Analysis: Rushil Decor Ltd

The current section of the “Analysis” series covers Rushil Decor Ltd, a leading Indian wood panel manufacturer producing laminates and medium-density fiberboard (MDF) under brands VIR Laminates, VIR MDF, VIR Studdio etc.

The “Analysis” series is an attempt to share with all the readers, our inputs to the company analysis submitted by readers on the “Ask Your Queries” section of our website.

Please note that to get maximum benefit from this article; an investor should focus on the process of analysis instead of looking for good or bad aspects of the company. She should learn the interpretation of diverse types of data and transactions and pay attention to the parts of annual reports etc. used to get the information. This will help her in improving her stock analysis skills.

Rushil Decor Ltd: Detailed Fundamental Analysis

Financial and Business Analysis of Rushil Decor Ltd:

In the last 10 years (FY2014-FY2023), the sales of Rushil Decor Ltd have increased by 14% year on year, from ₹256 cr in FY2014 to ₹838 cr in FY2023. From FY2014 to FY2017, sales of the company increased from ₹256 cr to ₹306 cr. However, during FY2018-FY2021, sales stagnated at about ₹340 cr. Thereafter, sales increased in FY2022 and FY2023 to reach ₹838 cr.

Over the years, the operating profit margin (OPM) of Rushil Decor Ltd has seen highly cyclical fluctuations. The OPM was 10% in FY2015 and then increased to 16% in FY2017. Thereafter, OPM declined to 10% in FY2021. However, by FY2023, it again increased to 18%.

Net profit margin (NPM) follows a similar cyclically fluctuating trend where it reported losses in FY2015 and then NPM increased to 9% in FY2018. Thereafter, NPM declined to 4% in FY2021 and then increased to 9% in FY2023.

To understand the reasons for such cyclically fluctuating financial performance of Rushil Decor Ltd, an investor needs to read the publicly available documents of the company like its annual reports from FY2011 onwards, credit rating reports by India Ratings, CARE, and Infomerics, red herring prospectus (RHP) for its initial public offer (IPO) in June 2011, letters of offer (LOI) for rights issues in 2020 and 2023, and its corporate announcements submitted to stock exchanges.

The above-mentioned documents show that the following key factors influence the business of Rushil Decor Ltd, which are critical to understand for any investor analysing the company.

1) Commodity nature of wood panel products with readily available substitutes taking away pricing power:

Key products of Rushil Decor Ltd, laminates as well as MDF, are near commodities in nature where a customer can easily switch from products of one manufacturer to another without any major impact on the functionality. In addition, customers can use many kinds of wood panels like particle board, medium-density fiberboard, high-density fiberboard, plywood, stone etc. in their furniture and fixtures.

In its RHP for its IPO, Rushil Decor Ltd highlighted the threat of substitution as well as an absence of pricing power due to the commodity nature of its products.

RHP, June 2011, pages 19 and 136:

Threats: High value of substitution

Weakness: Lacks pricing advantage being a commodity product

Additionally, the quality of a particular type of wood panel like MDF etc. is almost similar across different manufacturers in India or abroad. This is because most wood panel manufacturers use German technology, bringing in uniformity of quality.

Rushil Decor Ltd highlighted this aspect of the wood panel industry in its conference calls during July 2021 (page 12) and August 2021 (page 9):

The product size which runs in India market is different from the one which are for exports, otherwise the quality is the same

as far as this MDF machineries are concerned worldwide it is one and the same it is all German technology everywhere. So you get the same output what you are getting outside

Therefore, due to the commoditized nature of wood panels, laminates and MDF products, Rushil Decor Ltd is not able to enjoy any pricing power over its customers. Because the customers can easily switch to other manufacturers.

In FY2016 annual report, page 42, the company highlighted that customers have options to choose from many manufacturers as well as other cheap substitutes for wood panels. As a result, market prices in the industry are subdued.

However, presence of numerous companies accompanied by increase in low priced substitute products is anticipated to adversely affect the decorative laminate market price trend.

The lack of pricing power was visible in the company’s explanation in Nov. 2021 conference call (page 15) when it highlighted that even though its raw material prices have increased, it cannot pass it on to its existing contracts. It indicated that the contracts do not contain any formula-based pricing, which could have automatically saved Rushil Decor Ltd.’s margins when raw material prices increase and the company does not have the pricing power to increase prices mid-way to maintain its margins.

if you have taken in your order book earlier at the old rate, so you do not have outgo otherwise to supply at the old rate. In that scenario you have to supply at an old rate

A lack of pricing power is also visible when Rushil Decor Ltd, during the August 2022 conference call (page 8) accepted its inability to take a price hike because raw material prices were stable. This is because, in such a situation, customers can easily switch to other suppliers.

There’s no chance of taking price hike at present. As I said prior, chemical price and raw material price are quite stable

In fact, in FY2019, when the OPM of the company declined sharply to 11% from 16% in FY2018, the company was forced to reduce its prices in line with its competitors.

FY2019 annual report, page 28:

During the year, Company reduced the prices of MDF Board in line with overall scenario in the MDF Industry

Another reason for a lack of pricing power for wood panel manufacturers is that the customer is highly price-conscious and switches to local and unorganized players if companies like Rushil Decor Ltd charge a premium.

RHP, June 2011, pages 16 and 113:

Most of the end-users are either price conscious or trend oriented.

Despite brand building and aggressive marketing, Our Company and the wood based industry in general continue to face competition from the unorganized sector.

Also read: How to do Business Analysis of a Company

2) Intense price-based competition in the wood panel industry:

The wood panel industry in which Rushil Decor Ltd operates faces intense competition both from organized and unorganized Indian manufacturers as well as overseas manufacturers. Moreover, due to the commodity nature of wood panels, manufacturers end up competing on price where they try to win customers by offering a lower price than competitors.

FY2016 annual report, page 45:

laminate and wood panel industry is intensely competitive and highly fragmented with majority of the sector comprising unorganized players resulting in pricing pressure in the industry.

The credit rating agency, CARE also highlighted the intense competition from the unorganized sector in the laminates segment and from the organized sector in the MDF segment.

Credit rating report by CARE, July 2018, page 3:

The plywood and laminate industry is highly fragmented with presence of unorganized players, resulting in high competition and pressure on prices…However, MDF industry is completely organized.

As per Rushil Decor Ltd, about 60% of the market of laminates is under unorganized players. As a result, there is intense price competition in the laminates segment.

FY2018 annual report, page 48:

Present market size of Indian Laminate Industry is around ₹52 Bn, out of which organised sector share is around 40%, the balance being share of unorganised sector players.

In comparison, the MDF market is dominated by large organized players. However, as per Credit rating agency, Infomerics Ratings (Infomerics), these large organized MDF players also undercut prices to gain customers’ business.

Credit rating report by Infomerics, Sept 2020, page 6:

the market is intensively competitive as larger players in the industry are quite aggressive to take part in the demand

During its rating of the IPO of the company, ICRA highlighted the intense competition and low bargaining power of the company as a weakness.

RHP, June 2011, page 40:

Competitive pressures arising from intensely competitive and fragmented nature of the industry and RDL’s limited bargaining power owing to moderate scale of operations

In FY2015, the only year in the last 10 years (FY2014-FY2023), when Rushil Decor Ltd reported losses, it highlighted intense price-based competition as one of the key reasons for its losses.

FY2015 annual report, page 35:

Due to high competitions in market, the competitors are doing price cutting of products to compete or keep their existence in markets which is ultimate big problems for the industries

The competitive situation in the wood panel industry in India is complicated by the extensive import of wood panels from countries like Thailand, Vietnam, Laos and Indonesia where wood is available at a very cheap price than India. Moreover, wood panel manufacturers in India cannot benefit from lower wood prices abroad because they cannot import raw wood.

Conference call, November 2021, page 16:

If you go to Thailand or other countries like Vietnam, Laos their wood cost is half of our cost…Finished goods you can take it from there not raw wood.

In the past, Rushil Decor Ltd tried to benefit from lower wood prices in Laos (LAO PDR) by planning a subsidiary there in FY2016

FY2016 annual report, page 12:

Further, looking to easy availability of raw material at cheaper rate, the Company has planned to establish a subsidiary Company in the country “LAO PDR”.

However, it soon realized that it will not be able to source wood from Laos and then stopped its plans of operations in Laos in FY2017.

FY2017 annual report, page 13:

Further, LAOS Government has made strict rules regarding wood management, wood cutting, wood relocation and wood business in LAO PDR…at last Company decided that it will not wait further and has put off the idea to establish the business in the Country LAO PDR.

Nevertheless, in addition to lower wood costs, many times, overseas manufacturers are encouraged by their govt. policies sell wood panels in India at a price even lower than the cost of production, which is called dumping. This creates intense competition at a very low price for Indian manufacturers.

FY2016 annual report, page 43:

competing suppliers mainly from China, Srilanka, Malaysia, Thailand, Indonesia, Vietnam and some other Asian countries due to the advantages of favorable government policies of those countries…are dumping their products in Indian Domestic markets at very lower price and in bulk.

As a result, the wood panel industry sought protection from the Indian govt. via anti-dumping duties.

FY2016 annual report, page 43:

Because, the anti-dumping duties are already in force against Malaysia, China, Thailand and Srilanka, Vietnam and Indonesia of plain MDF board above 6.00 mm thickness

Even in the current year, 2023, the imported price of MDF and other wood panel products is about 10-15% lower than the price quoted by Indian manufacturers.

Conference call, May 2023, page 6:

And the gap is again 10% to 15% depends on the destination…Yes. Import prices are lesser than 5% to 10%.

Due to a lower price in export markets, Rushil Decor Ltd is not finding it easy to profitably export its products, especially MDF where it has an export obligation to offset the duty-free import of machinery for its Vishakhapatnam MDF plant.

