duroply indust Management discussions

Global economy

Overview: The global economic growth was estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs. Global inflation was 8.7% in 2022, among the highest in decades. US consumer prices decreased about 6.5% in 2022, the highest in four decades. The Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result is that the world ended in 2022 concerned that the following year could be slower.

The global equities, bonds and crypto assets reported an aggregated value drawdown of USD26 trillion from peak, equivalent to 26% of the global gross domestic product (GDP). In 2022, there was a concurrently unique decline in bond and equity markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered negative returns of more than 10%. Gross FDI inflows – equity, reinvested earnings and other capital – declined 8.4% to $55.3 billion in April-December. The decline was even sharper in the case of FDI inflows as equity: these fell 15% to $36.75 billion between April and December 2022. Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).

The S&P GSCI TR (Global benchmark for commodity performance) fell from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent crude oil dropped from a peak of around USD 120 per barrel in June 2022 to USD 80 per barrel at the end of the calendar year following the enhanced availability of low-cost Russian oil.

Regional growth (%)	2022	2021
World output	3.2	6.1
Advanced economies	2.5	5
Emerging and developing economies	3.8	6.3

Performance of major economies

United States	Reported GDP growth of 2.1% compared to 5.9% in 2021
China	GDP growth was 3% in 2022 compared to 8.1% in 2021
United Kingdom	GDP grew by 4.1% in 2022 compared to 7.6% in 2021
Japan	GDP grew 1.7% in 2022 compared to 1.6% in 2021
Germany	GDP grew 1.8% compared to 2.6% in 2021

(Source: PWC report, EY report, IMF data, OECD data)

Outlook

The global economy is expected to grow 2.8% in 2023, influenced by the ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to 7%. Despite these challenges, there are positive elements within the global economic landscape. The largest economies like China, the US, the European Union, India, Japan, the UK and South Korea are not in a recession. Approximately 70% of the global economy demonstrates resilience, with no major financial distress observed in large emerging economies. The energy shock in Europe did not result in a recession and significant developments, including Chinas progressive departure from its strict zero-Covid policy and the resolution of the European energy crisis, fostered optimism for an improved global trade performance. Despite high inflation, the US economy demonstrated robust consumer demand in 2022. Driven by these positive factors, global inflation is likely to be still relatively high at 4.9% in 2024. Interestingly, even as the global economy is projected to grow less than 3% for the next five years, India and China are projected to account for half the global growth (Source: IMF).

Indian economy

Overview: Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias economic growth is estimated at 7.2% in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy. India surpassed China to become the worlds most populous nation (Source: IMF, World Bank)

Growth of the Indian economy

	FY 20	FY 21	FY 22	FY 23
Real GDP growth(%)	3.7	-6.6%	8.7	7.2

Growth of the Indian economy quarter by quarter, FY 2022-23

	Q1	Q2	Q3	Q4
	FY23	FY23	FY23	FY23
Real GDP growth(%)	13.1	6.3	4.4	6.1

(Source: Budget FY24; Economy Projections, RBI projections)

According to the India Meteorological Department, the year 2022 delivered 8% higher rainfall over the long-period average. Due to unseasonal rains, Indias wheat harvest was expected to fall to around 102 million metric tons (MMT) in 2022-23 from 107 MMT in the preceding year. Rice production at 132 million metric tons (MMT) was almost at par with the previous year. Pulses acreage grew to 31 million hectares from 28 million hectares. Due to a renewed focus, oilseeds area increased 7.31% from 102.36 lakh hectares in 2021-22 to 109.84 lakh hectares in 2022-23. Indias auto industry grew 21% in FY23; passenger vehicle (UVs, cars and vans) retail sales touched a record 3.9 million units in FY23, crossing 3.2 million units in FY19. The commercial vehicles segment grew 33%. Two-wheeler sales fell to a seven-year low; the three-wheeler category grew 84%.

Till the end of Q3FY23, total gross non-performing assets (NPAs) of the banking system fell to 4.5% from 6.5% a year ago. Gross NPA for FY23 was expected to be 4.2% and a further drop is predicted to 3.8% in FY2023-24. As Indias domestic demand remained steady amidst a global slowdown, import growth in FY23 was estimated at 16.5% to $714 billion as against $613 billion in FY22. Indias merchandise exports were up 6% to $447 billion in FY23. Indias total exports (merchandise and services) in FY23 grew 14 percent to a record of $775 billion in FY23 and is expected to touch $900 billion in FY24. Till Q3 FY23, Indias current account deficit, a crucial indicator of the countrys balance of payments position, decreased to $18.2 billion, or 2.2% of GDP. Indias fiscal deficit was estimated in nominal terms at ~ H 17.55 lakh crore and 6.4% of GDP for the year ending March 31, 2023. (Source: Ministry of Trade & Commerce) Indias headline foreign direct investment (FDI) numbers rose from US$74.01 billion in 2021 to a record $84.8 billion in 2021-22, a 14% Y-o-Y increase, till Q3FY23. India recorded a robust $36.75 billion of FDI. In 2022-23, the government was estimated to have addressed 77% of its disinvestment target (Rs. 50,000 crore against a target of Rs. 65,000 crore).

