Carysil Limited (524091) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Carysil Limited Q2 H1 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 the date of this call. These statements are not the guarantees of future performance and involve risks 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 from Carysil Limited. Thank you, and over to you, sir.

Thank you. Good evening to all. I wish you and your loved ones health and safety. I hope you had the opportunity to review our presentation and financial results, which are available on the stock exchange and on our company's website. I'm accompanied by our CEO -- CFO, Mr. Anand Sharma, and SGA, our Investor Relations adviser on this call today. To begin with, we are happy to announce that company name has changed from Acrysil Limited to Carysil Limited. The name of the company changed in order to increase brand recall value, introduce Carysil as a global brand and enhance its global presence. Now let me begin with giving an update on the global scenario. U.S. and European economics continue to grapple with inflationary environment. However, the pace of it is slowing down. The export market, we are witnessing a periodic slowdown phase due to higher inventory levels maintained due to COVID period by our customers. Based on the feedback received from customers to understand the secondary sales of quartz sinks are still growing and its continued sustainable demand in online and retail segments. The high inventory levels built up by our sales channels are getting liquidated slowly, and hence, we're expecting ordering levels for quartz sinks to increase from Quarter 4 FY '23 onwards. Our newly acquired business, Sylmar, which operates in U.K. performed well in current business scenario. We are here for the quarter witnessed strong growth on sequentially and on a yearly basis. Indian economy has showed tremendous resilience to global SKUs and have high demand for quartz sinks. We have now sufficient capacity to fulfill demand in domestic market, which is continuously growing. The recent update, our relation with GROHE and IKEA is getting stronger day by day. We have doubled our supply to IKEA sales to GROHE increasing year-on-year basis. We try to establish new partnership alliances global businesses for their global requirements. In our steel category, demand for Quadro is on the rise and we have witnessed a healthy growth in revenue in H1 FY '23 on Y-o-Y basis. We have mentioned in our last call that high-tech faucets are in demand in global markets. We have started working on faucet assembling line for 10,000 units and supply will start from Q4 FY '23 onwards. We have witnessed good inquiries for procurement of faucets by export customers as well as our premium customer like IKEA and Grohe. Further, we have received orders from France and other countries for new PVD sink and other under mount sink which will be great opportunity export market. Given the current global operating environment, the Board has decided to postpone the expansion of additional 200,000 capacity of quartz sinks. Further looking at the growing demand in the built-in kitchen appliances, we have decided to utilize the resources for manufacturer assembling of approximately 200,000 built-in kitchen appliances to become Atmanirbhar in this segment. This expansion will take place in 2 phases. There is 100,000 units in Q1 FY '24 and balance 100,000 units in Q3 FY '24. Further of the capacity expansion of steel sink by at least 90,000 expected to complete by December 2022. New innovations at Carysil. Like we mentioned in the last call, we have filed patent for green sink technology, which will be manufactured from organic materials with charcoal, spinach and beetroot. The pigmentation is natural and sustainable and we will be soon launching in the exhibition in Paris on November 19, 2022. This will have a positive effect on the environment and the product acceptance will be very high. This is a breakthrough innovation in the sink industry. We are in process of developing new type of thing, which will double the trend compared to existing sink without any further increase in manufacturing cost. The improved sink strength results in reduced packaging costs, it will also lead to reduced packaging size will allow us to ship more sink per container, thereby reducing shipping costs. We expect it to complete this invention by end of the current year, December 22, and the supplies will start in January 2023. Keeping in with a vision of taking the brand globally, we are launching the Carysil and Sternhagen brand in Dubai in December 2022. In order to further strengthen our foothold in export market and we acquired a separate for export business. We have also appointed chief of staff to oversee our foreign operations and business head to overseas institutional sales. Future growth global market. The current ongoing geo-political tensions and the energy crisis in Europe are presenting a very strong opportunity for Carysil on medium to long-term business. Economies of Germany, Italy and rest of Europe, excluding France, continued to suffer from energy crisis. As a result, the production costs had grown up to a very large level. Currently, 3 million to 4 million sinks are being manufactured in that area around Germany and Italy. With the rising cost and the inability to manufacture at competitive levels and to sustain escalating cost inflation levels will ultimately work to our advantage. The ongoing crisis has presented us, Europe plus one opportunity and therefore, Carysil has tremendous potential to enter into the market and bridge this supply gap, which will ultimately lead to an expansion of our customer base across the globe. We are already in discussion with few other customers for their future requirements. Future growth Indian market. Further, in spite of the global recession when Indian economy has shown strong resistance. We are strategizing to increase our penetration in Indian market or mid to long term. We are witnessing a strong traction in domestic market. Over the last few years, owing to capacity constraint was not able to ramp up our supply to Indian market. However, currently, we are well equipped to see the domestic market as well. Keeping in mind the growth opportunity we have already taken a few steps includes number one, appointment of Vaani Kapoor as brand ambassador increased our dealer count to 2,200 on 30 September 2022 and aim to increase 3,000 by end of '23. For H1 FY '23, our domestic revenues have increased by 58% Y-o-Y to INR 71 crores. We are aiming to achieve a turnover of INR 300 crores in domestic market in the next 2 to 3 years. Now I would like to hand over the line to Mr. Anand Sharma, our CFO, to update you on the company's financial performance. Over to you.

