Carysil Limited (524091) Earnings Call Transcript & Summary

A very warm welcome to the H1 FY '21 Earnings Call of Acrysil Limited. Along with me on this call, I have Mr. Anand Sharma, CFO; and SGA, Investor Relations Advisor. Coming to the company's performance, the results and investor presentation are uploaded on the stock exchange and company website. I hope everybody has other chance to look at it. I hope you and your loved ones are safe and doing well in these unprecedented times. The company continues to obtain new heights and has picked up the momentum in unlocked case, in spite of lockdown imposed across the globe in Q1 FY '21 due to COVID-19 impact, we reported good performance and shown a strong performance in Q2 FY '21 in terms of revenue and profitability. Let me share with you all key milestones achieved during the H1 FY '21. Strategic partnership with IKEA Supply AG Switzerland. We entered into a strategic partnership with IKEA Supply AG Switzerland for manufacturing and supply of Composite Quartz Kitchen Sink for their global requirements. The agreement will help us establish ourselves with an emerging leader in the production and delivery of high-quality Quartz Kitchen Sinks. IKEA has an expertise in distributing and supply of home improvement products. This agreement will help IKEA offer its customers best-in-class Quartz Kitchen Sinks manufactured by Acrysil. It is expected that we start supply to IKEA by end of this calendar year. Capacity expansion. We are expanding our Quartz Kitchen Sink capacity by 20%, approximately by 100,000 units per annum. This should increase our capacity from existing 500,000 sinks to 600,000 sinks per annum. It is expected to be commissioned in quarter 4 FY '21. With this, we'll have sufficient production capacity to meet the existing demand and export domestic market. We also commenced manufacturing of physical vapor deposition, PVD plant for manufacture and quoting of designers stainless steel sink. It provides distinct metallic finishes on our stainless steel sinks with enhanced aesthetic value of product and value addition to the company. [ Warranty ] visible from July 2020 onwards is expected to continue for the remaining 2 quarters. We expect H2 FY '21 to be better than H1 FY '21. The demand of our home product is increasing as during these days people are spending more time at home. Home is the focal point across the world. As people continue to stay at home, they're looking for more home improvement products. People feel the need to make their home decor more clean and aesthetic. Our presence in the home improvement sector ensures good growth opportunities, especially the kitchen. It Is our believe that there is a strong and enough space for the company to grow and develop as an even stronger player. All our efforts are centered around the consumers we saw, and we will continue to add value to their lives through our products and services. We are determined to improvise in technology and designs to continue dominating the market and appealing to mass consumers through both premium and economical products. At Acrysil, we look at the bigger picture. We do see the scenario improving slowly but steadily in the years ahead. The transaction tune in the export market, in addition IKEA Supply agreement shall help us grow faster. We are also working towards our global footprint to develop a strong network and capitalize on opportunities. We have taken necessary steps to expand in the American and European markets and grow across globe as a valuable and trustworthy brand. Our products have a great global appeal and high trust that influences consumers all across the world. Acrysil believes in innovation of products, innovation leads to improvement in value of our product and helps in adding new dimensions. During the first half of the year, Acrysil has introduced Quartz Antibacterial Sinks and the cylindrical worktops. The company also has set a special purpose machines to ensure seamless installation of stainless steel counter tops to boost the market in India and overseas. So just to conclude, the company is focused to build brand distribution channels across India. We're already supplying more than 55 countries around the world and aim at 75, 80 countries in the next few years. We look forward to expanding globally with higher demand [indiscernible] across the world. Having a steady outlook for the long-term industry, Acrysil is rapidly moving more towards the complete solutions provider for luxury bathroom and kitchen, catering to the more [indiscernible] and conscious consumers. While establishing the brand [indiscernible] is the world's most soft [indiscernible] brand segment. We're heading towards the future of consistent success and increased value addition. We also see now a demand spike up in the domestic marketplace. Now I would like to hand over the line to Mr. Anand Sharma, our CFO, to update you on the financial performance of the company. Mr. Anand Sharma?