Conference call, November 2021, page 12:

Export margins are very less rather you can say. If you see the global pricing there is no much left out only there is the EPC obligation that is why compulsorily you have to export…So export is not affordable.

Also read: How to analyse New Companies in Unknown Industries?

3) Capital-intensive business of Rushil Decor Ltd:

Wood panel business is capital-intensive in nature. Both key business segments of Rushil Decor Ltd i.e. laminates as well as MDF require a large amount of working capital especially because they need to keep a large stock of finished goods as well as inventory.

The company needs to maintain a large stock of finished goods because it produces many designs and keeping products of each design is important for immediately meeting the demand from the market.

Credit rating report by Infomerics, August 2019, page 5:

The company need to maintain sufficient finished stock inventory of its wide product array to respond market demands in a time bound manner.

In addition, Rushil Decor Ltd needs to maintain a large amount of raw material inventory, especially for those products, which are imported and therefore, take about 2-6 months to reach it after its order.

Credit rating report by Infomerics, August 2019, page 5:

Working capital intensive nature of operations: RDL generally maintain inventory of about 3-4 months to keep adequate stock imported raw materials such as decorative paper and chemicals which have a lead time ranging from two to six months from the date of placement of order.

Moreover, some raw material like cotton stalk is available in a particular season, which it needs to buy and keep in stock for use throughout the year.

RHP, June 2011, page 17:

some of the raw materials like Cotton Stalk is seasonal in nature and hence we require substantial working capital for its storage during off season.

Therefore, at the time of its IPO in 2011, Rushil Decor Ltd clearly stated that its business is working capital intensive in nature.

RHP, June 2011, page 17:

Our business demands substantial fund and non-fund based working capital facilities.

Moreover, within its two segments of laminates and MDF, laminates require a comparatively higher working capital because the number of designs in the finished products of laminates is much higher than in the MDF, which increases the inventory requirement of laminates division.

Conference call, November 2022, pages 5-6:

compared to MDF, the working capital is a little bit higher in terms of laminates where the designs and other SKUs are very high, and in case of MDF is not so.

Next, coming to fixed-capital intensiveness while establishing manufacturing plants, the MDF division is much more capital-intensive than laminates.

MDF plants need a longer construction period of 2-3 years, which is much higher than the construction period of about 9-12 months for laminate plants.

Conference call, August 2022, pages 5 and 11:

if you put up any MDF plant, it normally takes 2 to 3 years. So it’s not very simple that it start from tomorrow…for laminate you really don’t need more than nine months. I think within 12 months you can easily put up any plant in India.

In the case of MDF, the capital intensiveness of putting up a plant is so large that it acts as an entry barrier for fresh players in the segment.

FY2018 annual report, page 48:

MDF market in India is 100% organised as this segment poses an entry barrier in terms of high capital investments.

Due to large capital requirements, the MDF segment is dominated by large organized manufacturers with a very low presence of small unorganized players, unlike the laminates segment, which is dominated by unorganized players controlling about 60% of the market.

FY2019 annual report, page 58:

MDF being capital-intensive business, the threat from unorganised sector is almost negligible in this segment

In fact, as per Rushil Decor Ltd, in the MDF segment, when smaller players establish their plants, they are not able to sustain and shut shop quickly.

Conference call, July 2021, page 9:

small sized capacities come very miniscule because there is lot of investment in setting these and only organized players can do investment in this, so small capacities do come in the market, but they are not able to sustain.

Also read: Asset Turnover Ratio: A Complete Guide for Investors

4) Wood panel industry goes through boom-and-bust cycles:

Rushil Decor Ltd has faced alternating periods of superior performance followed by subdued performance. For example, its operating profit margin (OPM) was 10% in FY2015, which increased to 16% in FY2018, then declined to 10% in FY2021 and thereafter increased to 18% in FY2023.

Such kind of cyclical highs and lows in the performance of Rushil Decor Ltd are primarily triggered by three factors.

First, the demand for wood panels, both laminates and MDF depends upon the performance of the real estate industry, which in turn is dependent on the general state of the economy in terms of growth and surplus money available with the population along with the level of interest rates for home loans etc.

FY2016 annual report, page 45:

The fortune of the industry in India is linked to the real estate industry which is inherently cyclical in nature.

Letter of offer for the rights issue, April 2023, page 47:

Our financial results are influenced by the macroeconomic factors determining the growth of the Indian economy as a whole and real estate sector in particular.

Even in the real estate industry, the sale of new homes and offices has the maximum influence on the demand for wood panels (laminates and MDF) produced by organized players like Rushil Decor Ltd.

FY2018 annual report, page 47:

New construction activities drive 85% to 90% of demand in the sector while the balance comes from renovation and replacement.

The sale of new homes and offices fluctuates much more than the relatively stable demand from the renovation of existing homes. Therefore, the financial performance of Rushil Decor Ltd experiences significant cyclicity.

The second factor leading to fluctuations in the performance of Rushil Decor Ltd is the long gestation period required to commence new capacities of MDF, which is the largest contributor to its revenue.

As discussed above, MDF plants need a large investment and 2-3 years to complete. Therefore, during periods of high demand for MDF, many large organized players announce capacity expansion plans. However, after a period of 2-3 years when these plants become operational, the demand cycle from the real estate industry has turned leading to low demand. As a result, the industry is left with an overcapacity at a time of weak demand.

It leads to a crash in the prices of MDF. As a result, many weaker players go out of business leading to a contraction in supply. Later, when the real estate cycle turns and demand recovers, it leads to an increase in MDF prices. As the demand exceeds supply, large players again announce capacity expansions and the cycle continues.

Rushil Decor Ltd faced the consequences of oversupply due to the bunching up of capacities in the MDF segment during FY2019-FY2020 when players started a price war leading to the erosion of profit margins of all the players. During this period, the company reported profit margins of 10% down from 16% in FY2018.

FY2019 annual report, page 29:

During the year, new capacities were added in Thin and Thick MDF Industry which ultimately result in aggressive price cuts…It was ultimately triggered to lower realisations and significant margin pressure in the MDF segment. The price war in the MDF Segment

During FY2020, the overcapacity in the MDF segment was so much that nearly half of the production capacity of MDF was lying unutilized.

FY2020 annual report, page 48:

capacity utilisation of the MDF produced in India reached 55% in the second half of the year against 40% registered at the beginning of the year.

Moreover, even the laminates segment, which is comparatively light in requirement of fixed capital, also goes through periods of overcapacity leading to a fall in profit margins. Rushil Decor Ltd faced cut-throat competition due to overcapacity in the laminates segment in FY2015 when it reported losses.

FY2015 annual report, page 35:

The laminate Industry has entered into the orbit of the high competition. The market fights are set to intensify with unstoppable capacity build up.

Therefore, an alternate period of bunching up of new capacities leading to oversupply and industry-wide price wars leads to boom-and-bust cycles in the performance of Rushil Decor Ltd.

The third factor leading to fluctuations in the performance of the company is its dependence on raw materials linked to crude oil. It uses two key chemicals, Methanol and Phenol in its manufacturing process, which are crude oil derivatives. Their prices fluctuate significantly in line with crude oil prices, which put pressure on its profit margins leading to volatility in its performance.

Credit rating report by Infomerics, August 2019, page 4:

Methanol and Phenol being the primary chemical requirements, their availability and price has a significant impact on the operating margins of the company. Being a crude oil derivative the prices…are highly volatile.

Recommended reading: How to do Financial Analysis of a Company

5) Steps by Rushil Decor Ltd to improve profit margins:

The company operates in a commodity business where customers can easily switch their suppliers. Therefore, the industry witnesses intense price-based competition and manufacturers are not able to charge premium pricing to earn a higher margin. As a result, companies focus on becoming cost-efficient manufacturers to improve their profitability.

Along similar lines, over the years, Rushil Decor Ltd has also taken multiple steps to increase its operating efficiency and reduce its costs. Let us see some of the cost reduction strategies adopted by the company.

5.1) Flexibility in production and usage of raw material:

Rushil Decor Ltd has made its plants flexible as they can produce many distinct products from the same machines. This way, the company can increase the production of items that are currently in demand and offer better profit margins.

RHP, June 2011, page 28:

Some of our manufacturing units manufacture multiple product range under one roof which results in cost savings in terms of shared overheads and resources across different product categories.

Along similar lines, the company has the flexibility to manufacture various products depending on the relative cost of raw materials. i.e. out of two main segments of raw material: wood and chemicals, if prices of wood are lower, then the company produces goods using more wood and vice versa.

Conference call, May 2023, page 15:

I would say 55%, 45%-50% is wood and chemical together. See, we have always option of making that combination change. if the chemical price is higher, we can increase the wood. And if the chemical price is down, we can decrease the wood.

Moreover, in the past, when the company used to make particle boards, then it could use the byproducts of plywood manufacturing as raw material for particle board manufacturing, which reduced its operating costs.

RHP, June 2011, page 28:

The by-products from plywood manufacture constitute around 40 – 50% of the raw material for the manufacture of particle board.

5.2) Cost reduction strategies:

Rushil Decor Ltd has used various steps to reduce its production costs like buying cheaper power from energy exchanges instead of state govt./grid. In FY2020 alone, the company could save about ₹1.6 cr due to the purchase of power from the open market.

FY2020 annual report, page 43:

company had purchased 1,18,51,482 units by open access power through INDIAN ENERGY EXCHANGE, with this the company’s overall cost was reduced by Rs 0.69/- per unit…Therefore, company got the benefits of ` 155 lakhs.

The company installed air ventilators running on wind instead of electricity to save on costs.

FY2014 annual report, page 18:

Installation of big air ventilators in some units, which run on wind speed and do not require electricity.

The company installed rooftop solar panels to save electricity costs.

FY2019 annual report, page 40:

Company has installed solar panel at the corporate office of the company which results in significant power and energy saving.

