the AP plant and at the same time, we are focused on reducing the cost and increasing our efficiencies.
- Our other focus has been to gradually increase our exports and enhance the value added contribution.
- EBIDTA margin from MDF segment stood at 27.45% and overall EBIDTA margin was 22.55% in Q1 FY 23
- In terms of raw material pricing for specific chemicals, we are witnessing stable or I would say downtrend leading to low cost pressure.
- We achieved capacity utilization of over 84% in the quarter under discussion. And we achieved the highest turnover in a single quarter
- We believe that now the pricing is quite stable and exports, if we talk about US dollar, it's little bit volatile. So we see that in coming days, the performance may improve
- We have a business model where in we have some products which we export to Gulf region, some products we say export to far south-east Asia, Europe, some products in domestic market
- For laminate we really don't see any import competition
- The utilization at the AP plant stood at 73%. We have set target in terms of higher capacity utilization and increasing the value added contribution
- In total, for the Q1 it would be around 19,000 Chikmagalur, and for the AP plant, it is around 40,000. So overall, if we calculate the total capacity utilization, it's roughly about 58,700 cubic meters
- So far there is no constraint in terms of increasing capacity. I think reaching to 110% efficiency is not a big issue because this German Technology, they have a very conservative rating. When we talk about 100%, we can reach up to 110% too
- In Chikmagalur plant it was around 32.22% EBIDTA and in AP plant it was 24.55%. And if we consider average, it was around 27.45% for MDF business
- Value addition we have almost reached 29% now. For the Vizag unit, it's almost 10-12%
- MDF opportunity:
- We are expecting the growth rate between 15-20% annually for MDF product and when we talk about panel industry in general, MDF contributes around 20%, 30%, not more than that. And 70% is contributed by plywood segments. worldwide it is like 45 - 50% is MDF and 50 - 55% is particle board.
- There are a lot of organized furniture makers and startups are coming up. And these people, they normally prefer MDF rather than plywood and other kind of products. We also see a huge possibility to export our materials and a lot of places, today we have replaced Thailand and Vietnam in Gulf region
- New supply in MDF:
- If you put up any MDF plant, it normally takes 2 to 3 years. If you talk about the MDF CAGR, it's almost 15-20%. If someone puts up around 1000 CBM per day and if we talk about existing rate of 6,000 CBM consumption pattern, then also this capacity will be easily absorbed in the market
- Yes, I do agree when there is a new capacity in the market, for some time there's little bit of pressure on pricing
- MDF capacity in India - Capacity available is almost like 2.3 million CBM per year and I assume that capacity utilization was almost like 1.8 to 1.9 million CBM
- Foreign currency debt - It would be around 30% of the total outstanding debt. The foreign currency debt was basically for Andhra Pradesh project only, and it was from German Financial Institution. As of now the outstanding would be around 21 million.
- Finance cost - In terms of foreign currency the finance cost is hardly 0.85%. And if you see overall finance cost would be in the range of 6.5%.
- Guidance - Q1 FY 23, we are sitting on 22.55%. The way we are positioned as of now, I think, we'll be able to maintain this margin 1 or 2% here and there. Overall, I think it should be in the range of 20 - 21. That is what I think, we are thinking for.
Disclaimer: This is not a recommendation to buy/sell Rushil Decor. These notes are as announced by the companies on exchanges and only for the purpose of information and education.
SEBI Research Analyst Registration No. INH100001690
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Details of Associate: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
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