Thank you so much, sir. Good afternoon, everyone. Let me take you through the financial performance of the company for the quarter and half year ended on September 30, 2020. Quarter 2 FY '21 performance, the consolidated revenues stood at INR 75.6 crore for Q2 FY '21 as compared to INR 70.7 crore in quarter 2 FY '20, year-on-year growth of 7%. This was on the back of improved demand from international markets. Our EBITDA margin grew by 330 basis points. Margin for the quarter stood at 20.6% as compared to 17.3% in quarter 2 FY '20. Margins improved on back of stable raw material prices, cost efficiency measures undertaken by the company. Profit after tax and monetary interest stood at INR 9.4 crore in quarter 2 FY '21 as compared to INR 5.6 crore of quarter 2 FY '20, recording year-on-year growth of 68.1%. Cash profit after tax for quarter 2 FY '21 stood at INR 12.3 crore as compared to INR 8.7 crore of quarter 2 FY '20, a growth of 41.9%. H1 FY '21 performance. The consolidated revenue stood at INR 121.6 crore for H1 FY '21 as compared to INR 138.7 crore of H1 FY '20. Half yearly revenue were impacted on account of COVID-19 impact in quarter 1 FY '21. However, the growth momentum has started picking up from quarter 2 FY '21 onwards. EBITDA margin for H1 FY '21 improved by 317 basis points to 20.8% from 17.6% of H1 FY '20. Profit after tax and minority interest for H1 FY '21 stood at INR 14 crore as compared to INR 11.4 crore for H1 FY '20, recording a growth of 23%. Cash profit after tax stood at INR 19.7 crore for H1 FY '21 as compared to INR 16.9 crore recorded in -- recording a growth of 16.6%. Our debt-to-equity stands at 0.5x as on September 30, 2020. On annualized basis, return on capital employed stands at 17.7%, whereas return on equity stand at 16.6%. We are pleased to share that the external rating of the company upgraded to A- by ICRA from BBB+ with stable outlook. Now we will open the line for call and questions. Over to operator.

[Operator Instructions] The first question is from Pritesh Chheda the line of from Lucky Investment. [Technical Difficulty] Okay. In the meanwhile, we'll move to the next question, which is from the line of [ Saket Koradia ] from VC Investments. We'll take the line from Pritesh Chheda after this. [Technical Difficulty]

Am I audible now?

Yes, yes.

Yes.

Congratulations, Chirag bhai, great set of numbers and a very refreshing result. Just wanted to get your sense, and if you could give more color on the IKEA arrangement. What's the nature of the tie up? Is this going to be in the line of kind of an order book? Or is it going to be at the retail level? That's my first question. And my second would be on the -- we have this wholly owned subsidiary now in USA. So what's the broader thought over there? And how are we -- in terms of capacity to fulfill some of these?

All right. Coming to your first question, IKEA, I think I mentioned last time. So IKEA arrangement is we're going to invest in lots of molds, the new designs for IKEA, and we want to start supplies by end of this calendar year, December. So the arrangement is supplying to IKEA retail stores starting in more European market and eastern markets and Russia markets. That's going to be the first space. We have been identified as one of the key suppliers in the IKEA supplier list. So we expect good demand, quite a large demand coming from IKEA. As in this COVID time, we have heard that all home improvement stores, including IKEA closed. So we expect supplies to start by end of this calendar year. And I'm sure that the momentum is going to pick up quarter-on-quarter with IKEA. So that's the answer to the first question. I think we would be distributing to all their retail stores across our of Europe and Russia and Eastern markets, number one. Number two is the U.S. subsidiary, and I mentioned in my -- that we are tremendously focusing on U.S. at this point and the results we have seen. The idea to have a U.S. subsidiary is to have a close connection with the customers in America. And at the same time, we want to increase our market share in the U.S. market. While we say that, we want to also tap the large retail home stores in America to further penetrate the market. So this is the idea to have the subsidiary there. We'll be slowly, I think, this is a pandemic time, recruitment process we have kind of postponed. So don't -- the election, we don't know what's going to happen. So once the election is over, things fall in line. Recruitment is going to start in quarter 4 FY '21.

Sure. Appreciate it. Just one last question for me. In terms of our capacity, how much do we -- are we foreseeing the IKEA to utilize in terms of our capacity? And what is the margin profile like? Is it in line with what we do at a broad retail level? Or how does that pan out in terms of arrangement with IKEA?