FY2021 annual report, page 83:

Company has installed roof-top solar panels at its manufacturing units for generation of power.

The company also took steps like increasing the speed of the woodchipper unit, which saved electricity as the unit was used for less time.

FY2018 annual report, page 45:

Increase in chipper machine speed which resulted into reduction of chipper operation hours which ultimately resulted into energy saving of Approximately 32,000 KWH per year.

The company also did changes in its manufacturing process leading to higher production from its plants resulting in lower overheads/per unit costs.

FY2019 annual report, page 40:

Process modification at MDF plant at Chikmagalur, Karnataka results in increase of MDF board production to 27% and Lamination board production to 25% over the machine design capacity that resulted in reduction of Power and Thermal energy cost

In the recent year, the company implemented a resin savings technology, which would help it in the reduction of its raw material usage.

Conference call, August 2022, page 7:

we are also putting up some Resin saving technology also now from this quarter. So this will be also help us to save some cost.

5.3) Usage of the latest technology of MDF production to reduce raw material usage:

When Rushil Decor Ltd installed a new MDF manufacturing plant at Vishakhapatnam, then it used continuous press technology instead of the static press technology used in its older plant in Chikmagalur, Karnataka. The continuous press technology saves about 8-10% on raw materials adding to the company’s profit margins.

Conference call, July 2021, page 17:

Karnataka plant’s technology is of Static Press technology, in which the raw material consumption is 8% to 10% higher than the Continuous press. And over here in Vizag the new plant that we have set up, is of Continuous Press which is the world-based technology…there is a saving of 8% to 10% from our old plant.

5.4) Increasing production of MDF over laminates and further relying on value-added MDF to increase profit margins:

Rushil Decor Ltd, previously, used to manufacture laminates and particle boards, which were low-margin items when compared to MDF. Therefore, in 2011, the company came out with an IPO to fund the construction of an MDF plant in Chikmagalur, Karnataka.

Entry into the MDF segment helped the company because it was a relatively low-competition segment with comparatively high margins as it was an oligopoly market due to the dominance of large organized players.

Credit rating report by India Ratings, August 2017:

The improvement in the EBITDA margin resulted from increasing revenues from MDF…MDF segment has been a key focus area for the company, since its commencement in FY12, being a high margin and less competitive business compared with decorative laminates…Ind-Ra believes that given the high margin due to the oligopolistic nature of the MDF business

Therefore, a focus on increasing the share of MDF in the overall revenue of the company helped it to increase its profit margins. Moreover, within MDF, the company started production of value-added MDF like prelaminated (pre-lam) MDF, which had a higher price with better margins.

FY2014 annual report, page 16:

Company has established new plant for manufacturing Pre Lam Medium Density Fiber Board (MDF Board) at Chikmagalur, Karnataka

Over the years, the majority of the company’s production from the Chikmagalur, Karnataka plant was value-added pre-lam MDF.

Conference call, July 2021, page 13:

Our existing, which is pre-lam is 60% in our old Karnataka unit and we sell 40% raw board.

The value-added pre-lam MDF sells at a premium of about 45-50% premium (₹35,000 per CBM) over base MDF prices (₹23,724 per CBM).

Conference call, February 2023, page 12:

our average realizations then it is maybe around Rs.23724 per CBM I am talking about AP realizations and when we talk about 13% value added realization it is almost like Rs. 35000 per CBM.

Similarly, in the laminates segment as well, Rushil Decor Ltd is planning to enter the high-margin jumbo-sized laminates. Until now, the lack of its presence in jumbo-sized laminates has led to low-profit margins.

Conference call, November 2022, page 5:

we don’t have this specific size is one of the reasons for our low margins

Recommended reading: How to do Financial Analysis of a Company

6) High regulatory control on the wood panel industry:

Products like laminates and MDF use wood, which is a sensitive natural resource. Therefore, govt. keeps tight control on issuing licenses for wood-panel manufacturers after considering the availability of wood and distances between different wood units.

Thus, obtaining approval of setting up a wood-panel unit has become a big entry barrier for fresh players in this industry.

Letter of offer for the rights issue, Sept 2020, page 118:

Government regulations represent a large entry barrier in the wood based interiors infrastructure segment in India…are subject to, among other laws, environmental laws…Saw Mill Rules, the State Forest Policy, and State Pollution Control Board…These complexities in obtaining new licenses make it difficult for new players to enter the market.

In addition, the company faces high regulations because some of its raw materials are highly inflammable creating concerns over the safety of workers.

Letter of offer for the rights issue, April 2023, page 57:

Our key raw material used in our manufacturing process is highly flammable in nature.

At the same time, some of the raw materials like resins carry health risks for the workers.

RHP, June 2011, page 19:

Threat: Health concerns on resin uses;

As a result of these issues, govt. keeps tight control over wood panel manufacturers and any non -compliance often leads to the closure of the units.

In FY2019, laminates manufacturing units of Rushil Decor Ltd were closed for some period on the orders of the Gujarat Pollution Control Board (GPCB) when these units did not adhere to air and water pollution control regulations.

FY2019 annual report, page 34:

Company received closure notices from Gujarat Pollution Control Board (GPCB) to stop the Manufacturing process of two Laminate Sheet manufacturing units…The manufacturing process of both the manufacturing units were disturbed during the closure period

The credit rating agency, ICRA, highlighted a high regulatory risk faced by the company in its report for its IPO in June 2011.

RHP, June 2011, page 39:

The grading is however constrained by the intensely competitive nature of the industry and the vulnerability of the industry to changes in regulation by Central Empowered Committee (CEC).

Therefore, the overall business of Rushil Decor Ltd is a commodity business with low negotiating power over customers. The business is cyclical due to fluctuating demand from the real estate industry and home improvement leading to alternating boom and bust phases. As a result, the company has witnessed its operating profit margin (OPM) fluctuate between 10% to 18% during the last 10 years.

Also read: How to do Business Analysis of Real Estate Companies

Therefore, when an investor looks at the OPM of Rushil Decor Ltd at 18% in FY2023, then she should be extra cautious in extrapolating the same in future. This is because, apart from the general cyclicity of the wood panel industry, a few additional factors may put pressure on its profit margins in future.

The recent high-profit margin has been supported by the post-covid revival of demand in the home improvement sector.

FY2022 annual report, page 59:

Post Covid-19, there has been a strong acceleration in the home decor industry.

In addition, there was a sharp decline in the competition from imports due to challenges in the sea trade like the nonavailability of containers.

Conference call, February 2022, pages 6 and 21:

container what we used to pay USD 2,500 for 40 feet high cube. Now, today they are asking USD 12,000.

import is not at all there. If I give you the data of Vietnam MDF import, it’s only 1,824 CBM in this nine months, which is very low. Previously, it used to be like more than 1 lakh plus

Therefore, going ahead, as the pent-up demand of the post-covid period comes down and as the challenges in sea trade are resolved, the wood panel industry may see lower demand and higher competition putting pressure on profit margins.

Towards the end of FY2023, Rushil Decor Ltd has already started noticing pressure on the profit margins due to a higher import of MDF.

Conference call, May 2025, page 3:

During the quarter, realization in the domestic industry for the plain MDF were subdued and we faced some challenges on account of higher imports…which impacted EBITDA margins

So, an investor should be cautious and do deep due diligence before projecting the recent superior performance of any company in the future.

Over the last 10 years (FY2014-FY2023), except FY2020, the tax payout ratio of Rushil Decor Ltd is higher than the corporate tax rate prevalent in India. The reduction in the tax payout ratio in the recent year is due to a decline in the corporate tax rate announced by India in FY2020.

In FY2020, the tax payout ratio is negative due to the adjustment/remeasurement of deferred taxes as per the changed lower tax rate.

Recommended reading: Deferred Tax Assets, Tax Payout (P&L vs. CFO): Queries Answered

Operating Efficiency Analysis of Rushil Decor Ltd:

a) Net fixed asset turnover (NFAT) of Rushil Decor Ltd:

Over the years, the NFAT of the company had stayed between 1 and 2, which represents a low asset turnover indicating the capital-intensive nature of paper manufacturing. NFAT declined to 0.9 in FY2021 due to two factors.

First, the company completed its new MDF manufacturing plant at Vishakhapatnam, Andhra Pradesh, which had low levels of utilization in the initial period.

Second, the demand for wood panels as well as production had declined due to covid related lockdown.

As a result, in FY2021, the NFAT of Rushil Decor Ltd was lowest at 0.9. Thereafter, as the utilization of the new plant has improved as well as incremental and pent-up demand for home improvement after covid, the NFAT of the company improved to 1.4 in FY2023.

Going ahead, an investor should monitor the NFAT of Rushil Decor Ltd to understand whether it is able to efficiently utilize its assets.

Further advised reading: Asset Turnover Ratio: A Complete Guide for Investors

b) Inventory turnover ratio (ITR) of Rushil Decor Ltd:

Over the years, the ITR of Rushil Decor Ltd has been within 4-5 levels. It indicates that the company has maintained its efficiency in inventory management.

ITR declined to 3.9 in FY2020 due to covid lockdown as the company was not able to sell its inventory in the market. Post-pandemic, as the economy opened, its ITR improved to 5.2 in FY2022 and 4.9 in FY2023.

Going ahead, an investor should check the inventory position of the company to assess whether it manages its inventory efficiently.

Further advised reading: Inventory Turnover Ratio: A Complete Guide

c) Analysis of receivables days of Rushil Decor Ltd:

Over the years, the receivables days of Rushil Decor Ltd have improved from 57 days in FY2015 to 44 days in FY2023. A reduction in receivables days shows that the company has collected its dues from customers in time.

During the period of the coronavirus pandemic, receivables days deteriorated to 63 days in FY2021 and 65 days in FY2022. This deterioration is in line with the stress that built up in the entire business ecosystem during the Covid period.

