Carysil Limited (CARYSIL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Carysil Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. 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 risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Chirag Parekh, Chairman and Managing Director of Carysil Limited. Thank you, and over to you, sir.

Thank you. Good evening, ladies and gentlemen. Thank you for joining the Carysil Limited Q1 FY '26 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 stock exchanges. Joining me on this call is Mr. Anand Sharma, Executive Director and Group CFO; and SGA, Investor Relations Advisors. Carysil delivered a resilient performance quarter 1 FY '26, driven by strong demand momentum and repeat orders from the customers. Our diverse customer base, strong channel partnerships, strategic capacity expansion positioned well to meet this growing demand while enhancing operational leverage and profitability. Quartz Kitchen Sink segment. Our Quartz segment delivered a strong performance in Q1 FY '26 with volume rising by 22% Y-o-Y to 1.89 lakh units. Capacity utilization during the quarter reached 75%, reflecting healthy throughput while retaining sufficient headroom to accommodate additional volumes, as expansion progresses. In spite of global challenges, Carysil has emerged as a preferred global supplier, thanks to our resilient adaptive business model of high-quality products, competitive pricing and customer-centric approach. During this period, we successfully secured a lot of new contracts and strengthened relationship with current customers. Our relationship with IKEA began in 2020. And over the past 5 years, we have not just expanded our business, but also earned their trust as a reliable global supply chain partner through our consistent focus, quality and reliability. Aligned with our strategy to strengthen global partnerships, we participated in IKEA's global RFQ, non-U.S. business and successfully secured a significant order, which would increase our wallet share to 75% of our market share. We have entered into a purchase agreement with investing approximately INR 20 crores in moulds, machinery and infrastructure to cater IKEA's global non-U.S. requirement of quartz kitchen sinks. We are in the process of ordering the moulds, machinery and full volume expected to commence from as early as quarter 3 FY '26. We are pleased to inform you that our supply to Karran our U.S. retail has commenced with our products now displayed over more than 1,800 stores at Lowe's in cooperation. The orders from the retail client have exceeded our initial expectation. Partnership with global giants strong backbone is our success. We believe that strong collaborations ignite possibilities, create a positive momentum and push the boundaries innovative and excellence. Leveraging these partnerships, Carysil delivered a resilient performance Q1 FY '26. The strong demand momentum is evident by repeat customer request of higher volumes. Our diverse customer base and supply targeted capacity expansions confute the customer to provide sustainable supply to meet their growing demand. We emphasize that the market share globally of quartz sink is growing rapidly. And hence, we have the traction and the momentum of business globally. From every corner of the world, we have a strong demand of quartz kitchen sinks. The capacity just of quartz kitchen plant has increased already to 75% in Q1 FY '26 and is expected to further improve quite rapidly in the coming quarters. The global economy remains highly volatile due to ongoing tariffs and trade disruptions. And the most significant event today is repositioning of global trade and supply chain led by recent U.S. tariffs. In light of the above -- light of the evolving geopolitical environment, we are proactively engaging with our customers to provide the necessary support and strengthen the business relationship further. We are closely monitoring emerging developments and take all the necessary step to derisk our business and recent tariff hike to keep our business and customers intact. In the present 25% tariff situation, we are still better priced than most of our competition, which are from Germany and Canada, which they have already 15% tariffs and higher inflation cost at their respective countries. As stated earlier, we have a great cost advantage over the European competition, which can absorb this 10% tariff differentiation. Canada has also scrapped with 35% tariffs, which is much higher than India. Since the steel sink import into United States attract 50% tariff already, the traction of quartz sink has provided impetus growth in the U.S. market despite of tariff rate increase of quartz sink. With current traction and demand and opportunities for the non-U.S. market, we are quite confident that the capacity utilization will reach to 90%, 95% in the coming quarters. Stainless Steel Kitchen Sink segment. We also have some very exciting news on the Stainless Steel segment also. Our Stainless Steel segment is also progressing very well. With Q1 FY '26, capacity utilization reached 95%. As communicated in our last earnings call, we entered into the OEM business with global brands to manufacture stainless steel sinks for their Indian requirements and the relation can extend to the global requirement also. This is the first time Carysil has now ventured into the OEM supplies in India. This is a strong endorsement of our quality standards, manufacturing capabilities and customer confidence. To meet the growing demand, we have already started expanding our capacity of the additional 70,000 units. With this expansion, the total capacity will increase to 2.5 lakh units. We expect the new capacity to be operational from Q4 FY '26. Furthermore, we