So I would not be able to pin point on what exactly IKEA is going to do, but we have overall growth. We have made tie ups with companies like IKEA, and I think our expansion shows that we are going to -- we need extra capacity looking at the current demand and the tie ups that we have made. Second question on the margin side, I think it's -- we are fortunate that the new tie ups, where were done, are in line with the current margin levels. So we are hopeful that the margins sustainability should continue.

The next question is from the line of Pritesh Chheda from Lucky Investment.

Congratulations for a good set of numbers, sir. Sir, 2 questions. One, referring to Slide 5, where we have given the quarterly consolidated revenues and tried to highlight the pre-COVID and the post-COVID numbers. And from your commentary, you're saying, incrementally, you start looking at growth in H2 FY '21 onwards. So what kind of growth should one look in H2 FY '21 or FY '21, whatever you're comfortable with now on the revenues? And second question is, a lot of the EBITDA margin expansion that we saw in the first half is also driven by gross margin. There, if you could have any comments in terms of both sustainability of gross and the EBITDA margin incrementally.

Sure. So as we all want to be -- the company has worked very hard. We have said it in earlier call too. During this COVID time when the lockdown was there, the company was trying its best to -- I believe the country -- I absolutely believe the company is not leaving any stone unturned to capture new opportunities at this time. We are working very hard to surpass our current quarters; and two, strive to deliver better results. And as I said in my speech, that this is why we have -- confident about is I think the current demand of the granite sink as well as the new tie ups, I think, should help us to improve company's performance. While I say this, we also know what is happening at the external factors, with U.S. election, second wave of COVID. So company is trying its best to perform for the next quarters. As far as margins are concerned, like I said, that we are also striving very hard to sustain these margins. At this point, the ForEx rates are adding lots of flavor. The company has also -- on the guidelines with the forex rates at a very good rate. And the second thing is that tie ups or the growth which we are expecting are in better price value realization. So I hope that we'll be able to continue. The company will do its best to try to sustain these margins.

Okay. And just lastly, on the order, the large client order. So when we read INR 45 crores, does it mean that it is a INR 45 crores annual orders to be executed and -- or it depends upon when the supply schedule pick up as and when given by the large clients?

So if I understand, you're talking about INR 45 crores of the incremental 100,000 sinks?

Yes, sir. Is it...

Yes. All right. So I think the current demand and the order booking, what we have, I think we are quite confident that we'll meet up this 100,000 sinks capacity, which the supply should start of this new expansion, as I said, in quarter 4. So the annual date of 100,000 sinks. In quarter 4, we should start commencing our supplies of our new 100,000 expansion, so which will result in incremental value.

Is it a new product line for IKEA that we have introduced or existing product line within which they are adding a supplier, if you could give is this last product?

No. IKEA -- this IKEA line is completely a new line of sinks.

For them also?

Yes. No, no. Sorry, not for them. The model which they've given to us are Q1 models they are already supplying through already our current customer through their global suppliers. So we would be taking away the -- probably the market share of the current supplier, which is -- already these sinks have proven track record that they have -- they're now very successful models. So IKEA is handing over to us successful models which are already selling in the market.

Okay. So then the annual supply continues. Once it starts, it continues for till whatever number of years, you and IKEA...

Correct, correct.

Okay. So every year, INR 45 crores worth material ideally remains in the supply.

So it is -- so I would not say that everything is IKEA because we have done the tie ups with a lot of other companies also, in the U.S., in the Europe, from our U.K. subsidiary Homestyle. So it's going to be a mix of all.

The next question is from the line of [ Ayush Agarwal ] from [ NABN. ]

Congratulations on a very good product numbers. I have 3 questions. And one is on the longer-term perspective and one is on the shorter-term perspective. I'll start with the shorter-term perspective. One is, like you said, that we have good order growth flexibility on the Europe and the U.S. [indiscernible]. We can see that Europe is already under the second wave and day by day, the cases are peaking in the U.S. So what kind of visibility would you have in both these markets as these are key markets for us given the second wave and -- both in U.S. and Europe? This is from a shorter term perspective.

So the answer to this, it's -- sorry, have you -- should I -- are you asking the second question?

Yes, yes, please. No, I'll ask the second question later.