Thank you, sir. Good evening, everyone. Let me take you through the consolidation financial performance of the company. Quarter 2 FY '22 performance. Consolidated total income stood at INR 139.2 crores for Q2 FY '23 as compared to INR 121.9 crores in Q2 FY '22. The consolidated income for Quarter 2 FY '23 includes income from newly acquired subsidiary Sylmar Technology Limited,. While our export sales is down by approximately 21% on a Y-o-Y basis, on account of geopolitical situation, the decline was partly offset by 20% growth in our domestic market on Y-on-Y basis. EBITDA the company for Quarter 2 FY '23 stood at INR 22.7 crores as compared to INR 29.7 crores in Q2 FY '22. The decline was primarily due to lower sales leading to under absorption of the fixed costs. Profit after tax and monetary interest stood at INR 9.2 crores in Q2 FY '23 as compared to INR 17.7 crores in Q2 FY '22. Now coming to H1 FY '22 performance. Sales volume for quartz sink stood at 297,000 to 252,000 units, standard steel sink stand at 58,294 units and kitchen appliances stand at 15,668 units in H1 FY '23. Total income stood at INR 310.5 crores for H1 '23 as compared to INR 221.2 crores for H1 FY '22, which registered a growth of 14% on Y-o-Y basis. EBITDA for the company for H1 '23 stood at INR 57.1 crore as compared to INR 53.2 crore in H1 FY '22, growth of 7%. Profit after tax and monetary interest stood at INR 27.9 crores in FY '23 as compared to INR 31.1 crores in H1 FY '22. Thank you. Now I open the floor for questions and answers. Over to operator.

[Operator Instructions] Our first question is from the line of Pranav from Equirus Securities.

Sir, I wanted to understand on how the demand as such because of the big box retail is now having a lot of inventory built up in the last 6 months. So obviously, they are facing some difficulties in liquidity in them. But as you said that from 4Q onward, you believe that the demand should start picking up on quartz sinks. Is that correct?

Yes.

Okay. And sir, as you said that Germany, particularly with you facing a lot of problems and you had highlighted this in the last call as well. So that the opportunity size or market share gain for you guys. How much can you see a kind of market share lean for shop technology quartz sinks because of this? Can you just throw some light on the same?

So like I said in my last para in my speech that there are about 3 million to 4 million sinks are manufactured by our competition just in Germany and Italy. Now whatever we have seen from reliable resources and our customers that our competition is increasing the price almost every few weeks. And this will make us India, especially Carysil is a very most -- probably the most confident low-cost producer in the world. So we already see this traction. We already see this business transfer to us. We are in talk with already few companies on this, 1 or 2 customers already moved to us. Few are in discussion. And I have -- honestly, I think it could be anybody's guess. We can probably get another storm coming in, in FY '23, '24, if really things do not go well for them. As of now, it seems things are really not going well for them. And I think we are crossing our fingers. We are quite optimistic. The business will come to us. India is tremendous in terms of where as compared with global situation. So we are quite positive, and we are quite hopeful that the large chunks of business will come to us next year. Now to what extent, it could be anybody's guess. Yes.

Right, sir. And sir, can you throw some light on the stand-alone EBITDA margin getting impacted in this quarter. So was this because of operation delivery that is because of lower volume that you are able to generate or something else there in this as well? Because the credit cost has started coming down so that would be a major part of your potentially positive volume.

Yes. So this is stand-alone, it's down by 12% primarily because of the lower export sales. And because of that, there is a lower value addition happened. Now the fixed cost level is same or we have control. But with the sales, which is lower by 12%, we have a lower margin, number one. Number two, if you see the exchange differences, that has also played its parts with their last compare quarter, we have around INR 2.85 crores in exchange gain, which at current quarter is INR 2.5 crore exchange all. This all notional loss, MPM. But of course, it's a part of the profit and loss account, okay? And as I said, like interest and depreciation, whatever we have put in for the capacity that all come in, but corresponding, the volume has not come. So overall, business fundamental is same. We have been strong, we have controlled our costs. With every rise of the sales, the EBITDA margin will come back to the normal level.