Indias foreign exchange reserves, which had witnessed three consecutive years of growth, experienced a decline of approximately $70 billion in 2022, primarily influenced by rising inflation and interest rates. Starting from $606.47 billion on April 1, 2022, reserves decreased to $578.44 billion by March 31, 2023. The Indian currency also weakened during this period, with the exchange rate weakening from Rs. 75.91 to a US dollar to Rs. 82.34 by March 31, 2023, driven by a stronger dollar and increasing current account deficit. Despite these factors, India continued to attract investable capital. The countrys retail inflation, measured by the consumer price index (CPI), eased to 5.66% in March 2023. Inflation data on the Wholesale Price Index, WPI (calculates the overall price of goods before retail) eased to 1.3% during the period. In 2022, CPI hit its highest of 7.79% in April; WPI reached its highest of 15.88% in May 2022. By the close of the year under review, inflation had begun trending down and in April 2023 declined below 5%, its lowest in months. Indias total industrial output for FY23, as measured by the Index of Industrial Production or IIP, grew 5.1% year-on-year as against a growth of 11.4 percent in 2021-22. India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2022. As of March 2023, Indias unemployment rate was 7.8 percent. In 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1 percent Y-o-Y in RE 2022-23. The total gross collection for FY23 was Rs. 18.10 lakh crore, an average of Rs. 1.51 lakh a month and up 22% from FY22, Indias monthly goods and services tax (GST) collections hit the second highest ever in March 2023 to Rs. 1.6 lakh crore. For 2022–23, the government collected Rs. 16.61 lakh crore in direct taxes, according to data from the Finance Ministry. This amount was 17.6 percent more than what was collected in the previous fiscal. Per capita income almost doubled in nine years to Rs. 1,72,000 during the year under review, a rise of 15.8 percent over the previous year. Indias GDP per capita was 2,320 USD (March 2023), close to the magic figure of $2500 when consumption spikes across countries. Despite headline inflation, private consumption in India witnessed continued momentum and was estimated to have grown 7.3 percent in 2022-23.

Outlook

There are green shoots of economic revival, marked by an increase in rural growth during the last quarter and appreciable decline in consumer price index inflation to less than 5 percent in April 2023. India is expected to grow around 6-6.5 percent (as per various sources) in FY2024, catalysed in no small measure by the governments 35% capital expenditure growth by the government. The growth could also be driven by broad-based credit expansion, better capacity utilisation and improving trade deficit. Headline and core inflation could trend down. Private sector investments could revive. What provides optimism is that even as the global structural shifts are creating a wider berth for Indias exports, the country is making its largest infrastructure investment. This unprecedented investment is expected to translate into a robust building block that, going ahead, moderates logistics costs, facilitates a quicker transfer of products and empowers the country to become increasingly competitive. This can benefit Indias exports in general, benefiting several sectors. The construction of national highways in 2022-23 was 10,993 kilometres; the Ministry of Road Transport and Highways awarded highway contracts of 12,375 km in the last financial year (Source: IMF).

The global landscape favours India: Europe is moving towards a probable recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP estimate of 6.8% and America and Europe are experiencing its highest inflation in 40 years. Indias production-linked incentive appears to catalyse the downstream sectors. Inflation is steady. India is at the cusp of making significant investments in renewable energy and other sectors and emerging as a suitable industrial supplement to China. India is poised to outpace Germany and Japan and emerge as the third-largest economy by the end of the decade. The outlook for private business investment remains positive despite an increase in interest rates. India is less exposed to Chinese economic weakness, with much less direct trade with China than many Asian peers. Broad-based credit growth, improving capacity utilisation, governments thrust on capital spending and infrastructure should bolster investment activity. According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. The downside risks are protracted geopolitical tensions, tightening global financial conditions and slowing external demand.

