Carysil Limited (524091) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Acrysil Limited Q1 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Parekh, Chairman and Managing Director, Acrysil Limited. Thank you, and over to you, Mr. Parekh.

Yes, thank you. A very good afternoon, everyone. A very warm welcome to the Q1 FY '23 earnings call of Acrysil Limited. Along with me on this call, I have Mr. Anand Sharma, CFO; and SGA, our Investor Relation Advisor. I hope everyone got an opportunity to go through our financial results and investor presentation, which has been uploaded on the stock exchange as well as on our company's website. I hope -- let me start with the global scenario, rising inflation coupled with supply chain disruptions on account geopolitical tensions and impacted businesses across sectors. However, world is tightening the monetary policy to bid inflation. We expect there will be moderation in inflationary environment with revisions in repo rate by RBI and a continuous increase in interest rates by equity. The silver lining is that the freight cost and input cost prices, which have been -- which were on the rising trend has moderated to some extent. We are seeing favorable tailwinds and stabilization in freight cost and softening of input prices. This should augur well for the company to maintain healthy margins and overall improving profitability going forward. Also, I would like to highlight that the Board of Directors has approved the change of the name of the company to Carysil Limited or Carysil Technique Limited or Carysil Products Limited based on your preference approved by -- have approved by the Central Registration Centre subject to all other applicable approvals. The action behind more is to eliminate confusion between the company name Acrysil and brand name Carysil. Secondly, this change will increase brand recall value. And lastly, we plan to launch brand Carysil worldwide as part of our global branding initiatives. Coming to the company's performance. Our company has recorded strong performance in quarter 1 FY '23, recording growth of 73% Y-o-Y and 22% Q-on-Q. Domestic business has increased 117% Y-o-Y to INR 38 crores for Q1 FY '23 contributing 22.2% of the revenue. Company has witnessed substantial increase in demand in domestic market and expect momentum to continue. Our export increased by 25% Y-o-Y to INR 100 crores, for Q1 FY '23, contributing 72% of the revenue. The company has maintained decent EBITDA margin plus 20% gain achieved strong profitability growth of 39% Y-o-Y basis. Coming to demand scenario in domestic market. We are witnessing strong traction from domestic market for our products. Our focus is to increase our penetration in Indian market with increasing the brand visibility. The company has increased dealer network from 1,500 to 1,880, which we further plan to increase our domestic foothold by increasing dealers to 3,000 by end of FY '23. That's doubling the dealer expansion. We have witnessed strong volume growth across all the categories for Quartz sinks using appliances and process. This is a result of the increased production capacity, increasing branding promoting activities in domestic markets. Our collaboration with famous Bollywood celebrity, Vaani Kapoor for branding our Carysil products in terms of visibility has translated into favorable response for our lifestyle kitchen products. The company is going to launch several new models for India, U.S., Europe and U.K. in coming months. Coming to our contract with IKEA, we are supplying Quartz kitchen sinks for IKEA for their global requirements. Our partnership with IKEA has further strengthened with IKEA doubling their current requirements. Additional production and supply started in July 2022. This expansion of order of IKEA is a testament of our commitment to meet schedule delivery and product quality standards. We are continuously striving towards building new partnerships and tie-ups in international market with global players. In our stainless steel category, the company's manufacturing stainless steel using technology, which allows the company to penetrate metallic [indiscernible] like Gold, [ Rose Gold ], et cetera. The company sells a wide demand [indiscernible] to be exported things to Canada, New Zealand and Australia. And also we're going to start exports to GROHE, Germany. Coming to our capacity expansion. Our company has completed capacity expansion of 160,000 units of Quartz Kitchen Sinks and commercial products will commence on 28 June, 2022, onwards. With this capacity addition, now our manufacturing capacity standard landmark of 1 million sinks per annum. This addition capacity should enable us to serve demand from domestic as well as international markets. We are doubling our adjusted capacity from 90,000 sinks to 180,000 sinks and commercial product is expected to commence by end of October 2022. The company is observing strong demand for faucets and hence the company is starting assembly line for kitchen faucet manufacturing with CapEx of INR 5 crores with a capacity of 100,000 pieces per year. The project is expected to be completed by end of December 2022. The company [indiscernible] are most important to a requirement and believe sustainability in cornerstone of any business. With that belief, I will proudly announce that company has developed green things, which is made from organic materials such as spinach, beetroot and charcoal. We have filed a worldwide patent for this green thing technology. Acrysil will be the first one in the world to launch green thing made out of bio green quartz. The company is committed for green energy and has decided to go for renewal energy resort of solar power. The Board of Directors approved 3 megawatt solar power plant to be set up in Bhavnagar, Gujarat for captive, which is in addition to the existing 0.44 megawatt solar power plant. To conclude our -- our export order will continue to be at a normal level of sustained uptick in demand of our products. Our export may witness some moderation in quarter 2 FY '23 going to macro challenges and different travel trends, including the geopolitical situation. On a full year basis, company will continue to witness a good healthy growth overall business, the already growth trajectory and aggressively building brand renovation adopting differentiated technology. We have vast and diversified product mix with continuing to witness development. With our recent acquisition additional capacity of quartz consisting with a focus on domestic markets, we are confident of maintaining growth momentum in the business. Our endeavor is to make Acrysil an undisputed leader in lifestyle kitchen products and conquer new geographies. 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. Anand Sharma?

