Rushil Decor Ltd Management Discussions

INDIAN ECONOMY

The Indian economy has demonstrated remarkable resilience amid global challenges, including liquidity issues, banking crisis, and supply-chain disruptions. Consequently, it has positioned itself as one of the worlds fastest- growing economies, overtaking the UK to become the fifth-largest economy. Several factors such as increased capital expenditure, foreign investments, higher domestic consumption, favourable Government policies, and a thriving manufacturing sector have contributed to this success. Private consumption and investment have also played a significant role by improving transportation infrastructure, logistics, and the overall business environment, creating a favourable setting for businesses to thrive. Initiatives by the Indian Government such as the National Logistics Policy, PM Gati Shakti, and Production-Linked Incentive (PLI) schemes, have further stimulated innovation and growth in the country. Despite the economic growth, inflation remained a persistent concern in India as it stood at around 6.7%, surpassing the RBIs target. To tackle this issue, the RBI raised interest rates quarterly, which had a dampening effect on spending. However, in April 2023, the RBI opted to maintain the status quo and keep interest rates steady, further allowing the earlier rate hikes to take full effect. However, the positive result was seen when the inflation rate eased to a 16-month low of 5.66% in March 2023.

OUTLOOK

The RBI has projected that Indias economy will experience a growth rate of approximately 7.2% in 2023 and 6.5% in 2024. The Indian Government is giving priority to taxation measures to support this economic growth. The increased tax collections will be utilised to fund a range of infrastructure development projects. In addition, the Government plans to implement PLI schemes to ensure that the fiscal deficit remains stable. These schemes are expected to reduce imports, thereby strengthening the countrys economic position. Furthermore, the Government also introduced the seven guiding priorities called Saptarishi in the Union Budget 2023-24 designed to empower the economy and fulfil the aspirations of the Amrit Kaal vision.

To ensure the long-term sustainability and stability of the economy, the Government has implemented a medium- term framework for public finances. This framework aims to strike a balance between fostering economic growth and preserving fiscal prudence.

(Source: World Economic Outlook, April 2023: A Rocky Recovery (imf.org)

Indias economy to grow by 6.4% in 2022-23, rise to 6.7% in 2023-24 ? Asian Development Bank (adb.org))

INDIAN FURNITURE INDUSTRY

The Indian economys steady and remarkable growth has led to a significant surge in demand for real estate and commercial properties. The expanding population and demand for affordable housing have further fueled the residential real estate industry. There has been a notable rise in the demand for luxury housing, spurring the need for furniture such as sofa sets, dining sets, beds, and chairs in major Tier-2, Tier-3 cities due to rise in disposable incomes and potential rise in residential buildings.

Indias furniture industry originally renowned for its unique and exceptional designs and characterised by rich handcraft and traditional art have evolved to include designed interiors which reflects the changing preferences. With a growing middle-class population, increasing disposable income, and more urban homes, the Indian furniture market is expanding rapidly. While small local firms dominate the market, organised players have gained significance in the past decade, contributing to the sectors growth.

US$15.79 BN (2023) TO US$ 26.85 BN (2028)

Indian Furniture Market Forecast CAGR: 11.20%

Factors: Income, Urbanisation, Lifestyle Segments: Home, Office, Outdoor

Online and mobile shopping trends are expected to drive furniture sales. The tourism, hospitality, and corporate sectors contribute to rising demand. These factors will propel significant growth opportunities on the Indian furniture market covering wood panels, laminates, and MDF.

(Source: https://www.mordorintelligence.com/industry- reports/india-furniture-market)

THE WOOD PANEL INDUSTRY

The fiscal year 2022-23 commenced on an optimistic note for the wood panel industry only to traverse through a phase of nuanced deceleration before concluding the year on a satisfactory front. Escalating prices of end products tested the boundaries of buyers tolerance, while inflation in raw material costs exerted pressure on manufacturers margins. Compounding these challenges was the issue of imports, particularly evident in the case of MDF. Although exporters encountered fewer logistical problems compared to the preceding year, the economic struggles of the importing nations restrained the industrys growth trajectory.