have participated in a large about 0.5 million sink RFQ for a major retail giant of the world. And if we are able to win this award, it can substantially increase the volume of Stainless Steel Sink segment. Due to our bottlenecks in the capacity, we have to immediately create a capacity of at least 250,000 sinks of stainless steel sinks. And we have channelized resources of INR 10 crore capital via rights issue, which is underway. The total CapEx could be around INR 30 crores for the new stainless steel sink expansion. Appliances and Faucet segments. We are ready for the next growth phase now, assembling and manufacturing. As mentioned, we successfully commenced in our assembly manufacturing of kitchen hoods, and we focus on assembling and manufacturing hobs, microwave ovens, food waste disposer, dishwashers very soon to give volume enhanced value addition. As we all know, there's a BIS certification is in place and the company is in plan to put up some very strong CapEx investment to get the plan up and running by end of quarter 4 FY '26, which we will come with the news shortly. We have significantly also enhanced our assembling of kitchen faucets and manufacturing of stainless steel part of kitchen faucets to increase up to 50,000 in a year. We are due to our penetration in large retail giants, there has now been traction also to source kitchen faucets from us due to which we are now working in -- right now, we are in advanced talks with a major European faucet player to have a technology transfer. We are continuously working to achieve self-reliance and significantly improve lead times, elevate product quality and contribute healthier margins. We will continue our pursuit of innovation and global competitiveness by exploring the latest manufacturing faucet technologies to produce highest quality to cater global customers. Our overseas subsidiaries start with the U.K. Our subsidiary of U.K., in spite of muted economy has delivered consistent performance of Carysil Products and Carysil Surface Limited are performing well. We expect this positive trend to continue due to our hard work and undedicated effort by our U.K. team. We have been constantly quarter-on-quarter adding multiple customers in U.K. Our partnership with Howdens, which is the largest kitchen manufacturer in U.K. still have once again shown a very strong performance and will continue to do so. Our U.S. subsidiary, United Granite LLC, has performed much better in current quarter compared to previous financial year despite muted local demand, focusing on more value-added jobs and new customers. In the past year, we undertook a comprehensive cost structure optimization and undertook changes in sourcing from local U.S. suppliers and other European suppliers. The subsidiary recorded EBITDA of INR 1.2 crores. Q1 FY '23 EBITDA rose sharply to INR 1.8 crores compared to INR 0.4 crores in Q1 FY '25. The PAT level has also losses -- have reduced from INR 2.2 crores to INR 0.8 crores. With sustained operating discipline and focus on better sourcing margin expansion, we are confident to having a turnaround this year. UAE. Our UAE region has continued to perform well with approximately 80% of our business driven by Appliances segment. Our category we demonstrated strong product fit and channel penetration. Encouraged by this performance, we have planned a major expansion across GCC markets to capitalize on appliances growth and leverage established trade delay in the region. We are now planning to open the second showroom in Dubai of about 7,000 square feet. We are also opening a new showroom in Muscat of about 5,000 square feet to enhance our presence in the Gulf region. Domestic business. India's youthful evolving customer base is shaping new trend aesthetics and functionality. The increasing demand of premium and high-quality products seamlessly blend luxury factory presents a significant growth opportunity for Carysil. Our domestic business continues to grow in spite of the challenging environment. We have taken various measures to improve our market penetration through opening of new galleries, onboarding new distributors, increased display point and enhancing marketing campaign of premium product line. We have recently appointed Mr. Pavankumar Palkar, our Chief Sales Officer for our domestic business to accelerate the market expansion and deeper penetration. With around 2 decades of expanded experience in sales, e-comm, business development and P&L management, Mr. Palkar will provide strategic direction to enhance brand visibility and sales growth. We also hired Deloitte team to formulate a robust plan to expand our domestic business to INR 500 crores in the mid-term within 5 years by strengthening the market position in India. As promised, I will be delivering the INR 500 crore India plan in the quarter -- end of quarter 3 FY '26. Over the few months, we have been actively developing our e-comm platform, and we are targeting INR 50 crore revenue out of the INR 500 crore revenue from e-comm business in the next 5 years. To achieve this goal, we are strengthening our partnership with e-comm players and planning to focus on fast moving product, partnering with q-comm players also for faster delivery. In conclusion, Carysil stands at threshold of a transformative growth powered in next-generation technology, innovative design, operational excellence, unwavering commitment to the core values. We are going to double down our bet on India by strengthening and enhancing our domestic sales team through much greater heights as we see a growing demand of premium and luxury products in India. Now I would like ask Mr. Anand Sharma to update you on the company's financial performance. Thank you. Over to you, Mr. Anand Sharma.