Thank you, sir. Good afternoon, everyone. Let me take you through the consolidated financial performance of the company. Quarter 1 FY '23 performance; sales volume for quartz sink stood at 170,095 units; stable steel sink 28,608 unit. Kitchen appliances and other stood 1,192 units in quarter 1 FY '23. Total income stood at INR 171.3 crores for quarter 1 '23 as compared to INR 99.3 crores in quarter 1 FY '22, recording a robust growth of 73% for Y-o-Y and for quarter 4, it stood at INR 141 crores, a growth of 22%. This growth was on account of strong demand from both domestic and export market, along with consolidation of newly acquired operating subsidiary, Sylmar Technology Limited. EBITDA of the company for quarter 1 FY '23 stood at INR 34.4 crores as compared to INR 23.5 crores in quarter 1 FY '22, recording a growth of 46% and margin for quarter 4 FY '22 stood at INR 31.3 crores, a quarter-on-quarter growth up 10%. EBITDA margin for quarter 1 FY '23 stood at 20.1% as compared to 23.7% in corresponding Q1 FY '22 22% in quarter 4. Margin in core business continue to remain at similar level as compared to quarter 4 FY '22. However, branded market appears lower on account of consolidation of Sylmar Technology Limited, which had lower operating margins. Profit after tax and minority interest stood at INR 18.7 crores in Q1 FY '23 as compared to INR 13.5 crores of Q1 FY '22, recording a growth of 39% year-on-year and it stood at INR 16.5 crores for quarter 4 FY '22, recording growth of 14% quarter-on-quarter. Now we will open this call for questions. Over to operator.

[Operator Instructions] The first question is from the line of Keval Ashar from DSP Investment Managers.

Congratulations to the team for a good set of numbers. Sir, just a few questions. So first, just to understand what is the size of opportunity for Quartz Sink in the Indian market?

Yes. So what we are -- the last data which we have got with Deloitte was our partner to try to get this research report done. And we have seen that the total kitchen sink sold in the organized sector, which is our category, that is about -- there is -- the total sink market is about 5 million sinks. And we're talking about the premium market where our opportunity lies is about 30% of that. So we're talking about 1.5 million sink premium to our clients. And against that, I think we are doing the quantity at about 120,000 numbers approximately a year. So I think we have just scratched about 10% of the market share.