However, playing a pivotal role in furniture manufacturing within India, this sectors growth potential remains substantial, offering ample room for modernization and advancement. The Indian wood panel sector, encompassing products like plywood, MDF, laminates, and particleboards, has exhibited remarkable growth in recent times and holds a significant value of 430 Bn as of 2022-23. This sector is projected to further expand to 530 Bn by the fiscal year 2025-26, showcasing a compelling CAGR of 7.2% between 2022-23 and 2025-26.

The driving forces behind this escalating demand are intertwined with the burgeoning residential and commercial real estate sectors. Factors such increasing urbanisation, rising disposable income, growing housing demand, product premiumisation, and a preference for branded items collectively fuel this demand surge. Organised players are expected to experience higher growth due to the rising demand for branded products, supported by favourable macro factors and an increased presence in the mass premium segments. Notably, segments like MDF and laminates are witnessing significant growth as the wood panel industry becomes more organised. After a subdued period over the past five years, there has been a noticeable upswing in demand for wood panel products, reflecting a positive shift in the market dynamics driven by the increasing need for residential and office spaces.

MEDIUM DENSITY FIBREBOARD (MDF)

Medium-density fibreboard (MDF), an engineered wood panel formed from coalescing wood fibre, has a non-directional grain structure, ideal for cutting and machining without splinters. Its advantages over plywood include smoothness, consistency, cost-effectiveness, and eco-friendliness, making it a favoured choice in various applications. The MDF industry in India, valued at approximately 50 Bn, has shown a consistent CAGR of 11% from 2010-11 to 2022-23. It is projected to reach 60 Bn by 2025-26, with an expected growth rate of 15-20% in volume terms. This growth can be attributed to its unique advantages, such as easy moulding, machining, and painting capabilities, making it a preferred material for readymade furniture. Moreover, MDF is approximately 30-35% cheaper than plywood, while still offering moisture resistance, making it an appealing alternative for various applications.

MDFs expanded product range with enhanced aesthetics, cost-effectiveness, and versatility has led to its increasing use in multiple industries. Globally, MDF holds over 70% of the wood panel market due to its eco-friendly nature and ease of use. In India, it is steadily gaining ground and projected to reach 50% market share by 2030.

(Source: Prabhudas Lilladher - Wood Panel Sector Report)

LAMINATE SHEET

The domestic laminates industry is valued at 65 Bn in 2022-23. It is projected that the Indian laminates market will reach 90 Bn by 2025-26, with a notable CAGR of 11.5% during 2022-23 to 2025-26 period. This growth can be attributed to several factors. Firstly, it is driven by the higher living standards among consumers. Secondly, there is a clear shift in consumer preference towards modern home furnishings. Lastly, the ongoing process of urbanisation is significantly boosting the demand for laminates.

Indian Laminates Market Growth Forecast (2022-23 to 2025-26)

Current Value: 65 Bn (2022-23)

Projected Value: 90 Bn (2025-26)

CAGR: 11.5% (2022-23 to 2025-26)

Laminates offer numerous advantages over veneers and hardwood. Their waterproof and scratch-resistant properties make them highly durable and suitable for a wide range of applications. Moreover, there is a diverse selection of colours in laminates, whereas the options in veneers and hardwood are dependent on the type of wood used. Additionally, laminates are cost-effective, and nearly 1-2 times cheaper than veneers. These factors collectively contribute to the growing popularity of laminates in the market.

(Source: Prabhudas Lilladher - Wood Panel Sector Report)

OPPORTUNITIES AND THREATS Opportunities

- Growing Middle-class: Indias rising middle-class population has been driving the demand for better- quality and aesthetically appealing furniture. As disposable incomes increase, consumers are willing to spend more on furniture that reflects their lifestyle and preferences.

- Urbanisation: Rapid urbanisation has led to an increase in the number of urban households. Urban dwellers tend to have smaller living spaces, creating a demand for space-saving and multifunctional furniture solutions.

- Affordable and Modular Furniture: There is a significant market opportunity for affordable and modular furniture, catering to the needs of millennials and young professionals who seek practical and versatile options.

- Customisation and Personalisation: Consumers are seeking unique and personalised furniture pieces that reflect their individual tastes and preferences. Offering customisation can be a lucrative opportunity for furniture manufacturers and retailers.