Okay, sir. So sir, we can consider this to be kind of a bottoming out of the EBITDA margin from next quarter onwards, you should see improvement in margins coming in on a stand-alone level?

So I think like I said in my last investor call also, we're expecting 1 or 2 soft quarters until this inventory, which is a temporary phase now. So I think till then, I think we will -- we'll obviously face some challenge challenges. But we're looking at quarter 4 things to improve.

Okay. And sir, my last question was related to -- as you said that next year onwards, you believe that things should improve quite well because of the shift and you -- plus one kind of strategy being adopted by the big-box retailers. So since you have postponed the quartz sink capacity addition. So are you comparing that if the demand picks up very strong, you'll be able to service that? Or how we should look at this?

Yes. So I think what we are doing is to answer very quickly. We just work ourselves on traction in the built in appliances in India. And we already have about 70% increase in sales in the built in appliances sector, which I was telling last time it is expected to grow quite fast. While we have already infrastructure, enough land and infra even to increase the production of 1.5 million units also if we have to. Yes, there will be a further expansion, but we have -- the company has enough infra to build it up. So we will do bigger. Right now, the priority was appliance in the traction there. So we have moved that. Now slowly, if we've seen a month or 2 because there are large contract, which will come into play, which will probably give some few months' time for us to improve our capacity -- increase our capacity. So we -- the company is well equipped to expand to 1.5 million units within fix or at any time.

Our next question is from the line of Harshil Shethia from AUM Fund Advisors. [Operator Instructions]

Sir, when -- so my question is if we are bullish that the demand will start coming back in Q4 onwards, then due to the competitors dying in Europe and India will be the only option available to provide them with low-cost supply. Then why aren't we going ahead with the CapEx and putting up the capacity upfront, so that once the demand comes, we are ready with the capacity rather than waiting for the demand and then setting up the capacity?

So we already have 1 million sink capacity in place right now, which is quite sufficient, even with the increase in the order. Now further than 1 million sink if it comes, any of the customer, we will have 6 months' time to expand, not to be overnight. So we feel that 1 million sinks is the sufficient to cater all the new inquiries and demand, which will come.

Sir. Secondly, I want to ask how much volume is being supplied by the competitors to in quartz sinks market and our volumes are around 600,000 sinks for the year, like annualized?

Total SCHOCK Technology are approximately 4 million units Italian sold and all are manufactured in Europe. And all these 4 million sinks are having challenges for energy, inflation. And not just that, supply chain also is going to be a very big problem for them.

Okay. And in this 4 million sinks, does this include our volumes of 600,000 sinks?

No, that is not included.

On an average, the global industry is 4.5 million sinks, correct?

Yes. Like I said, again, the total -- leaving us 5 million sinks of quartz in a main manufacturer, which SCHOCK has almost 80% market share. Another 1 million sinks are being manufactured in Europe by some Eastern European manufacturers, which are not SCHOCK Technology.

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

Sir, firstly, on the CapEx that we have deferred, what will be the already cost that we must have incurred for that, which we have already postponed now?

So we gave the infrastructure ready. We have invested in the buildings and infra and land. So that is all we have invested as of now, around INR 20 crores. Now this infrastructure, what we have built in will that we are going to use for our built in appliances till we get a further push in the quartz sinks. So in price available, we can use that for the built in appliances as well as for the quartz sinks manufacturing.

And got it. And yes, and sir, for -- so what will be the further CapEx that we'll incur for setting up this built-in appliance plant? And what will be the phase wise CapEx for 1 lakh units and the top revenue that we expect from this CapEx?

So primarily, we plan to do more assembling than manufacturing. So the total CapEx is expected to be about INR 20 crores on the first phase, for the 100,000 is expected to be around INR 10 crores.

Okay. And sir, what will be the revenue potential from the same?

Approximately INR 50 crores to INR 60 crores. Not from the first phase, the total will be about INR 120 crores with the Phase I, Phase II of 100,000 units -- sorry, for 200,000 units.

Okay. And this peak, we should be expecting by '25, right, if we start the second phase in Q3?

The Phase 2 is expected to also complex next year.

So first phase we are expecting in the quarter 1 of the financial year. And second phase in quarter 3 of the next financial year.

Right. So sir, my directional question is that the peak revenue will be achieved in next year itself and going forward is what we are expecting?

So peak revenue will come in FY '25, not in FY '24. So peak will come in FY '25 because you will get only a quarter for the second phase of expansion.

Understood, sir. And sir, on the quartz and stainless steel sink. So in domestic, what will be the cost difference now? And how has the demand in domestic shaping up?