Got it. Got it. Another thing I wanted to understand is that a few players are doing the CapEx, specifically in Morbi for quartz sink manufacturing. Now since we have got the Shock technology, how does Acrysil's products stand apart from those players?

So, sorry to -- just to understand what -- which players you're talking, India you're talking?

India. So in Morbi, few players are setting up quartz sink manufacturing capacity, not in a larger scale, but in a smaller scale. But since you have got the Shock technology, how does your product stand apart from this?

So these are not new for us. This has been happening in the last 20 years, Morbi doing 2 up, 2 down, 2 up, 2 down. So this has been going on as part of -- they will try doing it. And we have to continue with what we are doing. I think we are very -- as far as our technology is very different. Our brand positioning is very different. We have very high-quality manufacturing. So I think we are in a position now our brand and our products in a very different segment. Morbi can -- we have seen and we have -- I'm not saying -- I have no right to say or talk about competitors would be. But whatever our customers have said that they have burned their fingers. So I would say good luck to them, them keep on track.

Got it. And last question from my side that we are seeing a energy crisis in Europe right now. So Chirag sir, are you witnessing the manufacturers in Europe in trouble right now? And is the order book shifting to you? Any opportunity in that side for us?

What a great question, isn't it? You just said there right there. So yes, so that's exactly what is happening. We have witnessing the traction in our business. And as you know that globally in the geopolitical situation, inflation, so I think the most of the opportunity lies by lapping market share of your competitors. And I think that's what exactly is going to happen is that whatever we -- and I was just in Europe the whole of last month. What we have witnessed is that there is high energy cost. There's also issues of labor and with oil prices. And they would not be -- since we are able to sustain at the current price levels and so we definitely look more traction coming towards us. So we see large opportunity going forward.

The next question is from the line of Vinayak Mohta from Stallion Asset.

Congratulations on a great set of numbers. The first question I had was regarding what kind of traction have you been seeing in the U.S. and the European market with regard to on the demand side? While you clarified that the supply side is looking quite strong given the shift on the sink front to you, the orders and all have been growing, how is the demand looking like out there? Have you seen a slowdown or something?

So I would say as far as -- I can only talk about my category. I can only talk about my category. Overall, yes, there is a very challenging situation for companies, not just us, over the world. But I think for us if you see the quarter 1, we also had a challenging quarter 1, where I think we did quite well than what we thought. So I think there are unprecedented circumstances at this point. We're going to struggle inflation, geopolitical. So I think it is there. It has overall impacted the industry. So as far as our secondary sales, whatever we have heard from our counterparts in U.K., Europe and U.S. it's quite good. They are quite strong. The inventory levels are high. I think most of the companies will able to try to see that this inventory levels go down. And so we are -- so we believe that this is going to be short-lived. People are already coming over from this -- nobody talks about it anymore. I believe we'll overcome it very soon. I think as part of the process and then you have such kind of inflation. So I think it is part of the game. But we have not been massively impacted as far as our secondary sales are concerned, that's still strong. But yes, the inventory levels to every organization is a concern. So we will be based on the unprecedented travel and, yes, the demand may go a little bit here and there, slow for maybe temporarily. But overall I think we are looking at a strong year.

Understood. The second question is on the IKEA ramp-up front, are you looking at the ramp-up happening like instantly or will it be building over the next 1 year? Or what time line do you have? And further, you also had last quarter mentioned that you were going to sit down with IKEA for a new product offering which they had installed for you, so any update on that front?

What was the last question? I didn't get.

So last quarter, you had mentioned that you were going to sit down with IKEA. They have a new product which you might be developing for -- manufacturing for them, so any update on that front?