Post Covid, the receivables days of the company improved to 41 days in FY2022 and 44 days in FY2023.

In the past, there have been instances when the company had to resort to legal options to recover its money from its customers.

RHP, June 2011, page 179:

Sundry debtors considered good include ₹ 25,37,447/- for the recovery of which the Company has initiated legal actions.

Going ahead, an investor should watch the trend of receivables days of Rushil Decor Ltd to assess whether it continues to collect its receivables on time.

Further recommended reading: Receivable Days: A Complete Guide

When an investor compares the cumulative net profit after tax (cPAT) and cumulative cash flow from operations (cCFO) of Rushil Decor Ltd for FY2014-FY2023, then she notices that over the years (FY2014-FY2023), the company has converted its profit into cash flow from operations.

Over FY2014-23, Rushil Decor Ltd reported a total net profit after tax (cPAT) of ₹217 cr. During the same period, it reported cumulative cash flow from operations (cCFO) of ₹416 cr.

It is advised that investors should read the article on CFO calculation, which would help them understand the situations in which companies tend to have the CFO lower than their PAT. In addition, the investors would also understand the situations when the companies would have their CFO higher than PAT.

Further recommended reading: Understanding Cash Flow from Operations (CFO)

Learning from the article on CFO will show an investor that the cCFO of Rushil Decor Ltd is higher than the cPAT due to the following reasons:

• Depreciation expense of ₹113 cr (a non-cash expense) over FY2014-FY2023, which is deducted while calculating PAT but is added back while calculating CFO.
• Interest expense of ₹142 cr (a non-operating expense) over FY2014-FY2023, which is deducted while calculating PAT but is added back while calculating CFO.

Going ahead, an investor should keep a close watch on the working capital position of Rushil Decor Ltd.

The Margin of Safety in the Business of Rushil Decor Ltd:

a) Self-Sustainable Growth Rate (SSGR):

Read: Self Sustainable Growth Rate: a measure of Inherent Growth Potential of a Company

Upon reading the SSGR article, an investor would appreciate that if a company is growing at a rate equal to or less than the SSGR and it can convert its profits into cash flow from operations, then it would be able to fund its growth from its internal resources without the need of external sources of funds.

Conversely, if any company attempts to grow its sales at a rate higher than its SSGR, then its internal resources would not be sufficient to fund its growth aspirations. As a result, the company would have to rely on additional sources of funds like debt or equity dilution to meet the cash requirements to generate its target growth.

An investor may calculate the SSGR using the following formula:

SSGR = NFAT * NPM * (1-DPR) – Dep

Where,

• SSGR = Self Sustainable Growth Rate in %
• Dep = Depreciation rate as a % of net fixed assets
• NFAT = Net fixed asset turnover (Sales/average net fixed assets over the year)
• NPM = Net profit margin as % of sales
• DPR = Dividend paid as % of net profit after tax

(For systematic algebraic calculation of SSGR formula: Click Here)

An investor would notice that over the years, Rushil Decor Ltd had reported an SSGR in the single digits, mostly at 2-3% whereas over the last 10 years (FY2014-FY2022), it has grown its sales at a rate of 14% year on year.

Therefore, the company has grown its business at a pace more than what its business can support from its profits. As a result, it has to frequently rely on additional capital i.e. debt and equity dilution to meet its funds’ requirement.

Over the last 12 years (FY2011-FY2023), it has raised debt of ₹317 cr as its total debt increased from ₹89 cr in FY2011 to ₹406 cr in FY2023.

In addition, the company has diluted its equity multiple times in the past.

• In June 2011, it came out with an IPO and raised ₹40.3 cr to fund the construction of its MDF factory in Chikmagalur, Karnataka.
• During 2017-2018, the company raised ₹20 cr by issuing shares on a preferential basis to Mr Suryakant Hiralal Parikh
• In FY2019, it raised ₹20 cr by preferential allotment and conversion of warrants to Mr Rakesh Arora, Mr Manish Srivastava and Nilesh Parekh.
• In FY2021, the company raised about ₹25 cr via a rights issue.
• In May 2023, the company raised about ₹107.5 cr via another rights issue.

Therefore, overall, since FY2011, the company has raised a total of ₹530 cr (₹317 cr debt + ₹217 cr equity) to meet its funds’ requirements.

Also read: Rights Issue and Revaluation Reserve: Queries Answered

The investor gets the same conclusion when she analyses the free cash flow position of Rushil Decor Ltd.

b) Free Cash Flow (FCF) Analysis of Rushil Decor Ltd:

While looking at the cash flow performance of Rushil Decor Ltd, an investor notices that during FY2014-FY2023, it generated cash flow from operations of ₹416 cr. During the same period, it did a capital expenditure of about ₹592 cr.

Therefore, during this period (FY2014-FY2023), Rushil Decor Ltd had a negative free cash flow (FCF) of (₹176) cr (=416 – 592).

In addition, during this period, the company had a non-operating income of ₹25 cr and an interest expense of ₹142 cr. As a result, the company had a total negative free cash flow of (₹293) cr (= -176 + 25 – 142). Please note that the capitalized interest is already factored in as a part of the capex deducted earlier.

As discussed earlier, Rushil Decor Ltd has used additional debt and equity dilution for meeting its funds’ shortfall.

Going ahead, an investor should keep a close watch on the free cash flow generation by Rushil Decor Ltd to understand whether the company continues to generate surplus cash from its business and whether it continues to use it largely to pay dividends to the shareholders.

Further recommended reading: Free Cash Flow: A Complete Guide to Understanding FCF

Self-Sustainable Growth Rate (SSGR) and free cash flow (FCF) are the main pillars of assessing the margin of safety in the business model of any company.

Further advised reading: 3 Simple Ways to Assess “Margin of Safety”: The Cornerstone of Stock Investing

Additional aspects of Rushil Decor Ltd:

On analysing Rushil Decor Ltd and after reading annual reports, credit rating reports and other public documents, an investor comes across certain other aspects of the company, which are important for any investor to know while making an investment decision.

1) Management Succession of Rushil Decor Ltd:

Rushil Decor Ltd is promoted by the Thakkar family. Currently, Krupesh Thakkar, Chairman & Managing Director (aged 52 years) and his son, Rushil Thakkar, Whole-Time Director (aged 30 years) are actively managing the operations of the company.

Apart from the father-son duo of Krupesh and Rushil, their wives, Krupa Krupesh Thakkar and Rushvi Rushil Thakkar also hold senior management positions of Senior Vice President – Business Development and Senior Vice President – Administration and Human Resources respectively.

Letter of offer for the rights issue, April 2023, page 48:

Our Promoter, Krupa Krupesh Thakkar holds the position of Senior Vice President – Business Development and Rushvi Rushil Thakkar, the spouse of our Whole-time Director Rushil Krupesh Thakkar holds the position of Senior Vice President – Administration and Human Resources in our Company.

The presence of two generations of promoters in the company at the same time indicates that the company has put in place a management succession plan in which the new generation of the promoter family is being groomed in business while the senior members of the promoter family are still playing an active part in the day-to-day activities.

The presence of a well-thought-out management succession plan is essential in the case of promoter-run businesses as it provides for a smooth transition of leadership over the generations and provides continuity in the business operations of any company.

Moreover, recently, promoters of other wood-panel companies like Century Plywood (Sajjan Bhajanka owns 3.38% in Rushir Décor Ltd and Sanjay Agarwal owns 2.01% in Rushir Décor Ltd) have purchased stakes in the company. The promoter of another wood-panel company, Action Tesa, Mr Ajay Kumar Aggarwal currently owns a 3.47% stake in Rushir Décor Ltd.

An investor may track the ownership of these competitors in the company to understand if there are any significant developments on these lines like a takeover attempt or merger etc.

Further advised reading: How to do Management Analysis of Companies?

2) Remuneration of promoters of Rushil Decor Ltd:

While analysing the remuneration paid by the company to its promoter family members, an investor notices some incidences, which need consideration while doing management analysis.

Immediately, after the company had come out with its IPO in June 2011, during the next year, FY2013, the salary of promoters, Mr Ghanshyambhai A. Thakkar and Mr Krupeshbhai G. Thakkar increased by 100% while during FY2013, sales and profits of the company had increased by 18% in FY2013.

In FY2015, both the promoters, Mr Ghanshyambhai A. Thakkar and Mr Krupeshbhai G. Thakkar received bonuses even when the company had made losses during the year.

FY2015 annual report, page 46:

In FY2016, when Rushil Decor Ltd reported a net profit of about ₹7 cr after making a loss in FY2015, the promoters increased their remuneration by about 100% to ₹82 lac each.

FY2016 annual report, page 17:

In FY2019, when the net profit of the company declined significantly by about 55% from ₹31 cr in FY2018 to ₹14 cr in FY2019, the promoters increased their salary by 13.5%.

In FY2014, when Mr Rushil Krupeshbhai Thakkar, grandson of the founder promoter, Ghanshyambhai A. Thakkar, joined the company at the age of 21 years, the terms of his appointment included an annual increment of a minimum of 20%. Having a large minimum annual increment seems a very privileged offer made by the company to the grandson of the promoter.

FY2014 annual report, page 13:

His annual increments will be at least 20% or such higher amount as may be determined by the Board of Directors

Apart from the above, the company appoints a few close relatives of promoters like wives of CMD and WTD, Krupa Krupesh Thakkar (salary of ₹57.73 in FY2022) and Rushvi Rushil Thakkar (salary of ₹15 lac in FY2022) at senior management positions. An investor may do her due diligence to ascertain the value added by each promoter family member to the company.

Advised reading: How to identify Promoters extracting Money via High Salaries

3) Rushil Decor Ltd reported debt as an inflow under cash flow from operating activities:

While analysing the FY2021 annual report, an investor notices that the company has included an increase in the current maturity of long-term debt (CMLTD) as an inflow under cash flow from operations (CFO).

