Carysil Limited (524091) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Carysil Limited Q4 and FY '24 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 guarantee of future performance and involve risks and uncertainties that are difficult to present. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Parekh, Chairman and Managing Director of Carysil Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. Thank you for joining us for Carysil Limited Quarter 4 and FY '24 Earnings Conference Call. I trust you had an opportunity to review our financial results and investor presentation, both available on the company's website and on stock exchanges. Joining me on this call is Mr. Anand Sharma, our Executive Director and Group CFO; and SGA, our Investor Relations Advisors. Despite geopolitical uncertainty, global economies have experienced a recovery in economic activities in FY '24, with inflation remaining elevated yet stable. While Europe has contended with its own unique challenges, resilience of the U.S. economy has provided support to global markets. India continues to be the world's fastest-growing major economy, thanks to a stable government, pro-business policies, substantial infrastructure development and an emphasis on boosting domestic manufacturing. And the settings of everyday life increase the joy of living, improve the quality of life and contribute deal to the daily routine. When combined with the purpose and excellence, the power of everyday aesthetics elevates the product into unbeatable value proposition. During this concept, Carysil is rapidly heading towards a higher growth trajectory. We are becoming a preferred brand for a high-end consumers for providing the market with a contemporary and sophisticated premium collection of well-designed kitchen products and accessories. India has an enormous youth population that is involving buying habits, aspiration and aesthetics. The demand for quality, visually appealing kitchen products and the combined luxury utility have high offtake. This trend offers a significant opportunity for Carysil because we have the mindset, skill and capability to capitalize on increasing awareness among potential buyers. Built-in kitchen appliances is now the growing product area in India. Growing consumer spending on luxurious products and premium products, the growing working women population, increased development of premium apartments, together with an increasing number of distributors and expanded retail format will propel growth in this segment. Due to the rising popularity of undermount sink worldwide, inclination towards natural stone-based products, significant overseas markets are transitioning to quartz, granite sinks. Carysil is better positioned to capitalize on the trend and started in Europe, U.K., United States, is spreading over to Asia and other under down -- and Down Under countries with this kitchen appliances things or kitchen services. Our U.S., Europe, U.K. regions continue to perform well, except Germany, which continues to remain subpar in terms of demand. When it comes to regional growth, the United States is more organic. Whereas within United Kingdom, we have more focused on new customer acquisitions. I said so, where we see issues have caused a delay in transit and availability of containers and increase in high freight costs during the last quarter. We continue to remain optimistic in our opportunities at existing domestic markets. To enhance the share of business in domestic markets, have a more focused approach. We're increasing our bandwidth, building leadership team around the key business segments. We have appointed Ms. Nikkila Shridhar, our B2B Business Head, Pan-India; and Mr. Rajesh Nair as President Sales of Sternhagen Division, Pan-India. Our GCC business has started on a very positive note and showing lots of potential in coming years. This is already a profitable business in terms of EBITDA. Our efforts are on further accelerate the growth in the Gulf regions. We are focusing to increase our business in UAE, Oman, Qatar and Saudi -- Saudi Arabia. We are developing more markets like in Turkey, Australia, Vietnam, Indonesia, Croatia, et cetera. I have some good news. We have signed the contract with Reece Australia PTY Limited, which is one of the big retail chains having more than $100 million sales, the country's largest supplier of plumbing and bathroom suppliers. This contract come into effective as we have received official orders from Reece Australia. We are pleased to announce we have begun commercial production of the appliances and the faucets. We have started about 3 models of chimneys and around 10 SKUs of faucets slowly expand to move on reduced import dependence. We will gradually increase capacity utilization model based on segment response and growth. Coming to our acquired entities. Carysil Surfaces Limited U.K. continues to perform better in spite of challenging economic conditions. We have increased our product portfolio and distribution capabilities to service both home and commercial customers in the U.K. market, which has strengthened our position in the U.K. solid surface sector. We also signed recently a major deal of the largest retail chain of stores, Homebase in U.K. Carysil Products Limited continue to perform, which is mostly distribution of sinks and faucets continue to perform in spite challenging economic condition in the U.K. market. We are now also started exporting most of the stainless steel kitchen sink requirement from India, which will further improve their profitability. Our [ first ] acquisition in the United States, United Granite LLC, a fabrication company, showing improved business performance, mostly in the last previous months, especially in the month of April, and we continue to grow in the coming quarters. Improvement in residential sales which is a high-margin sales is improving. There are a few initiatives which company is trying to undertake. Phase 1, we're planning to launch sinks and faucets distribution under the Sternhagen brand in the D.C., Virginia and Maryland area. We're also planning to launch high-end margin exotic stone tops, which will fetch better gross margins. Third, we are opening -- planning to open up fourth showroom in the [ DMV ] area to maximize sales. In Phase 2, we plan to launch the built-in appliances under the Sternhagen brand, which will be a one-stop model solution just like India. This kind of model is getting very popular, not in the U.S., but also in U.K. We are confident that these changes will contribute to long-term stability and profitability to the company. I would like to ask Mr. Anand Sharma, to update you on the company's financial performance. Thank you. Over to you, Anand.