- Furniture for Co-living Spaces: Co-living spaces are gaining popularity, especially among young professionals and students. Designing furniture specifically for these communal living spaces presents a promising opportunity.

Threats

- Competition from Imported Furniture: The liberalisation of trade policies, imported laminate sheet, MDF board and other panel products from other countries might pose a threat to domestic manufacturers, especially those offering premium products.

- Unorganised Sector: The presence of a significant unorganised sector in the Indian laminate and panel board market can create pricing disparities and quality issues, affecting organised players.

- Infrastructure Challenges: Logistics and distribution can be challenging in certain regions of India, affecting the efficient delivery of laminate and MDF board products.

- Counterfeit Products: The prevalence of counterfeit laminate and MDF board products can undermine the reputation of genuine manufacturers and result in revenue loss.

GOVERNMENT INITIATIVES

Union Budget 2023 allocation towards Sector

Indias untapped potential, particularly in real estate and allied sectors, was a focal point in the Union Budget 2023- 24. The focus on infrastructure and real estate development is pivotal. An increase in the urban infrastructure budget positively impacts the real estate industry. Improved infrastructure, such as roads, bridges, airports, and public transportation systems, will attract more potential homebuyers and businesses. Smart city initiatives are poised to further elevate demand, potentially boosting property values, investment, and market growth. The ripple effect extends to economic stimulation through improved logistics, potentially creating job prospects. Additionally, the real estate landscape is embracing tech-driven innovations to align with evolving demands.

Government allocation for

Ministry of home affairs: 2.06 Lakhs Crs

Pradhan Mantri Awas Yojana: 79,590 Crs (2023-24)

The Government of India is steadfast in promoting domestic manufacturing via public procurement orders and the Phased Manufacturing Programme (PMP). State governments are proactively nurturing furniture clusters near ports to bolster local manufacturing and curtail import reliance. Furthermore, the Government of Madhya Pradesh has approved a 450-acre land for an international mega furniture cluster in Indore at Betmakhurd. This will help in reducing imports, boosting local manufacturing, and generating 12,000 jobs. The clusters operation aims to raise Indores furniture market value five-fold to 5,000 Crs, with over 80 manufacturers interested in investing 850 Crs Prospects of establishing more clusters near ports are on the horizon that will ultimately benefit to products being used in furniture like laminate sheets, MDF board and other allied products.

Source: https://www.99acres.com/articles/union-budget- real-estate-industry-reacts.html

Corporate Overview

Rushil Decor is a premier player in Indias Laminate and MDF panel industry, spanning its influence across 51 countries worldwide. Rooted in its foundation in 1993, the company has carved an indelible mark as a sought-after partner on a global scale. Melding expertise with artistic ingenuity, Rushil Decor weaves intricate designs that exemplify craftsmanship. Its product range encompasses Decorative and Industrial Laminates for Residential and Commercial Spaces. Rushil Decor boasts a portfolio of over 1,200 designs, a feat that solidifies its leadership within the laminate industry. In the realm of Indias MDF board manufacturing, it claims the distinction of being the third-largest. This achievement is underscored by the presence of four distinct brands that enrich its diverse portfolio - VIR Laminates, MDF, PVC, and STUDDIO. Each brand encapsulates a unique essence, contributing to the companys multifaceted impact.

Modern State-of-art Manufacturing Facilities Rushil Decor is a modern manufacturer of Decorative Laminated Sheets and MDFs distinguished by its front-line facilities located strategically in Gujarat, Vishakhapatnam, and Chikmagalur. The Companys commitment to technological excellence is evident through its meticulous selection of machinery from industry-leading manufacturers, a choice that underlines its dedication to optimal production processes. This dedication is further mirrored in the impressive production capacities of its facilities, notably the Gujarat unit with a robust Laminates Capacity of 34.93 Lahks, alongside the Karnataka and Andhra Pradesh facilities boasting MDF Boards Capacities of 90,000 cbm and 2,40,000 cbm, respectively. This formidable blend of advanced machinery, expansive capacities, and a wide- reaching network of branches, distributors, and dealers across India positions Rushil Decor as not only capable but truly efficient in seamlessly meeting the escalating demand for its high-quality products.