An investor can ascertain it via the following steps.

In the cash flow statement for FY2021, the company has disclosed ₹21.39 cr as an inflow on account of “Increase / (Decrease) in Financial Liabilities” in the CFO calculation.

FY2021 annual report, page 94:

From the above information, an investor notices that the company has included ₹21.39 cr as an inflow on account of “Increase / (Decrease) in Financial Liabilities” in the CFO.

The balance sheet of the company for FY2021 shows that the only item that can lead to an inflow of ₹21.39 cr is “other financial liabilities”. In FY2021, other financial liabilities of Rushil Decor Ltd increased by ₹20.86 cr from ₹10.08 cr in FY2020 to ₹30.94 cr in FY2021 (30.94 – 10.08 = 20.86).

FY2021 annual report, page 92:

In the above balance sheet, apart from other financial liabilities, there is no other section that indicates an increase of ₹20 cr or more. Therefore, an investor can assume that the inflow of ₹21.39 cr shown in the CFO calculations under “Increase / (Decrease) in Financial Liabilities” is related to other financial liabilities.

While ascertaining the component of other financial liabilities that has led to the inflow/increase of ₹21.39 cr in FY2021, an investor should analyse the detailed note number 22 to the financial statements.

FY2021 annual report, page 119:

In the other financial liabilities section, even though the total increase is ₹20.86 cr, the major component is the increase in current maturity of long-term debt (CMLTD) of ₹21.5 cr, from ₹8.12 cr in FY2020 to ₹29.62 cr in FY2021 (29.62 – 8.12 = 21.5).

Therefore, the ₹21.39 cr of inflow shown by Rushil Decor Ltd in the CFO calculations under “Increase / (Decrease) in Financial Liabilities” is fully contributed by CMLTD (₹21.5 cr), which is nothing but a debt component.

Therefore, we may conclude that in FY2021, Rushil Decor Ltd has included debt as an inflow under cash flow from operations, which had the impact of showing a higher CFO than it actually is.

We can crosscheck this finding by ascertaining the cash flow from the financing activities of Rushil Decor Ltd for FY2021.

In the summary balance sheet for FY2021, an investor notices that the long-term (non-current) borrowings (LTB) have decreased from ₹338.84 cr in FY2020 to ₹295.21 cr in FY2021 representing a decrease (outflow) of ₹43.63 cr (= 338.84 – 295.21). Similarly, the short-term (current) borrowings (STB) show a decrease (outflow) of ₹4.66 cr from ₹58.31 cr in FY2020 to ₹53.65 cr in FY2021.

FY2021 annual report, page 92:

The data of LTB and STB showed in the summary balance sheet excludes the current maturity of long-term debt (CMLTD). This is because, in the summary balance sheet, the CMLTB is shown under other financial liabilities.

Cash flow from financing activities of Rushil Decor Ltd shows the data of outflow from the borrowings of the company in FY2021 corresponding only to the outflow/decrease calculated above using only the LTB and STB data from the summary balance sheet without factoring in the CMLTD.

FY2021 annual report, page 94:

The above cash flow from financing activities (CFF) table shows a net outflow from LTB of ₹43.63 cr, which exactly matches the decrease in LTB calculated above from the summary balance sheet data. Similarly, the outflow from STB in the CFF is ₹4.66 cr, which also matches the decrease in STB calculated above from the summary balance sheet data.

Please note that the LTB and STB data in the summary balance sheet excludes the current maturity of long-term debt (CMLTD), which is shown under other financial liabilities.

Therefore, a comprehensive view from all the calculations done in the above discussion would show that the data in the CFF only corresponds to the LTB and STB as per the summary balance sheet data. Therefore, the CFF data misses the impact of the current maturity of LTD, which is an increase/inflow of ₹21.5 cr included in the other financial liabilities.

At the same time, the calculations of the CFO include the impact of CMLTD through other financial liabilities.

Therefore, the net impact of these accounting assumptions followed by Rushir Décor Ltd is that the inflow/increase due to CMLTD of ₹21.5 cr is shifted from cash flow from financing activities (CFF) to cash flow from operating activities (CFO).

This effectively inflates/increases the CFO by ₹21.5 cr and deflates/decreases the CFF by ₹21.5 cr.

As a result of these accounting assumptions, an investor should be extra cautious while analysing the financial data presented by the company in its financial statements.

Advised reading: How Companies Manipulate Cash Flow from Operating Activities (CFO)

4) Dividends offered by Rushil Décor Ltd seem to be funded by debt:

During the discussion on the margin of safety in the business of Rushil Decor Ltd, we noticed that the company is growing its business at a speed more than what its operating cash flows can sustain. As a result, it had to rely on additional capital via debt and equity dilution to fund its expansion projects.

The company is in a situation, where year on year, it is investing all its operating cash flow in its business and the debt of the company is increasing to meet its capital expenditure with no money left as surplus to distribute as dividends to shareholders.

An investor may infer that in such a situation, the money to be paid to shareholders as dividends is effectively the debt taken by the company from lenders to transfer to the bank accounts of the shareholders of the company.

We believe that the dividends distributed by any company should come from the free cash flows (FCF) of the company after meeting the capital expenditure (capex) of the company from its operating cash flow. If the company does not have a surplus free cash flow after meeting capital expenditure and it has to raise debt to meet the capex, then it should not raise more debt to pay dividends to equity shareholders. Instead, it should avoid paying dividends, control its debt levels and reduce its interest costs.

Further advised reading: Steps to Assess Management Quality before Buying Stocks

5) Related party transaction of Rushil Décor Ltd with promoters and their entities:

Over the years, the promoters of Rushil Décor Ltd have engaged in numerous financial and business transactions with the company. These transactions range from lending, deposits, rental properties, investments, giving guarantees etc.

Let us analyse some of these related party transactions.

5.1) Loans taken by Rushil Décor Ltd from promoters:

Rushil Décor Ltd has a capital-intensive business model. Therefore, its funds’ requirements have always exceeded the cash it could generate via operations. Therefore, it had to raise money from debt as well as equity dilution.

When the company approached banks for funding its new MDF plant at Vishakhapatnam, AP, then its lenders insisted that apart from debt from lenders, the promoters also put more money into the project. As a result, the promoters gave loans of about ₹60 to the company to spend on the project.

Credit rating report by Infomerics, September 2020, page 3:

The promoters have supported the business by infusing funds as required in the form of unsecured loans (Rs.60.39 crore outstanding as on March 31, 2020 out of which Rs.53.60 crore are subordinated to the term loans

However, apart from such large loans at the insistence of lenders, almost every year, the promoters have indulged in numerous lending transactions of small sums with the company. At times, the transactions are very small, of a few lakh rupees, when compared to the size of the company’s business.

For example, see the below screenshot from FY2013 annual report, page 48:

These small ticket lending transactions ranging from a couple of lakh rupees have continued between the company and the promoters over the years like transactions in a cash credit account. For example, see the below data from the FY2022 annual report, page 159:

In such cases of small ticket loans, the company could hardly derive any significant benefit from these small loans. Therefore, the purpose of these loans is not clear.

5.2) Taking properties on rent from promoters:

Apart from these lending transactions, there are numerous instances where Rushil Décor Ltd has taken properties on lease/rent from promoters.

The company has taken the corporate office on rent from its CMD, Mr Krupesh Ghanshyambhai Thakkar. As per the letter of offer for the rights issue in September 2020, page 158, the company was paying ₹5.5 lac rent per month for the office.

leave and license agreement dated February 15, 2020 with our Promoter Krupesh Ghanshyambhai Thakkar for obtaining our Corporate Office … at a monthly rent of ₹ 5.51 lakhs.

However, within a period of about 3 years, the rent for the corporate office increased sharply from ₹5.5 lac in September 2020 to ₹12.6 lac per month in April 2023.

Letter of offer to the rights issue, April 2023, page 39:

In addition, the company has also taken a warehouse on rent from the promoter, Mr Rushil Thakkar at a monthly rent of ₹0.45 lac.

Letter of offer to the rights issue, September 2020, page 158:

agreement with Rushil Krupesh Thakkar…property situated at…Mansa, Dist. Gandhinagar…at a monthly rent of ₹ 0.45 lakhs and for using it for storing finished products of the Company.

Additionally, the company has taken land on rent from promoters for establishing a godown at Mansa, Gujarat.

Letter of offer to the rights issue, September 2020, page 158:

leave and license agreement with our Group Company and Promoter Group entity, Ratnatej Infrastructure Private Limited…for obtaining the land situated at…Mansa district, Gandhinagar…a monthly rent of ₹ 0.10 lakh…for setting up a godown

An investor may note that if the rent paid by the company to promoters is higher than the market rate, then it is like shifting economic benefits from minority shareholders to the promoters. Therefore, an investor should do due diligence on these lease/rental transactions.

5.3) Rushil Décor Ltd gave guarantees on behalf of promoter entities:

In addition, Rushil Décor Ltd gave guarantees on behalf of the loans taken by promoter group entities. As per the RHP, June 2011, page 23, the company had given a corporate guarantee of ₹6 cr on behalf of promoter entity, Vertex Laminate Private Limited.

FY2012 annual report, page 57:

Contingent liabilities: Corporate Guarantee of ₹ 2,00,55,357 (P.Y ₹ 6,00,00,000/-) Given by company for loan taken by Vertex Laminates Pvt Ltd

5.4) Other business transactions with promoters:

In addition, Rushil Décor Ltd has entered numerous business transactions of sale of goods, services, renting of brand names etc. with the promoters.

In 2014, the company sought approvals from shareholders to use the services of a promoter entity, Vertex Laminate Private Limited for transporting material related to the new MDF factory at Chikmagalur, Karnataka.