Thank you, sir. Good afternoon, everyone. Let me take you through the company's consolidated financial performance, quarter 4 FY performance. Consolidated total income stood at INR 192.1 crores for Q4 FY '24, which grew by 31.9% year-on-year basis. EBITDA for quarter 4 FY '24 stood at INR 36.2 crores, grew by 36.4% Y-o-Y. EBITDA margin for quarter 4 FY '24 stood at 18.8%, which is impacted due to integration effects of United Granite LLC. Profit after tax and minority interest stood at INR 15.5 crores in Q4 FY '24, grew by 25% year-on-year basis. Coming to FY '24 performance, sales volume for quartz sinks stood at 564,294 units, stainless-steel sink stood at 127,489 units. Kitchen appliances, bath product and others stood at 54,728 units in FY '24. Consolidated total income stood at INR 688.1 crores for FY '24 as compared to INR 593.9 crores in FY '23, grew by 15.9% year-on-year. EBITDA of the company for FY '24 stood at INR 133.6 crores as compared to INR 108.9 crores in FY '23 to 22.7%. EBITDA margin for FY '24 stood at 19.4%. This has little impacted because of increase in the freight cost due to Red Sea issues. And -- but we are maintaining the guidance of 18%, 20% for the future. Profit after tax after minority interest stood at INR 57.9 crores in FY '24 as compared to INR 52.4 crores in FY '23, growth of 10.4%. Return on capital employed stood at 15.3% and return on equity is 17.3%. Thank you. Now I open the floor for question and answers. Over to the operator.

[Operator Instructions] The first question is from the line of [ CA Garvit Goyal ] from Nvest Analysis Advisory LLP (sic) [ Nvest Analytics Advisory LLP ]. Due to no response from the current participant, we will move on to the next participant. The next question is from the line of Resha Mehta from GreenEdge Wealth.

Sir, the first question is on the domestic business. If you see the India business revenue growth has been very soft with 6%. And despite all the efforts, we hired a B2B team, consulted with Deloitte. So can you just talk about that why is the growth in India business in FY '24 soft? And what is the growth ahead that you are expecting for India business?

Sure. I think it's not a -- I think it's open fact that the India retail sales are soft overall in spite of company making so much efforts. But I would also like to state that we have grown Y-o-Y and we have a marginal growth over the past quarter. I believe that with the new initiatives by the government and I think the heatwave getting over soon, and we're going to plan -- having a good monsoon, I believe that in the future quarters, the India market -- the demand in India should improve. And also at the same time, company is focusing on high premium models to propel growth in India, which will bring further improvement in sales..

Okay. So any number that you would like to put for the India revenue for FY '25 or FY '26?

No. So we will -- I think I will continue my statement of going in India on 15% to 20%. And I think we still maintain that for the coming quarters.

Sir, because of the soft demand, do we see that our gallery ramp-up or distributor expansion will also be kind of dialed down in this financial year?

I believe there is a huge opportunity. Yes, there is a softness in India. But I think there's also a scope for improvement. And I think the scope for improvement is quite huge in terms of value proposition. So company plans to add a lot of new value-added products, especially targeting the new premium and luxury segment. And I think that's where we think the most of the drive is going to come. I also point to is we have taken 2 very large initiatives: one is we have now Mr. Rakesh Nair, who's now going to head Sternhagen, which has been struggling for a while, especially we're not focusing on this. So now Sternhagen in the backroom which will come into focus, and we expect good revenue growth from there. And second the B2B vertical, which was absent until now, focusing on more on the builders, architects, interior designers. I think that has come into place. So that vertical along -- so we have appointed B2B as -- Nikkila, I mentioned in my statement. Along we already recruited 5 people already for Pan-India. We plan to expand this still quite dramatically in the coming quarters. So I think with all the initiatives and in spite of the challenges of softness, I think I'm -- we are very confident that in the coming quarters, we will grow the market in India.

And my question on the planned ramp-up for galleries and distributors. Would that continue? Or would we be dialing down on that for this financial year?