The quartz sinks are still at premium sink and it is the fastest-growing category, like I said, global -- not just globally but also in India. So we -- I'll just tell you this. So we have and the average rate in India, which is coming of 5,500 and still steel sink about 4,000. So there is approximately about 20%, 25% difference between the steel sink and the granite sinks.

Understood, sir. And sir, lastly, on the export that we are expecting the situation to turn around from Q4. So -- and like you mentioned that we can set up 150,000 capacity of quartz sinks in 6 months. So that will be on the existing land or we'll have to incur further CapEx for it?

So I said to just recorrect, I said 1.5 million sinks we can do. We're already have 1 million. So 0.5 million sinks we can do within 6 months on the -- we already have enough land to build up capacity. So we don't have to put any CapEx and plan.

And lastly...

Sorry, Mr. Gajiwala, there are several participants waiting in the questions queue for their turn. Maybe request you to return for follow-up. Our next question is from the line of Nikhil Gada from Abakkus AMC. [Operator Instructions]

Sir, firstly, could you provide the financials for HTL please, the revenue EBITDA, PAT?

For which?

HTL, the subsidiary. The subsidiary.

Okay. You move to next question, Nikhil, I'm just taking that out.

Sure, sir. Sir, now we have seen the fall of close to 25%, 30% in volumes and quartz, and that is somewhat is also reflective in 3Q as well. All that, I know it might be a bit difficult, but is it possible to achieve the sort of the run rate we used to do prior to the slowdown in Europe that you are seeing? Because we have expanded so much in other geographies as well?

Yes. 100% is going to come back. I mean there is no reason why it should not come back. We all know that the fundamentals of the business are very strong, where the ground level of quartz business is roaring that the first thing, I think I would really be concerned at the ground level, sinks are not taking shape. Where the ground level when the quartz sinks, like I said, the hybrid culture is still existing in every corner of the world, and that's why the home improvement sector is still improving, like U.S. like guys like Home Depot and Lowe's from sources said that they're increasing 7% of online sales in home improvement. So this scenario is not going to change anymore. People will work from home culture is there. The demand is very strong. Home improvement sector is still doing well because of inflation issue mostly the revenge travel inflation and the geopolitical situation. It is a temporary phase. We all know that. Now it will take 3 months or 6 months, but the demand is not going anyway. Demand is coming back. So we are very bullish that whatever we created, it will come back. And not only that, maybe in a year or 2, we will have to expand another phase because the traction is there in the quartz sinks business. It is taking out this year. Now I mean it's a cyclism, you guys are more expert than me that anything if whether inflation -- if the interest rates are more, there's a softness in the home -- in the mortgage business, home improvement business, but that eventually would be bottleneck, isn't it? once the interest rates go down, there is going to be, again, traction in the home sector. So yes, so we will have to little bit bear the brunt with this current situation. But yes, we'll be out of there quite soon. Coming to your first question, Nikhil, I'm reading out the numbers from Sylmar Technology. So in the quarter 2, we have achieved turnover of GBP 3.6 million against last year, GBP 319 million, growth of 13.8%. EBITDA is GBP 588,000 against last year, GBP 505,000, growth of 16.5%, PBT GBP 534,000 against last year corresponding GBP 445,000, growth of 21.3%. PAT GBP 433,000 against last year GBP 371,000, growth of 16.8%. So overall, Sylmar Technology has done good numbers sequentially also and Y-on-Y also.

Sir. Just one last question on the built-in appliances business. When we are already operating in the kitchen appliances space. And now with this in-house sort of assembling and manufacturing -- is it sort of just a replacement of the sales that we are going to do? Or do we believe that this because INR 120-odd crores is what you are expecting by FY '25. So that would be a sizable number, right, to what we are doing right now?

It may compensate a little bit, but this is mostly to drive on a different parts or different kind of built in appliances we would like to do for India. The supply chain from China is still a challenge. I mean still having a very big challenges. And we just can't go on imports. I mean, one, you don't get consignment dollars has gone to 83. I mean, you can't just do it. You can't just go run. And I think our technology, our status is fabrication gives us enough edge to -- for us to manufacture this. So yes, it's going to be a new line. It's going to be a new type of kitchen goods, will be more innovative also kitchen goods which we have tied up with some engineering companies. We also have just recruited slowly going to build engineering in our technology team. The first lot is being recruited. Who's going to join first January, including engineers from IIT and which is going to -- we have some plans in mind, which we can -- yes, we do have some dynamic plans, which will change the figure of the kitchen good industry in India with some complete new engineered appliances.

Will largely do it domestic, right? Not no exports?

Largely for domestic.