FY2014 annual report, page 12:

Company will use the transportation services of Vertex Laminate Private Limited…for supply from its Medium Density Fibre Board manufacturing Chikmagalur

The brand name “Vir Studdio” used by the company for its experience centres is not owned by the company. However, it is owned by promoters who take royalty from the company for using this brand name.

Letter of offer to the rights issue, September 2020, page 159:

our Company has entered into an agreement…with one of our…Promoter Group entities, Vir Studdio Private Limited (One Person Company) for the use of their trade mark and brand name ―Vir Studdio on the payment of an annual royalty of ₹ 01 lakh per annum

We believe that an investor should be cautious and do a deeper due diligence about companies, which have many related party transactions with their promoters. This is because each of the related party transactions provides an opportunity for shifting economic benefits from minority shareholders to promoters.

Also read: How Promoters benefit from Related Party Transactions

6) Capital allocation decisions of Rushil Décor Ltd:

In the past, the company attempted to venture into different wood panel segments; however, at times, it was not successful and lost the money of shareholders. For example, the company had to shut down its particle board unit after it suffered consistent losses.

Rushil Décor Ltd started its particle board unit in 2009. However, after investing money, time and effort in the unit until FY2015, it could not run this unit successfully.

FY2015 annual report, page 8:

The Particle Board manufacturing unit (“The Navalgadh Unit”)…was started in the year 2009…but laterly it started the negative contribution, which was ultimately impacting negatively in the overall profits of the Company.

As a result, in FY2015, the company sold its particle board unit (Navalgadh Unit) at a loss of ₹6 cr.

FY2015 annual report, page 8:

company sold sizable fixed assets of its Navalgadh Unit in current year resulted in loss of ₹ 601.91 lacs.

In recent years, Rushil Décor Ltd started its wood polymer compound (WPC) board (also known as PVC board) unit in FY2018 at its Chikmagalur, Karnataka unit.

FY2018 annual report, page 22:

Company has started the production of New Project of WPC Board at Chikmagalur, Karnataka.

However, soon the company realized that the PVC board is too expensive for the market. Against the MDF price of about ₹22,000 per cubic meter, the price of PVC board exceeded ₹50,000 per cubic meter. As a result, the PVC board plant never achieved good utilization ratios and the unit kept on reporting losses.

Conference call, November 2021, pages 6 and 13-14:

Yes, it is very expensive see if you see the realization as against Rs 22000 of MDF this is turning out to be around Rs 50000 plus

Right now I think it is operated at 14% to 15% capacity only…the loss we have incurred in it, it is an investment.

As per the Q4-FY2023 results declared by Rushil Décor Ltd, the PVC board division made a loss of ₹1.87 cr in FY2022 and ₹0.64 cr in FY2023.

Going ahead, an investor should keep a close watch on the performance of the PVC board unit and see, if, after more than 5 years in existence, it can turn profitable.

Additionally, during the construction of its MDF unit at Vishakhapatnam, AP, it suffered a cost escalation of about ₹190 cr over its original estimated cost of ₹341 cr.

Credit rating report by CARE, July 2018, page 2:

new manufacturing unit for thin and thick MDF boards at Vishakhapatnam, Andhra Pradesh…The total project cost is estimated at Rs.341 crore,

The cost overrun of ₹190 cr in the project seems a significant hit to the shareholders even though considering covid pandemic has added to it.

Letter of offer for the rights issue, April 2023, page 25:

We have experienced time and cost overruns while commissioning our manufacturing unit for thin and thick MDF in the state of Andhra Pradesh…our Company also suffered a cost overrun of approximately ₹ 19,034.63 lakhs.

Advised reading: How to Identify if Management is Misallocating Capital

7) Promoters increased their stake in the company via rights issues:

Rushil Décor Ltd raised money from the rights issue to repay its promoters, which effectively meant converting the loan of promoters into equity at the price of the rights issue.

Letter of offer for the rights issue, September 2020, page 34:

Out of the Issue proceeds, we intend to utilize ₹1,832 lakhs for part repayment or pre-payment of unsecured loans availed by our Company from our Corporate Promoter

The right issue was at a price of ₹50 per share whereas during the period of the rights issue, September-October 2020, the share price was in the range of ₹70-80.

In the rights issue, the promoters kept the right to subscribe to additional shares over and above their entitlement.

Letter of offer for the rights issue, September 2020, page 19:

Promoters and the members forming part of the Promoter Group…may apply for Additional Rights Equity Shares, in addition to their Rights Entitlement

The right to acquire additional shares over and above their entitlement in the rights issue allows promoters to increase their shareholding at a lower cost than the prevailing market price of its shares.

As a result of the allotment of shares in the rights issue in Q3-FY2021, the shareholding of the promoters increased to 59.86% on December 31, 2020, from 53.24% on September 30, 2020. This is because, instead of the original plan to convert ₹18.3 cr of debt into equity, which was their entitlement, they could convert about ₹24 cr of debt into equity.

Credit rating report by Infomerics, August 2021, pages 2-3:

The promoters have converted subordinated unsecured loans to the extent of Rs.23.98 crore into equity by way of right issue of shares in FY21.

We have illustrated more such ways by which promoters increase their shareholding in listed companies in the following article: How Promoters use Loopholes to Inflate their Shareholding

Now, in April 2023, the company has come up with another rights issue where shares are to be allotted at ₹162/- per share against the prevailing market price of ₹250-300 in April 2023. Once again, the promoters have kept the right to subscribe to additional shares over their entitlement.

Letter of offer for the rights issue, April 2023, page 20:

Promoters and members of our Promoter Group may subscribe to…for additional Rights Equity Shares,

The company mentioned that the purpose of the rights issue in April 2023 is majorly to convert promoters’ debt into equity shares.

Conference call, May 2023, page 9:

Out of this INR 107 crores total value of Right Issue, INR 56 crores approximately will be directly adjusted in present outstanding of unsecured loan from promoters, which will be converted into equity.

Conference call, August 2022, page 4:

right issue is basically for the purpose of not any specific expansion, we are just planning to; the core objective of this particular right issues to reduce our debt.

The rights issue majorly for repayment of debt seemed in contrast to the strategy disclosed by the company in its conference calls that it does not intend to repay its debt as the debt is very cheap.

Conference call, June 2022, page 11:

foreign currency is concerned, one of the loan is, we have got at rate of 0.85%, which is very good rate…So we would not like to repay as of now in terms of the repayment,

The company maintained the same stance even until November 2022.

Conference call, November 2022, page 12:

As of now, we don’t have any specific plans for early repayment.

Therefore, at one end, the company states that it does not want to prepay its loans because they are cheap. On the other hand, it brings in a rights issue to convert promoters’ loans into equity at a discounted price and simultaneously allows promoters a chance to acquire additional shares in the rights issue, which can increase their shareholding at a discounted price.

Advised reading: Why We cannot always Trust What Management Claims

8) Selection of independent directors by Rushil Decor Ltd:

At the time of its IPO, in the RHP in June 2011, Rushil Decor Ltd highlighted that relatives of one of its independent directors, Mr Narendra Kumar Jain Kabdi own a 9.55% stake in the company. These relatives included the wife and sons of Mr Jain as well as his brother and his brother’s wife.

RHP, June 2011, page 57:

An investor would appreciate that an independent director whose family members own almost 10% stake in the company may not truly act as independent.

An investor may believe that until the time, the said director, Mr Narendra Kumar Jain Kabdi limited his directorship only until IPO, it would have been ok as until IPO the company did not have numerous retail investors from the public as shareholders.

However, in the company’s AGM in 2012, the said director presented himself for reappointment as an independent director.

FY2012 annual report, page 3:

To appoint a Director in place of Shri Kabdi Narendrakumar Jain, who retires by rotation and, being eligible, offers himself for re-appointment.

Finally, in March 2013, almost 20 months after the company came out with its IPO, Mr Narendra Kumar Jain Kabdi resigned from the position of independent director of the company.

FY2013 annual report, page 15:

Shri Narendra Kumar Jain Kabdi resigned from the Directorship of Company with effect from 2nd March, 2013.

In another instance, in 2020, Rushil Decor Ltd appointed one Ms Archee Darshanbhai Thakkar, aged 26 years as an independent director. The company highlighted that her skillset was that she could read and understand basic financial statements.

FY2020 annual report, pages 13 and 24:

Appointment of Miss Archee Darshanbhai Thakkar (DIN: 08603730) as an independent Director of the Company for a First term of five consecutive years

Miss Archee Thakkar has completed Inter stage of Chartered Accountancy Course and has ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows.

An investor would appreciate that Rushil Decor Ltd could have done a better job at finding an experienced independent director who could have much more value in the discussions in the board meeting from her experience and skill rather than opting for a person who is just at the start of her career.

Looking at the above selection of independent directors, it seems that the company has a scope for improvement in its selection of independent directors.

Also read: Why Management Assessment is the Most Critical Factor in Stock Investing?

9) Wrong information disclosed by the company in its statutory reports:

As accepted by the company in its letter of offer to the rights issue in Sept 2020 (page 30), on occasion, the company had made wrong disclosures to the Registrar of Companies (RoC) in its annual reports.

There have been instances where inadvertently incomplete or incorrect disclosure have been made in the director reports and annual reports filed by the Company with the RoC.

It is advised that investors should be extra cautious while reading the public documents submitted by the company.

Also read: How to study Annual Report of a Company

10) Regulatory noncompliance by Rushil Decor Ltd:

An investor comes across numerous instances where the company did not properly comply with statutory requirements. At times, it was penalized by the authorities. Let us see some such instances.

In May 2017, SEBI fined Rushil Decor Ltd stating that it used its IPO proceeds in a manner not in line with the objective mentioned in the RHP. SEBI opined that the company used the IPO money to repay a bridge loan whereas in the RHP it mentioned that it does not have any bridge loan.