Segmental Performance

The Company primarily concentrates on two segments: Laminates and MDF board. It has footprints to over 51 countries, success fully establishing a robust brand presence in international markets. In 2022-23, the Company experienced a significant revenue surge in both segments. The revenue from the MDF board segment witnessed an impressive growth of 44%, while the laminate sheet segment also showed a commendable increase of 12%.

Details	Laminate Sheet		MDF Board
	2021-22	2022-23	2021-22	2022-23
Revenue from operations	189.74	208.35	434.42	621.43
Profit before interest and tax	10.99	14.60	43.36	110.83

Focussed Segments

- Laminate sheet

- Medium-density fibreboard (MDF) and value-added products

- Value-added products contributed 36% of the overall revenue of the MDF boards in terms of value in 2022-23

- The Andhra Pradesh plant achieved a capacity utilisation rate of 72%, while the Chikmaglur plant performed even better, operating at nearly 82% capacity. As anticipated at the beginning of the financial year, the Companys MDF capacity utilisation surpassed the 75% mark. The Company aims to achieve this by focussing on the production of value-added products, which are expected to make a significantly higher contribution to its overall output.

KEY DEVELOPMENTS DURING THE YEAR 2022-23 Year in Brief with way Forward

The management has outlined a comprehensive plan to boost capacity utilisation by 5-10%, resulting in anticipated revenue growth of 15-20% in value terms for the upcoming year. It has set ambitious targets, aiming to reach export volumes of 5000- 6000 CBM/month. To further enhance performance, the focus is on augmenting the contribution from value-added products, with a targeted capacity utilisation of 90% to 95% over the next two financial years. Encouragingly, the value-added mix for the Vizag plant surged by 73% in Q4 and 21% growth in entire value-added mix compared to Q3 of 2022-23, signifying promising prospects ahead.

The Companys primary goal is to elevate the capacity utilisation levels to a range of 90% to 95% within the next two years, a significant increase from the current utilisation of 75% in 2022-23. To achieve this, it is focussing on optimising capacity utilisation in its existing plants and improving overall efficiency. Additionally, the Company is expanding its distribution reach by partnering with new channel collaborators and increasing its presence in existing channels. Quality remains a top priority, and it continuously captures customer feedback and adapts to changing trends to create a differentiated portfolio of products and services that meet their needs and expectations. Through these efforts, the Company is dedicated to providing exceptional value and ensuring customer satisfaction.

RISK AND MITIGATION

Risk	Description	Mitigation
Economy and market risk	Changes in the market landscape can have a significant influence on product demand. Fluctuations in the prices of raw materials, like wood and adhesives, or change in infrastructure or real estate can impact the growth.	Establish relationships with diversified suppliers to mitigate raw material price risks. Focus on the premium segment, enhance exports, and increase brand visibility for sustained profitability. Strategically positioned facilities serve to expand MDF markets.
Competition risk	Intense competition in the laminate sheet and MDF board industry has the potential to impact financial performance, profit margins, and the overall standing in the market.	The Company continuously invests in expanding its capacity to reinforce its position as a market leader. Focussing on innovative designs and unique features to stand out in a competitive market.
Operational risk	Any disruptions in operations including supply chain transportation issues or delays in receiving materials, could affect production and timely deliveries. These factors have the potential to impact the Companys performance, including revenues, margins.	Improving market reach and expansion. Maintaining strict operational discipline to control costs effectively. Generating robust cash flow supported by a strong brand image. Maximising the use of funds through responsible fund management efforts.
Risk	Description	Mitigation
Receivables risk	The Companys short-term capital may be negatively affected by the untimely recovery of payment from customers.	The Company assesses creditworthiness, sets limits, monitors collections, manages subsidies, and has an internal system for managing.
Raw material cost risk	The MDF board production at Rushil Decor relies on two essential materials: agroforestry wood and chemicals. Any price hikes in these raw materials directly or indirectly impact our costs and profitability structure.	The Companys reliance on agroforestry as the main raw material source supports sustainable sourcing. Collaborating with farmers and forest stakeholders, it has implemented plantation initiatives to ensure a steady supply. MDF board manufacturing plants in Karnataka and Andhra Pradesh are strategically located, with easy access to agroforestry wood near the plant locations.