[Operator Instructions] Our next question is from the line of Pritesh Chheda from Lucky Investment Managers.

My question is on the gross margin side. So the half yearly gross margin are completely different from what we had last year. So there's about 500 to 600 basis point difference. Is it to do with the raisin and raw material prices in quartz or is to do with anything else?

So I think, Pritesh bhai, the margin is, one, is factor of this prices of these pigments and the MMA has gone up, but that affected a very small, mostly is because of the freight and the cost of imports. And the corresponding costs associated. Once volume is down, I think gross margin per unit is not gone down. Overall, it has affected the operating margin.

Sir, the gross margin themselves are down 500 basis points. So I'm just trying -- I can understood your EBITDA margin assessment between quarter 2 and quarter 1 because of the volume itself being down.

Yes. So consolidate when you are talking about it is a merger of Sylmar from this quarter, I mean, from last quarter. So last corresponding Sylmar was not there. Sylmar cost, gross of margins is very different from what we have in India. So that's why that margin difference will definitely come.

Okay. So now I understand. But is there any material led gross margin, which can improve from here on?

Yes, Yes. So freight costs have almost come back to pre-COVID levels now. And also the input costs are going down. So we -- on the -- I think on the gross margin side, you will see improvement.

So my second question is volume. So let's say, until quarter 4 of last year, you were thinking taking that you'll do about 900,000 volume in sinks this year and may utilize our capacity fully of 1.3 million next year. Now with the capacity going to only 1.1 million. What would be your best guess for volumes this year and best guess for volume next year?

So we believe that starting from quarter 4, there you will see some improvement. I think it is anybody guess now what quarter where things are -- inflation starts coming down the geopolitical situation, I think it's very, very hard to tell what it is. But we are quite hopeful that we should be -- I'm wishing that by half year next year or middle of half next year, things should start falling back in place. And actually, we should come back to the level of quarter 1.

Quarter one, I don't know the quarter 1 volumes so...

I can tell you, we can later on -- if you want it now or later.

I can give you the number. On the granite sink side, we have volume of 170,000 units in quarter 1 and 127,000 in quarter 2. Now our best guess is from the quarter 4 onward, we'll back to the 170,000 kind of level, that's what he's talking about.

Okay. Okay. Understood. Understood. And from there, we will start growing, right? From the 170,000?

Yes. But now it's like in quote unquote. So we have to still take into consideration the issues around us. But if you ask our guess, it would be our guest and if not quarter 4, it will be quarter 1. But we are seeing that things will start falling back in place. It's just a matter of time at what period, quarter 1 or 2 here and there, but yes, it will start coming back in place.

Our next question is from the line of Prasheel from Kitara Capital.

My question was regarding your tight difference between you guys and supplies and your -- you said you'll are getting more competitive because of energy cost rise in Europe. So what is the difference now?

So we were already 20% -- around 20% to 25% cheaper before this crisis hit, and now we should be more competitive by 35% to 40%.

Okay. And can you mention the 4 million units that are getting manufactured in Europe, what kind of shift do you see in the coming 1 year, maybe 2 years? If the situation continues to be the way it is now?

Yes. I mean it could be like anybody's guess, isn't it? Now whether that's a million sinks coming to us or 2 million sinks depending upon -- that all depends upon the customers over there, what they would like to do. But the signs are showing that it is going to come towards us because we are one of the only 4 licensees of shop. So we are quite confident that it should compare to what volume, what extent? Like I said, we are not sure.

Okay. And lastly one data keeping question. You said around 10 -- you mentioned that INR 10 crores there. Is that the right amount that you need to spend more to convert the 200 units capacity that you're making for sinks to shift back to built in kitchen appliances?

Yes.

Our next question is from the line of Anika Mittal from Invest Research.

Sir, you were talking about this Sylmar Technology. The company is performing good as the financial shared by our CFO. So manufacturing plant is also in U.K. So is it not facing any crisis, sir?

So exactly my point. It's a good question because Sylmar Technology does not carry on inventory, because it's on made to order business. Even with this crisis in U.K., our order book situation is still very strong. So we clearly says that the home improvement sector in spite of all the challenges, we're is still doing well.

Okay. Means the demand is there, you are saying?

Yes.

That's the point because -- that's probably because STL is reporting good numbers.

Exactly.

And sir, second thing is we are entering into this built in appliance side. So sir, this is being not our competitive advantage? Do you really think it will be an opportunity for it or it will give us the extent of that much growth that we will target in from quartz sinks because the market is very competitive there, and the margins, I think also shall not be the same.