SEBI order, May 12, 2017, pages 2-3:

unsecured bridge loans of ₹7,06,00,000 (18.16% of the total issue size), were raised during Pre-IPO period of March-June, 2011 which was not disclosed to the public. These loans were repaid immediately upon receipt of IPO proceeds.

On the contrary, at page 59 of the Prospectus it was categorically stated that “Our Company has not raised any bridge loan against the proceeds of this Issue.”

SEBI put a penalty of ₹700,000 on the company, which Rushil Decor Ltd paid.

In May 2021, BSE fined the company ₹4.2 lac for delays in the application for listing of rights issue shares. The company paid the fine to BSE.

FY2021 annual report, page 35:

BSE limited had imposed fine of ₹4,20,000/- plus Applicable Taxes…due to not approaching the BSE Limited for Listing application of 253760 Rights – Partly paid up equity shares within 20 days from the date of allotment

Once again, in December 2022, BSE pointed out the delay in intimation about the resignation of one of the independent directors of the company.

Letter of offer for the rights issue, April 2023, page 47:

BSE seeking clarification in respect of delay in reporting the resignation of our erstwhile Independent Director, namely, Archee Darshanbhai Thakkar…no action has been taken by BSE in this regard.

In May 2023, the company had to revise its Q4-FY2023 financial results twice as it repeatedly made mistakes in the submitted results.

On May 4, 2023, the company released its Q4 results for the first time. Thereafter, on May 5, 2023, the company came out with the first rectification where it highlighted that the results submitted the previous day missed out details of loans given by it in the cash flow from investing calculations.

BSE filing, May 5, 2023, page 1:

we hereby inform that there was clerical error in Cash Flow statement line item printing submitted to the Stock exchange as a part of Financial Result for the FY 2022-23.

Thereafter, on May 11, 2023, the company again revised its filing when National Stock Exchange (NSE) pointed out that its results did not contain the report by the auditor as per the SEBI format.

BSE filing, May 11, 2023, page 1:

In response to the direction received from NSE, we are submitting herewith the revised Independent Audit’s Report in prescribed SEBI format

In its letter of offer for the rights issue in Sept 2020 (page 30), the company highlighted that on many occasions, it delayed filing of reports to govt. authorities and on many occasions, it did not file the reports at all.

there have been certain instances of delays in filing statutory forms as per the reporting requirements…Further, there have been instances of non-filings of statutory forms with RoC

There have been occasions when the company did not apply for the approvals required for its operations. In the letter of offer for its rights issue in September 2020, pages 290-291, Rushil Decor Ltd highlighted that it has not applied for key approvals like the fire no-objection certificate, electrical safety approval certificate, contract labour registration certificate, professional Tax (enrolment) certificates etc. for its different manufacturing units.

Licenses / Approvals which are required but not yet applied for:

• fire no-objection certificate for all our manufacturing units;
• electrical safety approval certificate…for the DG set installed at our manufacturing units
• contract labour registration certificate…for our RHPL manufacturing unit situated in Gandhinagar;
• professional Tax (enrolment) certificates…for our manufacturing units situated in Chikmagalur and Gandhinagar;

In addition, in the same letter of offer for the rights issue, September 2020, page 40, the company acknowledged that in the past, Govt. authorities have penalized the company for not taking/renewing required approvals on time.

There have been instances in the past, where the statutory authorities have taken legal actions against us for non – renewal or not availing certain licenses and approvals.

However, despite actions against the company for non-renewal of licenses, at the time of filing its letter of offer, in September 2020, it still had many approvals which had expired; however, the company had not filed renewal applications like registration under the Contract Labour (Regulation & Abolition) Act, quality certificate and quality license by BIS etc.

Letter of offer for the rights issue, September 2020, page 290:

Licenses / approvals which have expired and for which renewal applications have not been made:

• The registration certificates issued under the Contract Labour (Regulation & Abolition) Act…for our manufacturing units situated at…Gandhinagar and…Dhaulakuva, Mansa
• The quality certificate issued by the Bureau of Indian Standards for…our manufacturing unit situated at…Mansa, Gujarat
• The quality license issued by the Scientist-C, Bureau of Indian Standards…for Chikkamangluru, Karnataka

Along similar lines, when Rushil Decor Ltd came out for its IPO in June 2011, then in the RHP it highlighted that as per the approval it received for the MDF plant at Chikmagalur in Nov. 2009, it had to purchase land and place orders for its machinery within 6 months otherwise the license would have become invalid.

RHP, June 2011, pages 19:

Central Empowered Committee Permission: As per the letter dated November 7, 2009…The Purchase / Lease of the land and order for the plant and machinery shall be placed within a period of six months failing which the approval will automatically be deemed to have been cancelled.

However, at the time of RHP in June 2011 i.e. after more than 18 months from the approval letter, the company was yet to place an order for 4 of its machineries.

RHP, June 2011, pages 19:

We have not yet placed orders for 4 Machineries aggregating ₹106.51 Lakhs constituting 2.34% of total cost of Plant & Machinery required by us.

Similarly, there have been instances where Rushil Decor Ltd did not register its trademarks, logos etc. in time, which exposed it to the risk of litigations about its brands.

RHP, June 2011, page 15:

Some of our trademarks & logo’s under our flagship are yet to be registered.

Letter of offer for the rights issue, September 2020, page 41:

VIR PLYWOOD‘ not yet registered.

In addition to these, an investor may also remember the noncompliance by the company with the air and water pollution regulations in its laminate manufacturing units, which we discussed above in the business analysis. At that time, in FY2021, govt. had ordered the closure of its laminates manufacturing units.

Recently, two important functionaries of the company, its secretarial auditor and its internal auditors resigned from the company in October 2022 and May 2023 respectively. Even though, the reasons cited by them, the secretarial auditor for managing other secretarial work and the internal auditor for a better career opportunity in other organizations seem plausible. However, an investor should be cautious because, in numerous incidences in other organizations, the resignation of key audit functionaries within a brief period has led to negative surprises for investors.

Also read: 7 Signs to tell whether a Company is cooking its Books: “Financial Shenanigans”

11) Scope for improvement in internal processes and controls at Rushil Decor Ltd:

An investor comes across many instances which indicate that internal processes and controls of the company have a scope for improvement. Let us see some of these instances.

From FY2007 to FY2011, Rushil Decor Ltd did not maintain proper records for its inventory of process stock. As a result, the statutory auditor of the company highlighted it in its observations.

RHP, June 2011, page 18:

Audit Report of our Company has certain qualifications for the period 2006-07 to 2009-10: The Company has not maintained proper records of Inventory in the case of process stock.

FY2011 annual report, page 13:

The Company has maintained proper records of inventory, except in the case of process stock

In FY2017, the company became a victim of hacking when some fraudsters disguised as a supplier from China made it transfer money to their account.

FY2017 annual report, page 93:

while negotiating with one of the foreign suppliers, viz. Shandong Shunitian Chemical Group Co. Ltd. one hacker has hacked the negotiation/conversation and accordingly mailed Proforma invoice from fake email ID to the purchase department of the company and asked to pay 30% of the Proforma invoice amount with specified bank details. Considering this, the company had paid an advance of US $ 26,136 (INR 16.99 lakhs) on 16.12.2016 and while came to know about the fraud…till the date of this audit report, no recovery has taken place

Similarly, in 2014, ₹6 lac of the cash belonging to the company was stolen during transport from the bank to the company.

FY2014 annual report, page 57:

A theft of Rs.6 lacs while carrying the cash from the bank account had taken place

In FY2013, the company did not deposit its professional tax due on time to govt. authorities and delayed it for more than 6 months.

FY2013 annual report, page 25:

except professional tax of ₹1,16,140/- in respect of aforesaid dues were outstanding as at 31st march 2013, for a period of more than six months from due date

Similarly, in FY2014, it delayed the payment of provident funds and TDS dues.

FY2014 annual report, page 36:

except for the minor delays in few instances of Deposit of Provident Fund and Tax Deducted at Source, the Company is generally regular in depositing…

In FY2012 as well as FY2013, the company delayed payment of interest to its lenders and as a result, reported interest accrued and due to lenders in its balance sheet.

FY2013 annual report, page 36:

In the letter of offer for the rights issue, April 2023, page 43, Rushil Decor Ltd highlighted to its investors that it has lost some important documents like the lease deed and transfer of equity shares.

Our Company is unable to trace the lease deed…for the land situated at…Mansa District. Gandhinagar, Gujarat. We are unable to trace the relevant documents for the transmissions and transfer of Equity Shares done by our Promoters

Moreover, at times, it seems that while preparing the annual reports, the company needs a stronger maker checker arrangement. This is because, at times, the annual report contains errors, which are avoidable. For example, in FY2020 annual report, page 2, it described that the EBITDA has grown whereas, in actuality, there was a decline in EBITDA.

While EBIDTA registered a growth of 11.59% from ₹ 45.14 Cr in 2018-19 to ₹ 40.45 Cr in 2019-20

All the above-mentioned instances indicate that the company needs to strengthen its internal processes and controls so that it can take proper care of its documents and avoid falling into fraud etc.

In addition, at times, there were lapses related to safety precautions at the company’s plants, which led to some accidents. In FY2014 annual report, Rushil Decor Ltd highlighted that it faces litigations for accidents at Chikmagalur, Karnataka and Navalgadh, Gujarat plants.

FY2014 annual report, page 56:

There is a case…for accidents at Chikmagalur, Medium density fiber board manufacturing plant…There is a case…for accidents at Navalgadh, Particle board manufacturing plant.

In FY2019, the company had an incident of fire at its Chikmagalur plant.

FY2019 annual report, page 138:

On 18/03/2019 fire broke out at the factory premises…Chikmagalur, Karnataka.

Therefore, the company might need to strengthen its safety processes to prevent such incidences that may lead to economic as well as human loss.

As per the letter of offer for the rights issue in April 2023, page 34, the company faced financial loss when customers returned its products due to quality issues.