No, we will be continuing with that. We'll be continuing. Also we're opening our -- what we call the platinum stores. It's called the high-end stores, we call the experience centers. So we have already signed up 3 more, which would be coming in the next 2 quarters.

Okay. And what kind of revenue growth rates are we anticipating for FY '25 for Carysil products and Carysil Surfaces specifically considering as the U.K. market recovers?

No. So I think it would -- I think it would be probably not right to give me this statement on this. But I think we would continue our guidance of growth which we have been giving till now about 15% to 20% growth year-on-year.

Okay. And also, if you look at the FY '24 numbers, while our revenue has grown at 15%, our employee cost has grown by 34% and other operating costs by around 30%. So how much of this increase is attributed to, let's say, the Red Sea issue or the United Granite integration. Can you quantify that?

Sorry to interrupt you ma'am. May I request you to rejoin the queue for your follow-up question. The next question is from the line of Kunal Ochiramani from Kitara Capital.

Sir, want to know more about the fundraise you are doing. Where will be that deployed and the capacity on...

Your voice is not audible sir.

Want to know more about the fundraise you are doing, the capacity going ahead and the revenue guidance for the same for next 5 years.

Revenue guidance...

Yes. Kunal, on the fundraise side, we have already taken a resolution for up to INR 150 crores. We'll see at the appropriate time when we have to go for the fundraise. So this is the status as of now.

The capacity and the revenue...

So like organically whatever required to be done, we are doing. But the fundraise part and the related capacity will come up once we finalize everything.

The next question is from the line of Tushar Raghatate from KamayaKya Wealth Management Private Limited.

Sir, I have a few questions. Like in your own brand sales volumes, like what is your sales volume in that? And what kind of growth are you foreseeing?

So as far as India is 100% with our brand globally, we are doing about 15% to 20% with our brand. And like I said, that we have taken all the initiatives to launch our own brand in -- we already started in Australia. We're doing it in UAE, Turkey, U.K. and in the U.S. So our plan is that within the next 3 years' time, we would like to have our B2C, our own brand at least about more than 30% globally. In India, we will continue with our 100% brand presence.

Fair enough, sir. Sir, you hit the all-time high volumes of 6.5 lakhs, I think, in earlier years. So what are your views on your volume growth going forward?

Yes. So I think with all the initiatives which we have taken and some of the new tie-ups which we have and some of the new tie-ups, which are bound to happen, I think we are still sticking that we will be able to increase by 15% to 25% growth on the things.

The volume growth you're saying?

Yes, volume growth.

Fair enough. Sir, last question. In terms of gross margin, we did really well in this quarter. But the margins are not down towards the EBITDA. Just wanted to understand the reason for that.

I think it is a mix of all. I think it is first, I would like to say there is a great product mix, our export to the U.S. have improved considerably where we have higher gross margins. Also on the operations side, we have our factories working on a high efficiency level. So I think the mix of that in spite of the freight cost, I think we're able to maintain our margin guidance. And your second question was...

Yes, sir. So the gross margin will be maintained, right, going forward as well?

Yes. So we're maintaining our 18% to 20% margin guidance.

[Operator Instructions] Next question is from the line of [ Yug Patel ] from Eternal Capital.

Firstly, congratulations for good set of numbers. So my first question is that I want to ask the -- our sales breakup between U.K. and U.S.A., if you could help me on that.

Yes. So I can -- I would probably maybe later on, we can use the exact numbers. But I think right now, as you know that out of the total INR 690 crores, approximately the U.K. sales is about INR 250 crores, which would come to about 30% of the revenue. And the North America market is about 30% of our sales in the total international -- 30%, yes.

Okay. And my second question is that, we know that the recent contract with Howdens has been started and the orders have been coming. So I want to know that how the contract has been performing over the years? And what will be the future for that?

So the deals with Howdens is the orders are flowing in more than what we have expected. We have to invest in new models to satisfy their demand since also the U.K. market is improving. Second thing, how things are being accepted very, very well the U.K. market. I think, perhaps the models, quality, all the colors, but we have to -- been anticipated that we would be doing much more than what we have -- what we are expecting. And for this, we'll have to expand our capacity in terms of molds to satisfy the Howdens demand. So, yes -- so the -- I think the deal is going very well.

The next question is from the line of [ Rohit Singh ] from Nvest Analysis Advisory LLP (sic) [ Nvest Analytics Advisory LLP ].

Am I audible?

Yes, sir. May I request you to use your handset, please?

Yes. I'm using handset only. Is it fine now?

Sir, your voice is very less. Can you come near to the mic and speak, please?

Now we cannot hear you at all.