Talking for built-in appliances is like -- built in appliances margins could be better than the quartz sinks also. That's what we're expecting because it's more of a lifestyle and whatever the innovation and the new engineering what we are planning to see, it is going to completely change the way the kitchen woods are manufactured. So it's going to be a very novelty item. And plus we would be obviously manufacturing the item, which is currently in a high demand in India with some more added features to it. So yes, the gross margin side, if not more, but will be same as the quartz sinks side, yes.

I was talking from the competition point of view, I mean is it -- I mean, will we be able to get that much growth that we will expecting from the quartz sinks expansion? That was my question.

Okay. Very quickly, I'll say with the data because we just had 2 days back a press conference. Form the sources, what my sales team got, the total built-in appliances market in India is about INR 3,300 crores. Out of it, 50% of the market is shared between Elica, Kaff, Siemens, Bosch, , okay? And the Carysil. So you're talking about organized sector of INR 1,500 crores. So in this INR 1,500 crores, it there are only 5 players right now in India. We are not taking into consideration the built-in appliances like low cost of the chulhas or Sunflame and other Pigeon, that's not the sector we are into it, which is a low-margin segment. So we are into more of a premium segment, which has our potential market potential of INR 1,500 crores.

And what is the expected growth for this INR 1,500 crores market?

What is expected growth?

You are having the data point -- so I think if you are having that growth expectation as well?

So the whole appliance industry is growing about 15% year-on-year. Like as we said, that the first phase is going to do 200,000. Let's see, let's go for a year, and then we will be able to throw some more light to you closer to that.

Okay, and you were saying from Europe plus one opportunity kind of thing is going on, 1 million, 2 million. Have I heard it right? This much units will come to you, 1 million or 2 million?

I said what is coming, I don't know. It can come from 1 million to 2 million units also. That's what I said. I don't know or we rather don't know what is that exactly, but potential is there about 1 million, 2 million. Now let's see what comes to us.

Our next question is from the line of Anshul Mittal from Care PMS.

Actually, sir, I wanted to ask about the goodwill increase, which we can see in across INR 80 crores. So what your plan for amortization of the same going forward?

So this goodwill on account of acquisition of Sylmar Technology Ltd. And in the U.K., they amortize in 10-year time. But in India, there is no requirement of amortization because it's a per chase. It's not a revaluation done. So in our books, goodwill is stand in consolidation, it will withstand whereas in U.K. books, it will get amortized in next 10 years’ time.

Okay. Understood. And sir, what will be the peak debt after all the expansion going forward? Currently, it is close to INR 130 crores.

So it will go by another INR 20 crores, INR 25 crores in the next financial year.

Okay. And so considering that our appliances and faucets businesses is more really focused towards domestic angle. So will we be able to maintain the margins of 20%, 22%?

So that's what sir said, the margin profile in built in appliances are even better compared to quartz because that's a lifestyle product, and there is a different range where the prices are very high? So -- and with currently what we are having the margin is only a trading margin. Now with manufacturing margin coming, our margin profile will also increase. So we believe that we will have a better margin.

Our next question is from the line of Chirag from RatnaTraya Capital.

Just a quick clarification question on the destocking that some of our customers are seeing. Could you broadly share what kind of inventory days they carry and currently, what those numbers would be? I understand they might not be exact numbers, but what is your best estimate of that -- of the inventory that they on average, carry and what it is today?

We actually don't -- in a position to tell you what numbers would be, but we see at least a 4-month inventory.

4 months inventory?

Yes.

Okay. Okay. Got it. Right. And on the secondary demand side, is there any case where you are seeing the impact of inflation and interest cost rising. Is there any case where the secondary demand is also seeing some weakness? Is there any sector or segment or geography that you have seen that?

Like I said that the fundamentals of business is still very strong. The quartz sinks continues to grow. But yes, there is way now. The secondary demand is still very good. There's a small about 8% to 10% decline in the secondary sales. So it is not what the impact would you see in -- compared to the primary case. And I think which we also see the new customers coming in, we're tying up with new customers. So I think that offsets -- that will offset with the new customers coming in. So -- and that you are talking the secondary sales as of now. So we're talking in right now in the worst situation where there is about 10% decline in the secondary sales, and we expect the situation to improve in -- from quarter 4.

Understood. Understood. Very. Just on the -- just one more question, if I can squeeze in, on the domestic side, quarter-on-quarter, there has been some moderation in the sales whereas our sort of dealer network also has grown up. Gone up by some 200, 300 dealers there also, is there a moderation in the secondary sales that you have seen this quarter given monsoons and everything else? Or is it just something that's minor blip and next quarter onwards, that things will sort of again, normalize there, on the domestic front?