Union Budget FY 2023-24 provisions

The Budget 2022-23 sought to lay the foundation for the future of the Indian economy by raising capital investment outlay by 33% to H 10 lakh crores, equivalent to 3.3% of GDP and almost three times the 2019-20 outlay, through various projects like PM Gatishakti, Inclusive Development, Productivity Enhancement and Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments. An outlay of H 5.94 lakh crore was made to the Ministry of Defence (13.18% of the total Budget outlay). An announcement of nearly Rs. 20,000 crores was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector. An outlay of Rs. 1.97 lakh crore was announced for Production Linked Incentive schemes across 13 sectors. The Indian government intends to accelerate road construction in FY24 by 16-21% to 12,000-12,500 km. The overall road construction project pipeline remains robust at 55,000 km across various execution stages. These realities indicate that a structural shift is underway that could strengthen Indias positioning as a long-term provider of manufactured products and its emergence as a credible global supplier of goods and services

Global furniture market overview

The global furniture market is projected to reach USD 1,070.87 billion by 2030, with a CAGR of 5.7% from 2022 to 2030. The increasing demand for branded home furniture and rising consumer spending on home decor products are among the key factors driving the furniture industry. The emergence of commercial spaces, particularly in India, is anticipated to boost market growth in the coming years. Moreover, government-backed initiatives to provide housing for all are expected to have a positive impact on growth. North America is expected to witness the fastest growth in the global market due to growing demand for multifunctional furniture in the region. The beds segment was valued at USD 162.23 billion in 2021 and is projected to reach USD 257.74 billion by 2030. The increasing focus on incorporating current bedroom styles in home renovations is driving growth. The commercial application segment is expected to experience a significant CAGR of 6.1% from 2022 to 2030, driven by a rising demand for office space and growth in hospitality sectors across the world. Europes global furniture market is valued at USD167.81 billion in 2021. The market is expected to register a CAGR growth of over 5%, mainly due to a growing tourism industry and subsequent demand for luxury furniture in the hospitality sector.

The global office furniture market is pegged at USD 60.8 billion in 2022. According to IMARC, the market is expected to reach USD 77.4 billion by 2028, with a compound annual growth rate of 4.05% from 2023 to

2028. The expansion of new offices, growth of IT parks and commercial areas are driving factors for the global demand for office furniture. (Source: grandviewresearch, globenewswire.com, prnewswire, openpr.com)

Indian furniture industry overview

The Indian furniture market is expected to generate a revenue of USD 5.33 billion in 2023, with an expected annual growth rate of 8.27% (CAGR 2023-2027). The home d?cor segment is the largest contributor with a volume of USD 1.75 billion in 2023. Technological advancements like the availability of high-speed internet networks and spiked absorption of smart gadgets are boosting the e-retail sector in India. These advancements are expected to provide ease to customers to buy furniture through online channels. Besides, the rising number of smartphone users across the country and the increased volume of online shopping has encouraged the furniture industry players to introduce their products through online channels.

Indias furniture market is anticipated cross USD27 billion by the end of 2025. The growth of this market is driven by the expanding middle-class population, rising disposable income and an increasing number of urban households. With India projected to become the worlds third-largest economy in the near future, the government has identified the furniture industry as a key player in promoting ‘Make in India goods globally. Additionally, Indian furniture exports have seen a remarkable growth rate of 222 percent between the years of 2021-22, compared to 2013-14, highlighting the competitiveness of Indian-made products in global markets. (Source: statista.com, prnewswire.com, aninews.in)

Global furniture e-commerce industry overview

The global furniture e-commerce market worldwide generated around USD 29 billion in 2022 . The market is expected to reach about USD 41 billion by 2030, representing a growth rate of 41%.

The growth potential of the industry is reflected in the steady increase in the average value of online orders for home furniture, which surpassed USD 500 per order in the second quarter of 2022. The United States remains the largest furniture market in the world, but the Asia-Pacific region is also expanding in both size and significance, representing two of the top six major markets. (Source: shopify.com)

Indian plywood sector overview

The Indian plywood market reached a size of Rs. 195.8 billion in the fiscal year 2021-2022. Plywood is a type of engineered wood product made from several layers of thin wooden veneers that are glued together with the grains of adjacent layers rotated at a 90-degree angle. It offers many benefits such as being reusable, flexible, resistant to chemicals and fire, easy to install and having increased stability under changes in temperature and moisture. Plywood is commonly used in construction for building floors, roofs, furniture, doors, interior walls and exterior cladding. The Indian plywood market is primarily driven by the growing demand for furniture from the residential sector, due to factors such as urbanisation, changing lifestyle patterns and an increasing number of nuclear families in India. Additionally, with many people preferring semi-furnished or fully furnished houses, there has been a significant increase in the renovation and refurbishment of existing residential areas, which is further driving the demand for plywood in the Indian market.