Okay. So I think the answer is that it's not the first time we are facing the situation, isn't it? So we have already passed through these COVID times where there have been -- complete lockdown was there in India and across the world. Yes, that is the unprecedented time. Second time lockdown is coming. We have to pass through it. But we hope that we are able to do -- swim through the second wave like we did the first one. I had also mentioned in one of my statements earlier that a lot of online sales have been happening through our global customer. So even if you have a lockdown, companies like Amazon, online companies continue to grow, so phenomenal growth. So the orders are going to supply, that will stop -- are going to continue even during the lockdown. And we believe that any country, the second lockdown, we believe -- I know that the winter is coming so a second wave is there. It will not be for a longer time. And since we are past this situation, we feel that we'll be able to swim through across this second wave too.

I mean that's really comforting to hear, sir. So from a longer-term perspective, we are seeing really good traction in our products, even in these uncertain times. And I mean not a lot of companies are coming up with expansion in this financial year itself, and we are one of the few. We are expanding capacity by 20%. But to understand potential from a longer-term perspective, do we have enough land available or what are our plans to double our capacity from 5 lakh units, not 6 lakh, I would say, but to go to 1 million units from here, do we have enough land for that? And yes, one of the part is that, if you can answer to that. And what is the planning to reach that capacity if we have thought on a longer-term perspective?

Right. So yes. We -- to answer your first question, yes, we do have enough land. We have enough land bank with us. At least to reach 800,000, 900,000 sinks, we do have surplus land that we are trying to negotiate at this point. We'll see how the financials end, and we'll take up the call. But for immediate, if you have to expand by another 100,000 to 800,000, 900,000 sinks, we do have the land capacity. Second thing is we are -- we stay bullish in our approach since we have been able to work on this, what we call a perfect storm for our company in these times. And while we stay bullish, we're equally, very, very cautious, try to see that -- try to keep very close contact with customers, and we try to see that everything is in line. Nothing falls out of line. So we are keeping a very strong track with our customers. And while we stay bullish, the reason is that we have done some very important tie-ups with some global customers through our German subsidiary, through our U.S. and through our U.K. subsidiary. And at the same time, we are very equally happy to more that the Indian market demand has also showing a great spike in the last 2 months. Company, honestly, is struggling to supply since we have a high order book position. So we expect that this demand continues to grow. I think then we -- the company is working very hard to try to sustain the growth levels of say, 20% a year. So I think that's all I can say at this point of time. But equally, at the same time, we're going to be very cautious on what we do.

That's really good to hear, sir. A follow-up question on this would be, what is the fees revenue that we can look from existing capacity. And like one of our participants have asked, a part of our margin expansion also came from the gross margin expansion because the crude prices were lower. But is there any more room in the cost efficiencies that we can take our operational improvement that can happen? So 2 questions on this front.

Sorry, can you take -- I am not -- you're not very clearly audible, echoing. Can you just put the phone a little bit further?

Can you hear me now, sir? Am I audible now?

Yes, yes, yes.

So the first is that what can be the peak revenue from the existing capacity? And second is, are there any more cost efficiencies or operational improvement? Is there any more room for these things apart from the gross margin expansion that we saw already due to lower crude prices.

Yes. Okay, yes. So as the sink capacity expansion, we should be starting commencing in the quarter 4, we are working our -- we -- just for your knowledge of -- for all the participants that the company is doing expansion in the record time, which we have never done in the history. Normally, an expansion of 100,000 sinks, it takes about 6 to 8 months. The company is right now planning to install this capacity as soon as within 4 months of time. We have gone to an extent to even vacated our offices so that the plant manufacturing can be fitted. So this is what the commitment level our company has shown and our team. Second is since the new expansion -- we've been learning on every expansion, what we have done in our company. And we have said that we have done a lot of improvements in terms of cost reduction and improving productivity. So our continuous endeavor to increase value addition, cost reduction continues. The new plant, which we're going to set up, will have a better productivity. And we expect to have better operating margins in that plant.

That's really wonderful to hear, sir. And you missed out on...

[Operator Instructions] The next question is from the line of Naresh Katariya from MoneyCurve Investment.