Correct. So I think on the quartz sinks, what has happened, there's so much of backlog which we had, which we had 3-month backlog. So we kind of shifted to all our distributors. So I think to all this soften to large amount with the domestic is also took place. And then the rains got really at this time, really went prolonged rains across states in India. And now, yes, so now I think the Indian market is also now -- we are getting easy on the stock levels. The sales have started rising back, we will see quite a big improvement now in terms of sales in India.

[Operator Instructions] Our next question is from the line of Ranodeep S from Mass Capital.

My question is, what's long-term split of revenue share that you see between India and the rest of the world from the present 29:71 ratio?

So on the long term, that is, I think we see the India versus export revenue will be about 53%.

Okay. And just a continuation to that question. What's the game plan in terms of ramping up the India practice from, say, 2,200 dealers as of today, where do you see this heading in the next 2 to 3 years? And also we see that distributor network seems to be segmented at 82. So any thoughts over there?

Yes. So I think we have a lot of work to do in India. We just had a press conference 2 days back, which I -- we are appointing new team. We are expanding our sales team organization across the board. We are planning to double our sales force in India. We're also trying to fill up gaps where there are distributors, where you need in play, where we need galleries in place, where we need experience centers in place. So the plant should be ready in the next 60 days time. So we're doing everything in India. We see a lot of gaps. We haven't still got -- had time in the last year or 2 because we had so much busy in expanding our sink capacity for the global markets and all and really we had taken a hit by that. Time for us, I think is we have now time to pull back our stocks, start looking at India seriously. And we already started taking actions on that. Within the next 60 days to 90 days, we plan to at least have a 50% increase in sales force. And by March, we plan to double the sales force right now. On the mid midterm to long term, that is our 3 to 5 years, we plan to have a dealer network of about 5,000 dealers across India. Strategy for distributors that will come into play by quarter in January when we finalize our EOP for next year because we started the -- decision will have to come that we want to have appoint dealer -- direct dealers with the showrooms or you will have more distributable for display. So that, again, is a separate strategy for built-in appliances and sinks. We have also looked in Deloitte for -- do the plan for the short-term plan within the next 2 to 3 years, how do we achieve a INR 300 crore revenue in India and yes, so we'll be doing everything in our power to see that. How do we try to do a INR 300 crores of revenue in India in the next 2 to 3 years.

Sounds exciting. My second question, how will you defend this exclusivity in the quad quartz sinks production that you have in India? What is your mode that will help you keep competition at bay? I understand it's been a long time since you have this exclusive technology. But what is the more to ensure that you guys remain exclusive?

The way we are going to -- the way we have ensured is we ensure is that SCHOCK is not going to give technology to any other partner. And while we say that SCHOCK is obviously is not giving any technology to partner, and I don't think any going -- when in future they plan to do because they already experienced accuracy, let's say, a very strong competitor. And while SCHOCK does not give, there are many manufacturers coming in, in and out. Every -- I mean, every month, we see somebody coming somewhere trying to make the quartz sinks like us. And we still have a 90% market share probably in India. So it's a technology, which is not just done by a machine. It's the technology from the formulations to the malls to how it's manufactured to the scale of the mantra, you need a lot of experience to come out with a good brand of sink. It's not easy. So that's one. And over to let's assume even if somebody comes, the innovation taking place, like I said, we are doing this for first time and a very important point, I'd like to say, the engineering technology department, which we aggressively planning to stay ahead from quarter 4, we are having our own team, very IT teams and the other teams are going to join us. So we are going to ensure that in every category, we stayed as a leader in categories which we are not, we need to come out more innovative products to be leaders. Quartz 100%, like I said, the green sink, the IP are going to play a very major role to stay ahead of the competition. We have already filed 2 IPs recently almost worldwide. One is the green sinks. We're the only company in the world who makes green sink from bioquartz, that's one. Number two, the super x technology, we filed a patent where the sink is going to have double the spread, even than a SCHOCK sink. And the more and more online sales happening across the world, the customers are going to prefer to have our super x technology, which is going to be launched in France and in Dubai in the next months’ time. So we are very confident. And if this super x the technology, which is virtually unbreakable thing, which has double the strength, which is, I think, would transform the company's growth.

Our next question is from the line of Harsh Jhanwar from Centrum PMS.

Sir, my question was regarding -- so I just wanted to know, is there any progress on the partnerships which we were looking at. So the one we had -- we were planning to sign partnership with IKEA of course, these things? And secondly, there were other discussions going on with others. So any update on those things?

Sorry, one was IKEA and the other was what?

Any other major partnerships in pipeline. Anything which is -- should be fine?