Yes. So I can just touch you on the IKEA basis. I think we are happy that IKEA recognized one of the key suppliers to them. That we're confident, we've also got an award on the supply award. Based on that confidence, we are doubling the business with IKEA, I think started for quarter 3 as soon as quarter 3. We also have new models which we plan to develop in quarter 3, which we'll get impact in quarter 4. I think overall IKEA business looks very nice. We are also looking, I think I said in the last quarter, the reserve opportunity for stainless steel sink and faucet. So the first part of the stainless steel sink audit has taken place. We've already gone through it. The IKEA team is coming end of the month for the final commercial negotiation. So we believe that the stainless steel project will take off with IKEA very soon.

Understood. And one last question, are you still...

This is the operator. Mr. Mohta, may we request you to please rejoin the queue? The next question is from the line of Pranav Mehta from Equirus Securities.

Sir, I wanted to understand on how the renovation demand in the global market is panning out, because that is one thing which is actually going to lead to a lot of replacement of steel sink by the quartz sink. So if you can throw some light on the key markets, with the renovation, what kind of renovation demand you are seeing there? And the other thing is being the new acquisition, as you have mentioned that you will be able to cross-sell a lot of other products as well. So I think you are also now into -- now moving into a kind of countertop products via the U.K. acquisition. So if you can throw some light on how the demand of that product is shaping up the company [indiscernible].

See, we need to understand this year and the next year, there's going to be unprecedented travel across the world. And it's not just our company, but any company in the world will witness a little bit softening. I think going to be a seasonal quarters this year and next year because of the people have been locked up and they need to travel. I think they're afraid now. As far as the remodeling trend is concerned, nothing has changed. I think the remodeling of the kitchen is still less than 5 years in Europe, U.K. and in the U.S., I think that's not changed. But the people are delaying the -- certain targets of remodeling because of the travel, that's a secondary thing, and not related as part of the regular business. So once they are back from the travel, soon they're going to start remodeling their kitchens. I think so basically, coming back to that, the trend has not changed. The demand may soften a bit due to the travel. But I think overall, India, there is some inflation issues, which still people are delaying upon. Once the inflation comes under control, I think everything will be back on track. So I think the last U.S. data which I came across show that they've been able to beat the inflation and the remodeling and the industry doing well. The last part was on the -- can you repeat the question?

Sir, it was on cross-selling of -- from the U.K. subsidy.

So we are -- so I think we have already started their process. The opportunities are there. Some we have closed it also, and you'll see that outcome coming, the benefits of cross-selling very soon in quarter 3, quarter 4. As far as the whole top business we acquired is concerned, it's doing very well. We actually beat the forecast in quarter 1 because we -- because it does not do the kitchen, it does [indiscernible] for the jobs, all the luxury yachts across the world. So we are able to beat the forecast for the quarter 1 that the Sylmar Technology is doing quite well. Yes. And we'll see at the right time when we want to do the backward integration for that.

And sir, a related question to this, will you be spending up on the U.K. operations only for this? Or you will get a good field of operations for EU as well via this acquisition? So you're focusing only on U.K. as of now or the rest of EU as well?

No, this acquisition is just for the U.K. market, yes, as of now, yes.

The next question is from the line of Udit Gajiwala from Yes Securities.

Sir, firstly, in the opening remarks, you mentioned that you'll start the exports to GROHE, Germany. Sir, could you quantify it as a new order or from the existing we have got in '18?

I didn't get what you talk, please, a little bit slow and loud.

Yes. Sir, in the opening remarks, you stated about that we have started exports to GROHE, Germany. Is this a new order? Or is it from existing business that we already have?

No, so that's a complete new business on the -- yes, so it's over and above what the current business.

Okay, sir. And sir, you mentioned quite a few times that in the Q2, there might be some delay or something like that. But on our full year guidance or whatever the capacity utilization that we are targeting, is there any delay, or we are still on track to achieve what we have committed?

I think as of now, as of now, like I said, we are on track. We are looking at a great year, some seasonal quarters, months can come. But that said, that's all I can -- I mean, the whole world is going through that. But overall, I think we're looking at a good year.