Congratulation, sir. Exceptional performance. Most of my questions are answered. Just a minor point on working capital. So one, I see that we are entering a very good growth phase, commendable. But our receivables are probably 75, 80 days. Is there any plan to bring that a little bit lower so that our growth doesn't block a lot of capital in working capital?

So I think to answer your question, I think if you are seeing compared to the past, Anand will able to tell you that working capital cycle have been improved a lot in the past quarters. And second thing that the new customer tie ups what we have done are with a lesser credit period, I'm quite hopeful that company is doing its best to reduce the credit period and then in turn, which will help to -- through the working capital cycle.

Very good. Just my second question is on technology. I see that we are one of the only players in Asia to make this quartz sinks. So what stops -- of course, and I've seen your product, an exceptionally well engineered product. What is it we have? Or I would say, what would stop a competitor from entering this? Is it technology, machinery? What exactly or the molds? What is special about our products in making them?

That is so -- I think it's a very good question. The quartz sinks are being manufactured by Chinese and by a lot of other companies to lay it off simply. So it's not that we do not have competition at this point. They've been trying every year. There are some people in India also trying to do this because people are seeing the growth of the quartz sinks going up. So when you talk about strength of Acrysil, it is the technology, obviously, the shock technology, which is very, very high technology. So it's not a technology that you can buy off the market. You need decades of experience to come to that quality level. Today, Acrysil is being compared to the quality better than the -- even German competition. It is due to because our continuous R&D, years of experience into this. And second is, I think the compass, the team what we have of the company, the response time, the delivery times. So it's a of a diamond of a lot of things put together, which -- for example, we have a policy in the company that any export customer across the globe, whatever the time difference is, you have to reply the e-mail within 24 hours. People like this response. It's not that everywhere people do this. So technology, obviously, it's a great technology. Like I said, doesn't -- you cannot just go off. But experience is the main thing along with the technology. And the company's strength to absorb this technology, then what we've been given by the Germans, to further improve on their technology, to do enough R&D to even further our products. So that's what I would...

The next question is from the line of Riddhima Chandak from Roha AMC.

My first question is regarding the volume across the quartz sinks, steel sinks and appliances category quarter-on-quarter and half yearly.

Yes. Anand, do you have numbers in the hand?

Yes, yes. I'll answer this question. So for current half year, we have sold quartz sinks 178,179, and the value is INR 90.99 crores. Steel sinks we have sold 26,126. Value is INR 8.38 crore. Appliances we have sold 5,963, value is INR 5.05 crores. And others, just in other -- tiles and others, we have 4,594, value is INR 91 lakhs. Food disposure, we have 742 and the value is INR 42 lakhs for the current half.

Okay. So what would be the volume growth in the quartz sinks and steel sinks half yearly to half yearly?

Okay. So half yearly to half yearly, we've seen the decline in the value -- decline in the volume because of the first quarter sales loss. But in terms of value, we are very much -- I'll just give you the figure.

First half.

Last year, first half, was INR 90.62 crore, and this year, quartz sink INR 90.99 crore. So on the value terms, we have exceeded the last year half year numbers in spite of loss of sales in the first quarter because of the better value realization, better price and favorable exchange rate in exports. That's for the quartz sinks. Now coming to the steel sinks. As you know, most of our products sold in domestic market, we have seen quantity down by 24% if I compare the current half to the last year half and value down by 18%. That means we have realized a better value addition. And this decline is mainly because of the domestic market, which was mostly closed in the quarter 1. So in the quarter 2, we have recovered the sales, and we have even exceeded the last year corresponding quarter 2 figures. Similar with the appliances. Appliances sales were down by 40% on the volume term and 44% in the value term because of the domestic-oriented products. So these are the numbers. And this is primarily because of the lockdown imposed in the domestic market.

Okay. So in the quartz sinks last year, approximately, contribution was -- in FY '20 was approx INR 35 crores for the quartz sinks in the domestic market, right? And export is remaining INR 147-odd crores. So currently, how much we have seen growth or revival in the domestic market as of now and in the export market?