Due to no response from the current participant, we will move on to next participant. The next question is from the line of Shrinjana Mittal from RatnaTraya Capital.

So I have 2 broad questions. So one is on the other expenses front. So you mentioned that other expenses is on the higher side because of the higher freight costs and some impact of United Granite integration. So can you quantify that, sir, please?

Yes. So other expenses are higher because of the freight cost, and there is the integration of United Granite, there is some advertising promotional expenses, which we have incurred. So these are 3 reasons for the higher other expenses.

Yes. Understood. So for the integration costs, can you quantify that for me? Like what would be the onetime potion, if any?

So onetime cost is already taken in the quarter 3. So it's -- there is a big onetime, now it is all operating costs.

Understood. So this would be a run rate number. And on the freight side, what would be the impact of the Red Sea? How much the freight -- how much would it be higher by if you can give some percentage...

Yes. So it's additional 1%, 1.5% is the cost.

Understood. Understood. Also, the second question is for United Granite, this quarter, how much was the revenue and what kind of margins could we get?

This quarter revenue -- this quarter -- you're talking quarter 1?

Quarter 4, quarter 4.

Quarter 4.

Revenue is INR 21 crores.

Okay. INR 21 crores, okay. Okay.

The next question is from the line of Harsh Shah from Dalal & Broacha.

A couple of questions from my side. So firstly, could you kind of quantify what was the impact on the revenue due to the delays in delivery which was because of the Red Sea issue? What was the number, if you could give?

Yes. So my answer to that is, we had a delay of about 4 to 5 weeks because of this. I think that delay will have a slow effect. It's not any significant impact on us. But now on quarter -- on the quarter 1, we will see what is the impact. But as of now, we have not seen any significant impact.

So there has been no -- basically no delay in kind of revenue booking because of the delay. Am I correct?

No, there has not been any effect based on that.

Okay. Secondly, on the gross margin, this time around, we did extremely well and so if I track back the numbers. So post FY '18, this is the first quarter we had such good gross margin. So in terms of sustainability, what should in terms of by modeling, what should we consider the sustainable gross margin?

So I would say one thing. Our margin guidance will continue at 18% to 20%. There is one fundamental point, which is the fundamentals of the business overall is very strong for us. And especially the granite sink model. So once our -- once -- I mean, the point I try to say is that we will be always -- will be always addressing the premium segment of the market, and I think we're going to continue with that. And we would be adding a lot of new models, it would be targeting more premium segments of the market. So we believe that the premium category will always grow. And I think we will stick to the margin guidance of 18% to 20%. Now which is the same, whether it's sinks or is the built-in appliances. So the company's focus is more on -- driving growth for more on the premium and luxury segment of the market.

So I mean I get your point, but still it doesn't answer my question. I mean, in terms of ballpark range also, if you could give on gross margin. So why I'm asking is that I think the earlier participant did ask about the gross margin. You said it's a mix of -- be it product mix or raw mat costs. I just wanted to understand what has led to such improvement in gross margins?

Yes. So I will tell you, one is the U.S. sales that has said earlier. The U.S. sales has been significant in the last quarter, which gives us a higher gross margins. Second thing, the -- our IKEA sales is up also in the last quarter, which is giving us higher gross margins. So -- and third is our operational efficiency within the plant has improved tremendously. So I think with all these factors, there is not one single factor, but these are the 3 main factors which have resulted into the improvement of gross margins. Does that answer your question? No...

Yes, mostly. So basically, the raw material price has kind of remained stable.

Yes. The raw material have been remained stable, and the rejection at the plant level, we have achieved an all-time low in the last quarter.

Got it. Okay. And lastly, on the working capital cycle, so when I look -- so this year around we have done the working capital cycle is somewhere around 120 days. So I'm seeing that the inventory as well as the receivable days have gone up. So should we assume from next year onwards we will be back to 90 days? Or how are you looking at the working capital side -- because it has impacted the cash flow from operation to some extent.

Yes. So I think it's -- I think one thing is to Red Sea -- because of the Red Sea crisis, we have a lot of inventory, which as -- is probably for a short time. And second is because of the delays in the delivery side, the receivables have increased, so which is now back in order, also, that's on the -- also from the export side. On the India side, we have tremendously reduced our credit limits to our customers. So I think we are very confident in the coming quarters, it will come back to 90 days.

Got it. And one last question. Anything on the repayment schedule? And in debt, the short-term borrowings have gone up. So any kind of figure that you have in mind what sort of repayment we would be doing in FY '25 and FY '26?

Yes. So repayment is coming at INR 28 crores to INR 30 crores for the FY '25 on consolidated basis.