The next question is from the line of Rajesh Kothari from [ Alfa Equity ]

This is Rajesh from AlfAccurate Advisors. Sir, your first comment, I don't know, just to clarify, you said India market size is 5 million, within there premium market size is 1.5 million. And currently you sell roughly about 120,000, whether I heard it right?

Yes.

But if I look at FY '22, the volumes, what you are mentioning there is 650,000. So I'm getting slightly confused.

That is including exports. Yes.

Okay, understood. Understood. So out of…

I can tell you -- what I can tell you, the quarter 1 last year, quarter 1, I'll just quickly tell you the quantities.

It's 31,000 against its 130,000.

So we have done -- I mean, I'm going to just get you some -- we'll come back on the India numbers. I'll come back to you.

Okay. Can I put the second question?

Yes, please. Yes.

Perfect. Sir, you did recently the acquisitions from the distributor perspective. So can you give some more color that how this digitally -- what are your plans over here? And what is the need for such an acquisition?

Can you come again? I really did not understand question, sorry.

My question is...

Can you speak a little slow and loud please?

Yes. So my second question is, can you please give rationale for this acquisition, how this acquisition can be useful to you from the long-term perspective?

You're talking about the U.K. acquisition?

Yes.

Okay. So we have -- so the worktop business is a integral part of this thing, and we have been identified as the most important category. And I think it is going to be one of our very strong growth verticals. So we would be entering into this space by way of distribution and then finally backward integrating it to our business.

Okay. So what are your plans over here? How you basically -- can you give some little bit rationale towards it or maybe we can take it offline?

What has happened is that all our -- so all our things in getting integrated to the worktop. So we -- if we are able to integrate the worktop business in our business, then we will be able to get -- we will be able to get a strong penetration in the market. We'll be able to control the channels more strongly. And once we are able to do this in U.K., we plan to take this glory gradually in the U.S. We plan to do it in India and then we're going to plan to take it across the world. I think once we have kind of got a sizable business to about $100 million, then we will be able to looking at doing a backward integration for manufacturing. So I think which will then help us to create a large capability, opportunity and a huge market penetration to be challenged where we are not present.

So just to give you the quality you asked for the domestic quartz business. So currently, quarter 1 '23, we sold 33,420 sinks versus the last year corresponding 16,094. So it's more than double.

Yes. So we are doing a 130,000 sink annual rate where last year we did it was around 65,000, so going at a double capacity. Yes.

The next question is from the line of Manish Ostwal from Nirmal Bang Securities.

Fortunately, most of the questions already answered. Only one question on the margin side. Sir, during this quarter, because of the consolidation, the margin for the quarter declined quarter-to-quarter. So for the acquired entity, where do you see the margin and overall blended margin outlook for the rest of the financial year, sir?

So like I said in my statement that the input costs are decreasing, the freight costs are decreasing. So definitely, there will be a margin improvement also for the acquired company and also for the overall business moving forward.

Okay. And secondly, sir, your presentation, Slide #5, you made a comment about owing to macro challenges and revenue stable trends in export market, the quarter 2 will be moderate. So I could not understand revenue stable trends impacting the demand, sir. Can you explain that thing, sir?

Yes. So this is obviously we are witnessing -- not us, the world is facing a challenge right now because on the overall home improvement sector because the world is unprecedented travel at this point of time, there's revenge travel. Everybody you like Europe as a 3-week vacation, U.S. has a long weekend, U.K. has 3 vacations. So I think because of the last year, 2 years COVID, nobody has traveled. I think people are taking a break and which is -- and that break should be there. So I think we all are part to very tough times. And so I think temporarily, for a few months, what -- the demand may soften because these consumers go back to their homes.

Okay. And the comments around like recession scenario in U.S. and challenge in U.K. market, are you seeing demand tapering on those markets, sir?