Yes. So we have actually 2 issues with the domestic market. One is market did not pick up in the first quarter. And when we started picking up in the second quarter, we have constrained to supply also because we had a lot of export order in hand. But in the given scenario, whatever capacity we can dedicate for the domestic supply, we could able to achieve. I'll give you the value. We have reached -- last quarter, domestic sales is INR 17.22 crore against INR 18.41 crore of the corresponding last half year. So we are trying to catch up because the market has now started improving. So it's a capacity constraint, which we are going to get over by quarter 4.

Quarter 4. I'm saying quarter 4 and more trying to help, so these are -- supplies would be from the quarter 1 next year for the Indian market. So right now, we are trying to do our best supplies to strike a good balance within export and India. So what we are doing is trying to improve our metals to supply the Indian market, through the opportunity, the people are having [Indiscernible] period, which will translate in our cash flows, in our working capital.

And my next question is on this realization difference between the domestic and export market. So for the quartz sinks specifically. So in the quarter 4, you stated that it was approximately INR 1,000 or INR 1,500 difference in per piece. So is it same right now?

So because -- the average value difference could be that I need to checkup, average INR 1,000, INR 1,500. But that's because of being domestic market, you had more single molds sold, which is approximately 60%, 70% of our normal value sink. But as far as the gross margins are concerned, it is almost as same as exports. Very little bit struggle in domestic is on the net margin side because a lot of more marketing and promotion expenses has come all in one. But I think all is good. I think the domestic market next year will kind of increase our capacity and good to see the spike on demand also in India for the quartz sinks. So we expect a good year for India next year.

The next question is from the line of Ronak Vora from AUM Advisors.

If you could just repeat the volume numbers for the quartz and the steel sinks in H1 FY '21, I just missed it.

Yes, sure. So for H1 FY '21, we have sold quartz sinks, 178,179.

28,000, right?

178,179.

178,000.

Yes. Got it. And steel sinks?

Steel sinks, 26,126.

Okay. So on the other part, I just wanted to also -- looking out with the second wave of lockdown that is happening in Europe, how do we see the orders that are in hand for us?

So we have no delays or any postponement of orders there.

Okay. So can we say that, secondly, the margins would sustain in the second half, 20% EBITDA margins?

I've already answered this. The company is probably trying to do its best to try to sustain these margins. We have to be also aware about external factors, but company is doing this best.

Okay. And sir, so can we say that, at least, what is the max utilization levels that we can go with the current capacities in quartz sinks?

Current, we are at 100%. So we are expanding but...

So at least we can say that with the 100,000 new sink capacity coming in by the end of the year, can we say that FY '22 can operate at around minimum of 95% utilization levels?

Hopefully. I mean that's the plan, isn't it, that we are trying to expand the capacity based on the demand and the orders on hand what we...

Operator?

[Foreign Language]

[Operator Instructions]

Yes, can you hear me now?

Yes.

Sir, I have 2 questions and 2 parts. So if we look at the entire pie with the domestic and the exports, the domestic pie is slightly increasing. So I wanted to know which are the geographies or which are the states in the domestic pie where you have seen traction or you're seeing growth or from where the revenues are flowing from?

I think our sales are evenly balanced between South West and North as far as -- and south of India continues to be one of our strongest, apparently, domestic market.

Okay. So in the immediate future, with the expansion plans and the revenue guidance that you've given, I understand, that there are certain issues, and we are taking care of them. But next year, same time, can you see that you'll be somewhere around INR 300-odd crores?

I think we are expanding by 100,000 sinks, right? So we are doing our best. And if we are able to -- the sinks -- I mean 100,000 sinks approximately gives you INR 45 crores, INR 50 crores of value for next year, plus we expect good growth from our U.K. subsidiary too. So we also see a good increase in our stainless division too. So we are -- company is doing its best to try to sustain its -- the top line and bottom line.

Okay. So with your medium-term target, wherein you said that you will try to achieve INR 500 crores, taking a run rate of around 9% or 10%, you will be able to reach the target in next 6 years, right?

So that 10% which is -- so right now we have 300 so yes. So about -- so I think we -- I think I've said it last time analysis which completely -- on the basis on the current situation we are in and the kind of growth we are doing, so our -- like I said it in one of my [indiscernible] interviews also that the company plans to achieve its [indiscernible] within 5 years of time. So we will continue our endeavor to achieve INR 500 crores in less than 5 years.