During the nine month period ended December 31, 2022, Fiscal 2022 and Fiscal 2021, goods amounting to ₹ 268.75 lakhs, ₹ 231.19 lakhs and ₹ 168.95 lakhs were returned to our Company on account of defects, quality concerns…caused financial losses on account of the same

Therefore, Rushil Décor Ltd might need to work on its manufacturing processes to improve quality checks so that defective goods are minimized and identified within the factory premises. Defective goods sent to the market would impact the brand and customers’ trust.

An investor may read the example of National Peroxide Ltd, a Wadia Group company, where there was a history of inadequate internal controls and later, a fraud came out indicating that the senior management was siphoning off the money for almost 10 years. Later on, the company fired the senior management including the managing director of the company.

An investor may read our detailed analysis of National Peroxide Ltd and the fraud due to weak internal controls in the following article: Analysis: National Peroxide Ltd

12) Large contingent liabilities of Rushil Décor Ltd:

In recent years, the company has received letter orders from Income Tax Dept and Commercial Taxes (Audit) Departments demanding dues from the company.

In FY2020, the Income Tax Dept. had attached its unit in Gujarat.

FY2020 annual report, page 130:

Company has received an order u/s 281B of the IT Act, 1961…and accordingly the Company’s unit situated at…Mansa, Dist. Gandhinagar, Gujarat 382 845 has been provisionally attached

In FY2023, the company received a notice from the Commercial Taxes (Audit) dept. demanding payment of ₹190 cr.

Letter of offer for the rights issue, April 2023, page 231:

Office of the Deputy Commissioner of Commercial Taxes (Audit), Government of Karnataka…stating that our Company was liable to pay a tax of ₹ 19,016.36 lakhs

An investor may note that these are large contingent liabilities that may have a significant impact on the financial position of the company. Therefore, an investor may contact the company directly to know the status of these demands.

13) Frequent changes of credit rating agencies:

Over the years, Rushil Décor Ltd has changed its credit rating agencies in quick succession.

Until July 2018, the company employed CARE as its credit rating agency which in its report dated July 27, 2018, revised its outlook downwards from positive to stable.

CARE BBB+; Stable…Revised from CARE BBB+; Positive

Within two months, in September 2018, Rushil Décor Ltd received a credit rating of A- from India Ratings.

India Ratings Assigns Rushil Decor ‘IND A-’; Outlook Stable

However, in May 2019, i.e. within 8 months, India Ratings downgraded its credit rating by 3 notches from A- to BBB-.

India Ratings Downgrades Rushil Décor to ‘IND BBB/Negative’

After this sharp downgrade to BBB- by India Ratings, Rushil Decor Ltd switched its credit rating agency to Infomerics and got a credit rating of BBB+, which was two notches higher than the rating given by India Ratings.

IVR BBB + / Stable Outlook (IVR Triple B Plus with Stable Outlook)

Therefore, Rushil Décor Ltd might be a case where a company has switched its credit rating agencies to get a better credit rating.

Also read: Credit Rating Reports: A Complete Guide for Stock Investors

The Margin of Safety in the market price of Rushil Decor Ltd:

Currently (June 22, 2023), Rushil Decor Ltd is available at a price-to-earnings (PE) ratio of about 10.6 based on earnings of FY2023. An investor would appreciate that a PE ratio of 10.6 appears low. However, due to the recent sharp increase in profitability of the company due to upcycle phase, the PE ratio may seem lower.

Moreover, we recommend that an investor may read the following articles to assess the PE ratio to be paid for any stock, which considers the strength of the business model of the company as well. The strength in the business model of any company is measured by way of its self-sustainable growth rate and the free cash flow generating the ability of the company.

In the absence of any strength in the business model of the company, even a low PE ratio of the company’s stock may be a sign of a value trap where instead of being a bargain; the low valuation of the stock price may represent the poor business dynamics of the company.

• 3 Principles to Decide the Ideal P/E Ratio of a Stock for Value Investors
• How to Earn High Returns at Low Risk – Invest in Low P/E Stocks
• Hidden Risk of Investing in High P/E Stocks

Analysis Summary

Rushil Decor Ltd has grown its business at a rate of 14% per annum over the last 10 years (FY2014-FY2023). During this period, its profitability has followed a cyclical pattern as its OPM has fluctuated between 10% and 18%. There are many reasons for cyclicity in its business performance.

First, the company depends on the real estate business and home improvement market for its business, which follow general economic cycles of boom and bust. Second, the capital-intensive nature of MDF business with a long gestation period leads to the bunching up of new supply, creating oversupply and a crashing of prices, which accentuates cyclicity.

Its products are commodities in nature with low switching costs for the customers. Therefore, it faces intense price-based competition from Indian as well as foreign manufacturers. Imports are usually cheaper because of low wood prices in countries like Indonesia etc. Even though, the govt. of India imposes anti-dumping duty on MDF imports from some countries; however, it has not stopped competition from cheaper imports.

To survive and grow in a tough industry, Rushil Decor Ltd has used many cost-efficiency measures to reduce its power & fuel costs, flexibility in product manufacturing, upgrade technology and manufacturing processes etc. However, still, in some segments like particle board and PVC board, it is not able to grow profitably. It had to shut down its particle board division in the last decade.

The business of Rushil Decor Ltd is under tight regulatory control due to the environmentally sensitive nature of raw materials (wood) and the release of toxic effluents. In the past, govt. temporarily closed its laminates manufacturing units in Gujarat due to air and water pollution issues.

The capital-intensive business of Rushil Decor Ltd demands much more funds for growth than what it can produce from its operations. Therefore, in the past, the company has raised more debt and equity to fund its capital expenditure projects. As a result, it had reported a negative free cash flow (FCF) over the years. However, despite a negative FCF the company had paid dividends to its shareholders, which in turn, are effectively funded by debt, which may not be in the best long-term interests of the company.

Currently, two generations of the promoter Thakkar family handle the day-to-day operations of the company indicating the presence of a management succession plan. However, promoters of some of the competing companies have also bought a significant stake in the company, which may lead to some corporate actions like mergers etc. Investors should track their shareholding levels closely.

The company seems to pay generous remunerations to promoter family members who have received substantial increments even during the years when the company had seen a decline in profits. It includes the condition of a minimum 20% increase in salary every year for Rushil Thakkar when he joined the company in the last decade.

Some accounting assumptions followed by Rushil Decor Ltd e.g. including CMLTD, which is debt, into cash flow from operating activities leads to an inflated CFO. Investors should be cautious while accepting the reported numbers without adjusting for these assumptions. In its letter of offer for the rights issue in September 2020, the company accepted that in the past, it had disclosed incomplete and incorrect information in its annual reports filed with RoC.

Rushil Decor Ltd has entered into numerous transactions with promoters and related parties e.g. loans, giving guarantees, taking promoter’s properties on rent, selling and purchasing of goods and services etc. Investors should do deeper due diligence to understand the impact of these transactions.

In the last 3 years, the company has come out rights issue twice, primarily to convert the loans given by promoters into debt. These rights issues are launched at a discount to the prevailing market price. As promoters get a chance to subscribe for a higher number of shares than their entitlement; therefore, effectively, they can increase their stake in the company at a discount to the prevailing share price.

The selection of independent directors by the company leaves scope for improvement because, in the past, it employed someone whose relatives had about a 10% stake, as an independent director. Recently, it employed a young CA who could only read basic financial statements as an independent director though it could have employed someone senior with substantial business experience.

The company’s internal processes and controls need improvement because there have been numerous instances of delays in payments to govt. authorities, banks, lack of proper oversight leading to frauds in the company, theft of cash, accidents in units, delays in taking renewals of required permissions etc. At times, the company did not apply for necessary approvals.

Currently, the company is facing large tax demands, which if it had to pay, then may lead to a significant impact on its financial position.

In the recent past, the company’s financial position faced challenges and the credit rating agencies downgraded its rating. As a result, it changed its rating agencies repeatedly to get a higher credit rating.

Going ahead, an investor should keep a close watch on the cyclical changes in the business performance of Rushil Decor Ltd and not get overly influenced by current significant improvement, which might be an upturn phase of a cycle and reduced competition from imports due to challenges in the sea trade. In the past, after significant improvement, its performance had declined sharply. An investor should always keep this in mind.

The investor should also keep a close watch on its debt levels and if it had to do further equity dilution to fund its expensive growth plans. She should be cautious while analysing its financial information and keep a close watch for signs indicating weakness in controls and processes as well as its transactions with promoters and related parties.

Further recommended reading: How to Monitor Stocks in your Portfolio

These are our views on Rushil Decor Ltd. However, investors should do their own analysis before making any investment-related decisions about the company.

You may use the following steps to analyse the company: “Selecting Top Stocks to Buy – A Step by Step Process of Finding Multibagger Stocks”

I hope it helps!

Regards,

Dr Vijay Malik

P.S.

• Subscribe to Dr Vijay Malik’s Recommended Stocks: Click here
• Mumbai “Peaceful Investing” Workshop, July 27, 2025: Register here
• To learn stock investing through videos, you may subscribe to the Peaceful Investing – Workshop Videos
• 25% savings on buying our Stock Analysis Excel Template and all ebooks together: Analysis Package: Excel Template + All eBooks (25% savings)
• To download our customized Stock Analysis Excel Template for analysing companies: Stock Analysis Excel
• Learn about our stock analysis approach in the e-book: “Peaceful Investing – A Simple Guide to Hassle-free Stock Investing”
• To learn how to do business analysis of companies: e-book: Business Analysis Guide
• To pre-register/express interest in a “Peaceful Investing” workshop in your city: Click here

Disclaimer

Registration status with SEBI:

I am registered with SEBI as a research analyst.

Details of financial interest in the Subject Company:

I do not own stocks of the companies mentioned above in my portfolio at the date of writing this article.