So again trying to say that this is all a very seasonal business this point, because of the unprecedented travel. The demand is going nowhere. Secondly, sales are still very strong. The overall business is very strong. The federal business is still very strong. It is just that temporarily you may see a few months softening because of the absence of consumers, out of their homes, out of their markets. Once they are back in, Christmas season is going to kick in. People are going to be in the festive mood. The inflation is gradually tapering, the geopolitical situation is improving. So you'll see things back on track very soon.

The next question is from the line of Akshay Kothari from Envision Capital.

Sir, could you please outline just from your understanding, like what could be the volume growth we could see in the next 2 years in the quartz and stainless steel sinks?

So we are -- like we are -- like we have said that we are expanding our capacities. In the past, we have been able to grow at the rate of 25% to 30% growth rate. And we expect for the next 2 years that we will -- it's our endeavor. It's our -- we are not going to leave any stone unturned. And we're going to strive that we maintain our growth levels at 25% to 30% for the next 2 years' time.

And sir, we have given guidance of expanding distribution network from 1,500 to 3,000 by this year-end. So I just wanted to understand the -- sorry, so our dealer network is actually the exclusive ones? Or what is the difference between distribution network and dealer network as such?

So they're the same. I'm not talking about -- I think it's the same. But what has happened is that since the last 2 years, we've been so badly bogged down with the export demand that we could not get really time to cater the Indian market. And now we see a great opportunity in India. I think in the economic situation compared to the rest of world is much better. We're seeing a good traction in demand in India. And I think we still have a job to do. Like I said, we only have scratched 10% of the surface. So we are now in a expansion mode across India, pan-India. And we would now like to double -- looking at the pro forma, looking at what we're able achieve, looking at the demand coming in, I think we have decided to double our dealer expansion capacity pan-India, double kind of '23 pan-India.

But sir in the presentation, you have given that you have currently 1,880 dealers and 82 distributors. So just wanted to understand the difference. Distributors are the ones which are exclusive to us? Or how does it go in that sense?

Distributors are kind of wholesalers, they in turn distribute to the dealers. Dealers, I mean, it's retailers, yes.

The next question is from the line of Harshil Shethia from AUM Fund Advisors.

Sir, looking at the domestic demand that you highlighted, can we see that the sluggishness in the export market can be replaced by the domestic market demand?

Yes. So I think we're going to strive for that same growth, isn't it? We're not going to leave any stone unturned. Wherever the demand is strong, we want to quickly move there. We see good traction in India. We are like 80%-20% ratio last year looking at a 70%-30% ratio last year, [indiscernible] 65%-35%. Here, to a large extent, it will be compensated by the Indian sales.

Okay. And sir, when we say that there's a bit of a sluggishness in the export demand, is it in the European markets or majorly from the U.S. market? Or is it both of them?

So I would not say sluggishness. I would say a little bit soft because of this, most of the West under a severe travel in this point of time. And that stretches out from Europe to U.K. to the U.S. because that's a holiday season for them.

Okay. So softer that you mean a trend of [indiscernible]?

What is that?

Means flat demand in terms of volume as on Y-o-Y or Q-on-Q basis?

Yes. Yes.

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

Yes, sir, just taking clarity, the 650,000 Quartz Sinks that we sold last year, in that how much will be the domestic volume? And by virtue of this dealer distribution expansion that you are seeing, is it safe to assume that the domestic business should actually -- the Quartz Sink volume should double? And similarly for stainless steel sinks, I think we did about 50,000, 60,000 units last year, if I'm not wrong. And how much was domestic units?

Yes. So I think as far as the domestic -- the domestic performance I think last year we did about 100,000 odd Quartz Sinks. And I think this year, we are already moving towards 120,000 to 150,000. We'll be looking at on a quarter-on-quarter improvement, so it can still further go up. But I think we're looking at least 30%, 40% growth of Quartz Sinks in India. Last year, yes, the stainless steel sinks, the total sinks, I think in India we sold about 50,000 sinks odd. And I think this year we are going at maybe 100,000 sinks annual rate. So I think close to a double.