In addition, the market outlook in the country is positive due to the rapid expansion of distribution networks and decreased manufacturing costs. The market value is projected to reach INR 297.2 Billion by 2027-28, with a CAGR of 7.4% from 2022-23 to 2027-28. (Source: imarcgroup.com)

Indian veneer market overview

Veneer sheets are widely used in both residential and commercial buildings as a surface material due to their aesthetic appeal, durability and versatility. They are made from thin slices of real wood and require less wood during production compared to other wood sheets. They are commonly used to enhance the appearance of furniture, doors and architectural elements. Additionally, veneer sheets provide comfort and longevity. (Source: databridgemarketresearch.com)

Indian flush door segment overview

Flush doors are a more cost-effective option compared to traditional wooden doors and offer several advantages such as being resistant to stains, scratches, damage, termites and easy to clean. It is predicted that these features will drive the need for flush doors in both residential and commercial constructions. Flush doors come in a variety of types such as laminated flush doors, hollow core flush doors and cellular core flush doors.

During the period ranging from 2022-2029, the Asia Pacific region is expected to dominate the flush door market with India and China being the major contributors. The flush door market is expected to grow as a result of the rapid development of infrastructure in the region. (Source: fortunebusinessinsights.com)

Plywood growth drivers

Digital technologies: Industry 4.0 is also high on the agenda for the furniture industry, as the incorporation of digital technologies is expected to lead to better manufacturing flexibility and speed, mass customisation and increased productivity. (Source: Euromonitor)

Rise in the number of nuclear families: Nuclear families make up 58.2% of households, causing a rise in demand for compact and space-saving products. (Source: business-standard.com)

Sustainability: The trend is expected to create future growth opportunities and significantly reduce energy costs. Furthermore, changes in consumer preferences and buying habits are shifting more furniture production companies towards digital channels for sales, leading to increased investment in e-commerce solutions and the use of CGI and Augmented reality technologies to enhance the online shopping experience. (Source: Euromonitor)

Urbanisation: Urbanisation is driving an uptick in construction projects worldwide, prompting a greater focus on building structures that can withstand natural disasters like earthquakes. This has led to a significant increase in investments in plywood products, which are known for their strength and flexibility. Many companies and residential areas are turning to plywood to ensure the stability and safety of their buildings. (Source: futuremarketinsignts)

Shift in consumer preference: In major cities, 53% of renters prefer semi-furnished homes, while 32% prefer unfurnished and only 15% prefer fully furnished. There has been a significant rise in the renovation of residential areas, leading to an increase in demand for plywood in the Indian market. (Source: Times of India)

Emergence of new marker players: The Asia Pacific region is expected to dominate the plywood market, driven by growing demand for softwood plywood in construction projects. The market growth is attributed to factors such as rising infrastructure development, rapid industrialisation and a large proportion of furniture manufacturing in the region. (Source: futuremarketinsights)

Demand for interior design: The growth in the interior design and furniture sectors are driving the plywood market. These industries are increasingly using plywood over raw wood, leading to more plywood usage in households. Plywoods versatility, which can be used for various applications such as speaker making and cost-saving benefits through minimal waste generation and high durability compared to particle board and MDF board are driving increased usage. (Source: futuremarketinsights)

SWOT analysis Strengths

• The company has a broadbased distribution network throughout India, enabling to reach a large customer base.

• The company offers a range of different types of plywood catering to the diverse market.

• The companys distribution system ensures that their products are widely available and easily accessible to customers.

• The companys brand is well-established and holds a strong market position as a leader in the North Indian region.

• The location of the companys manufacturing facility is advantageous in meeting the demands and needs of the market they serve.

• The industry in which the company operates has high entry barriers, providing the company a competitive edge.

Weaknesses

• The company faces competition from companies that are not as well-established or structured as they are.

• The availability of resources and fluctuation in raw material prices may impact the functioning of the company.

• An excess in supply of the companys products could negatively impact its financial performance.

Opportunities

• The market for wood panel products from organised sector is expanding at a rapid rate than the unorganised sector.

• The countrys national per capita income is enhancing.

• The percentage of Indias population that belongs to the millennial generation is higher than the worldwide average.

• The implementation of GST has accelerated the expansion of Indias organised furniture industry.

Threats

• Unorganised plywood manufacturers in India may resort to pricing their products lower, which could affect the competition in the market.

• Export restrictions for the countries rich in timber might be levied.

• Raw material cost might remain in a higher growth trajectory.