On consolidated. Okay. Got it. Got it. Yes.

[Operator Instructions] The next question is from the line of [ Rohit Singh ] from Nvest Analysis advisory LLP (sic) [ Nvest Analytics advisory LLP ].

Sir, my question is on guidance side. So earlier you were targeting on INR 1,000 crores kind of revenues in FY '25. And now you are saying that we are getting good order traction also in export and you are expecting domestic market to also recover. So why we are reducing the guidance to 20% CAGR going from there? That's my first question.

So I think we are continuing our growth guidance by 20%. The INR 1,000 crores guidance which we had given in the past, I think we are also sticking to that. We have some inorganic opportunity we are exploring. So I think which when it realizes, which we are expecting in near future, I think that is going to happen. So I think based on that, we -- I think we are still sticking to our INR 1,000 crores guidance.

The INR 1,000 crores guidance for FY '25 is still there, right?

Yes.

Okay. And on the domestic side, like we have increased our distribution network significantly at the beginning of the year. But the result is still not there. Like we were -- we are targeting INR 170 crores to INR 180 crores kind of revenue from domestic in FY '24, but we closed down to INR 140 crores. So are there any specific market challenges we are facing despite the existing demand? And what kind of strategies are you going to implement to capture the opportunities ahead and face the challenges?

You see, we have to -- we have to honestly hold ourselves based on what -- how market reacts. So I think we are -- I think we are on track. But suddenly, if the market in domestic is sluggish, gets softer, nothing much we can do. So I think there's a rechange we think in strategies that what new products we need to offer to address the premium segment of the market. what initiatives we need to do to launch new products, which would satisfy the new target customer base. Also third is what products we need to launch to cater to the B2B market. So I think with all this, we need to kind of -- we have reset our strategy because we don't know how long the market is going to remain soft. So I think the company has taken -- we have taken initiatives to see that we have -- we can grow at least 20% growth year-on-year for the coming year.

And sir, on the Red Sea issue, are you people really witnessing any kind of reduction in the revenues? Like you mentioned from Q1, there may be a reduction in the revenue due to Red Sea impact. So how long do you see this kind of situation to prevail?

Sorry I'm not -- what was that. Sorry, your sound is -- it was very blurred. Can...

I'm asking on the Red Sea issue due to this because you mentioned in your commentary also like from Q1, there might be some impact in the revenues due to an increase in the order -- delivery time line. So how long do you expect this situation to continue in the future?

See, Red Sea crisis is not in our hands, unfortunately. It depends upon the geopolitical situation on this, Gaza war and all how long it's going to take. As far as our orders are concerned, I think, as I said, there's not any significant impact we've seen in the quarter 1.

The next question is from the line of [ Kush Shah ] from [ Niveshaay Investment ] .

So what would be your current capacity utilization?

So the current capacity, we are approximately 70% to 75%.

70% to 75%. So if we take the 70% utilization, so your current revenue is INR 684 crores. So if you take capacity to 95%, so the revenue would be projected to INR 970 crores. So is it -- can you give some comments on utilization...

Sorry to interrupt you, sir. May I request...

We're not able to hear you.

Please use your handset.

Am I audible?

Yes, much, much better.

Can you please repeat your question?

Yes, sure. So your current capacity is around ballpark 70% and your revenue is projected -- and your revenue is currently at INR 684 crores. So if we do a current capacity projected to 95%, then your revenue in FY '25 would be INR 970 crores. So can you comment on current utilization if we do up future growth?

No. So what you are talking is the consolidated sales. You're talking about a capacity utilization for just the granite sinks. Now granite sinks currently and looking at an average price of about INR 5,500, so growing at a 95% in, let's say, ballpark 900,000 sinks, if you're looking at about INR 520 crores, INR 530 crores.

The next question is from the line of Saloni Bavishi from Val-Q Investment Advisors.

Yes, so I have few data points if you can -- can you just let me know the revenues from quartz sinks only?

Only quartz sinks.

For FY'24, for FY '23 year.

Yes, yes. So quartz sinks we have revenue of INR 324 crores. .

INR 324 crores.

INR 324 crores.

Right. And the same thing in the presentation, I see it's 11% of the total revenue, would that come down to INR 75 crores, am I right?

Sorry, I could not hear you...

It is a revenue which has come down? What you said? .

Sir, in the presentation, I can see the revenue from steel sinks is about 11% of the total revenue. So that comes down to about INR 75 crores. Am I right?

No. Sorry -- which slide you're referring to?

Sir, I'll just let you know, one second.

Can you give me the slide number?

Sir, the Slide number is 32.