So there are many, many partnerships in pipeline. That's all I can say right now. Periodically, you will get the announcement we'll share with you. We'd be happy to share with you. As far as IKEA is concerned, yes, we have tied up with them, for stainless steel sink and will be starting them on for quarter 4. We have also got an opportunity for stainless steel for the U.K. market. We have tied up and that also will be starting from quarter 4. For the other products on the steel, sinks, PVD and for the quartz sinks. We have some interesting tie-up coming on the way. But periodically, as when time come, we shall let you know.

Our next question is from the line of Anand Mittal from Invest Research.

I think most of my questions are answered. But one question, which is more of a strategic one, like you had a near-term vision and midterm vision of targets, right, in terms of turnover. So do you see any revision due to the stuff that is going on around the globe? And what type of turnover that you're looking for next -- maybe next 3 years? Do you have any sense on that, sir?

So we are still very confident, and we still want to believe that we will touch INR 1,000 crores sales as what you expected could be delayed by a year, but I think it is going to come. It is going to come back very soon. We have a plan B in place. So even if there is some uncertainties which we are seeing right now, but we do have a plan B. We will take appropriate decision at appropriate time, but we are very confident that the plan B will take care of us achieving INR 1,000 crores sales within the next 2 to 3 years.

Our next question is from the line of Munjal Shah , Individual Investor.

Sir, 2 quick questions. One, I needed a clarity on this when you mentioned that we are investing INR 10 crores. So the INR 10 crore is for 1 lakh appliances or the INR 10 crores is for 2 lakh appliances?

INR 10 crore is for 100,000 appliances.

So it's INR 220 crores, right?

Yes, correct.

Okay. And sir, when -- so how basically we are coming up with different basically quality of sinks, when you said that the super x tech, which is an unbreakable thing. So if I put the strong sink on our normal quartz sinks, the steel sink and the faucets and appliances. So basically, in the order of margins or in the order of pricing, will all be in the same range or the super strong sink and the green sink will be higher value-added products compared to our current products?

So I would say the super x will have the best margins, followed by our granite sink, the built-in appliances and the few things.

Our next question is from the line of Chintan Mehta from Prudent Broking.

Sir, what is the margin we enjoy currently on appliances and what the margin we are expecting after the expansion?

So I think our current -- what margins are -- our current margins are 40%, which we are expecting to go to 50%.

Okay. Gross margin. Okay. Understand. And the appliances business will be developed under the same brand name Carysil?

Yes.

Okay. And sir, if you can throw some light on this 4-month inventory, it is our side that we have a 4-month inventory?

No, the 4-month inventory is at the customer side.

Okay. Okay. And sir, how this contract decided, does this large retailer commit any volume number? Or how much order did they maintain in general?

Yes. So we have -- we obviously have contracts on an annual basis with a large customer, and they give you quarterly revolving orders for 3 months.

Our next question is from the line of Anika Mittal from Investor Research.

Sir, a quick question on -- I was saying mentioning the STL is not having the inventory. So why are distribution channels facing the inventory buildup, sir?

I don't understand. Sorry, I did not understand you. Can you come again?

I was saying STL is not inventory, as you mentioned, because the result is good. Why are distribution channels are having the inventory buildup because why they are not able to liquidate the inventory in the same period, where the STL is able to do the same?

STL is a different business model. It's on a customize. They make kitchen and the bathroom platforms, fabricated, based on orders at the site.

Okay. That due to the difference in doing business model. So that's what I was saying if they are having the demand. That doesn't mean our distribution channels will have the demand.

No, that's the other way around. See where there is inventory to be built up, there may be a lag between demand and supply. When they is a customize demand from cost and then supply starts. So there is a difference between the 2 business models.

Like here on the inventory side, also the reason is that we used to have about 12 to 14 weeks of lead time delivery. And now suddenly, increasing the capacity to million sinks, have brought on the lead time to 2 weeks now. So that's where the gap happens. So the way at what the momentum the sink demand was based on that, the customer ordered the sinks. And then you have this issue when COVID opened up and you had vengeance travel and inflation and all these things.

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Chirag Parekh for closing comments. Please go ahead, sir.

I would like to once again reiterate that the challenges posed by current geopolitical and research interest shall be in short term in nature on a medium and long term and on a sustainable basis, we see great opportunities for us, the Europe plus 1 and opportunities to increase our penetration in Indian market to grow our business substantially. We have great product line and fundamental business remains strong as ever. Thank you, everyone. I hope we have been able to answer all your questions satisfactorily. However, if you need further clarification or want to know more about the company, please get in touch with our team, our SGA, our investment relation adviser. Thank you once again for taking the time to join us on the call.

Thank you very much, Mr. Parekh and members of the management team. Ladies and gentlemen, on behalf of Acrysil Limited, we conclude this conference call. Thank you for joining us, and you may now disconnect your lines.