Details of significant changes in the key financial ratios

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key financial ratios and any changes in Return on Net worth of the Company including explanations thereof are given below:

Ratio	March 2023	March 2022	% change*
Current ratio	1.01	0.81	24.69
Debt equity ratio	0.43	0.78	-44.87
Debt service coverage ratio	1.52	0.38	300.00
Return on equity	0.06	(0.09)	-168.29
Inventory turnover ratio	3.77	2.57	46.78
Trade receivables turnover ratio	12.42	9.78	27.01
Trade payables turnover ratio	4.15	2.94	41.16
Net capital turnover ratio	27.28	10.67	155.72
Net profit ratio	0.02	(0.03)	-160.48
Return on capital employed	0.12	0.02	537.49

*For change of more than 25% please refer Balance Sheet Note No. 39

Company overview

Duroply Industries Limited (DIL) is a well-established plywood manufacturer in India. The company operates a plywood and related products facility in Rajkot, Gujarat. The companys DURO line of products is becoming increasingly popular among consumers due to its innovative design, craftsmanship and exceptional customer service.

Companys financial performance

During the year under review, the Company generated a revenue of Rs. 302.34 Crores compared to Rs. 190.83 Crores in the previous year, a growth of 58.43%. The Company earned a net profit of Rs. 5.23 Crores, as opposed to a net loss of Rs. 6.21 Crores in the previous year.

Business risk management

Risk management is an important aspect of any business. However, having a comprehensive risk management framework in place can help the organisation effectively mitigate risks and ensure business continuity. An effective risk management system can help minimise surprise, improve services, proactively manage changes, source resources efficiently, optimise resource utilisation, prevent losses and reduce waste. Duroply Industries Limited has a robust risk management process in place, which is regularly reviewed by the Board of Directors to assess its effectiveness. The process involves evaluating risks related to various business activities and implementing effective mitigation strategies to minimise their impact.

Risks and concerns

Competition risk: Rising competition may result in a reduction in the Companys market share.

Mitigation: Duroply has a strong network of distribution and a wide range of products across plywood, veneers and doors categories, helping the Company in deepening its market penetration. Moreover, focus on product quality and innovation is projected to result in growth across the market cycle.

Product risk: The Companys products may become irrelevant and experience weakened business, leading to an excess in the inventory and a decline in its revenues.

Mitigation: While manufacturing its products, Duroply not only considers the current trends but also the future ones. Moreover, the Company considers product usability, quality, aesthetically pleasing and price-value proposition.

Finance risk: The Companys inability of effective financial management could have a negative impact on the sustainability of its operations.

Mitigation: The Company benefits from a debt-service ratio of 1.52 and a healthy interest cover of 2.37x and is focusing on improvement of working capital days and receivable days to ensure an optimal financial stability.

Quality risk: Lack of product quality may have a severe impact on product sales and brand.

Mitigation: The Company has state-of-the-art facilities manufacturing best quality products to ensure maximising of resource utilisation and minimisation of wastage.

Distribution risk: An inefficient distribution network may restrict the Companys geographical expansion.

Mitigation: Duroply has over 950 dealers, distributors and retailers spread throughout India, which helps in maintaining a wide and robust logistics network, further helping in addressing the customer needs faster.

Demand risk: There is a risk that emerging product demand may not materialize the way once forecasted.

Mitigation: Each of the companys product segments was selected based on a relatively under-explored demand pattern that has only grown over time. The company has selected to deal in a product mix whose relevance is only likely to increase in a prosperous India.

People risk: The company could fail to attract or retain competent professionals.

Mitigation: Duroply is a preferred industry employer and the companys talent retention is the highest within its sector. The company offers unmatched professional and personal growth opportunities within its sector.

Innovation risk: The company could face brand erosion if it does not introduce new products.

Mitigation: The Companys R&D team consistently introduces new products that keeps trade channels energised and the end consumer engaged.

Human resources management

The company believes that the quality of its workforce is crucial to its success and is dedicated to providing them with the necessary skills and knowledge to adapt to advancements in technology. During the year, the company maintained positive relations with its employees and focused on providing training and skill development opportunities to help them navigate the changing work environment. The Companys permanent employee strength stood at 521 as on 31st March, 2023.

Cautionary statement

Certain statements in this Management Discussion and Analysis, describing the Companys objectives, outlook and expectations, may constitute "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied. Several factors make a significant difference to the Companys operations, including climatic conditions, economic scenario affecting demand and supply, Government regulations, taxation, natural calamity and such other factors over which the Company does not have any direct control.