FINANCIAL HIGHLIGHTS

Details	2022-23	2021-22
Revenue from Operations	838.4	624.16
Profit Before Tax	101.2	30.68
Profit After Tax	77.7	22.80
Earnings Per Share (EPS)	39.01	11.45
Non-Current Liabilities	334.7	340.91
Current Liabilities	299.5	259.06
Equity Share Capital	19.91	19.91
Other Equity	343.5	266.88
Total Equity	363.4	286.79
Total Equity and Liabilities	997.6	886.79

KEY FINANCIAL RATIOS

Details of significant changes in the key financial ratios during 2022-23 are summarised below:

Sr. No Key Financial Ratios	2022-23	2021-22	Change in %	Reason for Change
1. Debtors Turnover	8.09	8.62	(6.11)	-
2. Inventory Turnover	4.90	5.21	(5.90)	-
3. Interest Coverage Ratio (in times)	5.30	2.51	111.11	Interest coverage ratio has increased mainly due to increase in operating profit for reasons of the normalisation of operations of new MDF plant at Andhra Pradesh, which has led to an increase in operating margins. It is also due to an increase in value-added products turnover at both the MDF manufacturing plants i.e. at Andhra Pradesh and Karnataka.
4. Current Ratio	1.13	1.07	5.59	-
5. Debt Equity Ratio	1.12	1.46	(23.70)	-
6. Operating Margin (in %)	14.88	8.17	82.20	Operating Margin has mainly increased due to the rise in Operating profit, attributed to the normalisation of operations at the new MDF Plant in Andhra Pradesh. This normalisation has resulted in an increase in operating margins. Additionally, the increase in turnover of value-added products at both MDF manufacturing plants, namely in Andhra Pradesh and Karnataka, has also contributed to this growth.
7. Net Profit Margin (in %)	9.26	3.65	153.57	Net profit has increased mainly due to an increase in operating profit for reasons of the normalisation of operations of new MDF plant at Andhra Pradesh, which has led to an increase in operating margins. It is also due to an increase in value- added products turnover at both the MDF manufacturing plants i.e. at Andhra Pradesh and Karnataka.
8. Return on Equity (in %)	23.89	8.28	188.61	Profit after tax has been increased mainly due to the normalisation of operations of New MDF Plant at Andhra Pradesh, which has led to an increase in turnover & also due to an increase in turnover of current plant at Chikmagalur.
9. Creditors Turnover	5.94	6.83	(13.02)	-

HUMAN RESOURCE

At Rushil Decor, human resources are the Companys most valuable asset. The total permanent employees as of 31^st March, 2023 was approximately 800. The Company understands that human rights are inherent, universal, indivisible and inter- dependent in nature. It promotes employee retention through constant trainings and team-building activities. The aim is to help employees balance their personal and professional lives. The Company further strives to provide a workplace environment that is safe, hygienic, and humane and upholds the dignity of the employees. The approach includes adherence to corporate business policies and compliance with applicable laws, human rights content of the Constitution of India, national laws, and policies.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

For the purpose of effective internal financial control, Rushil Decor has adopted various policies and procedures to ensure orderly and efficient conduct of its business, including adherence to the Companys policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial information. There has not been any significant change in such control systems. The control systems are reviewed by the Management regularly. The same are also reviewed by the Internal Auditors from time to time. Additionally, the Company has adopted various policies and procedures to safeguard its interests. These policies and procedures are reviewed from time to time. A proper reporting mechanism has been implemented in the organisation for reporting any deviation from the policies and procedures.

ACCOUNTING TREATMENT

The financial statements were prepared as per the Indian Accounting Standards (Ind AS) and no treatment different from the Accounting Standards has been followed.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report includes statements that pertain to the Companys objectives, projections, estimates, and expectations. It is important to note that these statements may be considered forward-looking under applicable laws and regulations. It must be understood that the actual results may differ from what is either explicitly expressed or implied in these statements. Various factors can significantly impact the Companys performance, such as economic developments within the country, demand and supply conditions in the industry, changes in Government regulations, tax laws, as well as other factors including litigation and industrial relations.