Thank you, sir. Good evening, everyone. Let me take you through the company's consolidated financial performance. Sales volume, quartz sink volume increased by 22% from 1.89 lakh unit to -- from 1.55 lakh unit to 1.89 lakh units. Stainless steel sink volume increased by 9.5% to 42,500 units from last year 38,800 units. Kitchen appliances, faucets and other volume increased by 55% to 22,000 units from last year 14,000 units on Y-o-Y basis. Consolidated total income stood at INR 227.3 crores in Q1 FY '26 as compared to INR 201.2 crores corresponding last year quarter 1, registering growth of 12.9% EBITDA margin expanded by 112 basis points to 19.4% on Y-o-Y basis due to stabilization of raw material and freight costs, along with ongoing initiative to cost improve and increase capacity utilization. Profit after tax and minority interest stood at INR 22.8 crores in Q1 FY '26 as compared to INR 15.9 crores in Q1 FY '25, registering growth of 43.4%. With this, I open the floor for question-and-answer. Over to you, operator.

[Operator Instructions] The first question from the line of Aditi Loharuka from CD Equisearch Private Limited. So we will take the first question from Sanjay from Bastion Research. The next question is from the line of Bala Murali Krishna from Oman Investment Advisors.

Operator, some problem is with you because it cannot be that nobody can able to join.

Just allow me a moment, I'll check sir. Mr. Bala Krishna, can you please speak?

Congratulations on great set of numbers, Chirag ji. So my first question is regarding this order from Karran USA...

Sir, I'm not able to understand you, sir. Sir, we're not able to understand you. If you can speak slowly, please.

Yes. Now is it okay?

Yes. But you will have to -- I have trouble to understanding the accent. You'll have to go a bit slow, please.

Okay, fine. So my first question is regarding this supply to Karran USA, so we won a big order and we are supposed to supply [ 240,000 ] sink this year. So based on the current situation, the contract and everything is going on the right direction or any impact on this order, if you can explain that?

So like I stated, things are going absolutely well. On the contrary, the things are going better than what we had expected. I did also mention that the tariffs of Europe are also in place. And we're still in a great -- on a great front seat. Our all products have been displayed at Lowe's all stores. So we are doing fine. We have no discounts in prices, no knee-jerk reaction, no cancellation of the orders. So things are going absolutely smooth at this point of time, even after the 25% tariff in place. Thank you.

Okay. So my second question is regarding this -- after having all this CapEx, realizing all this CapEx, which we are putting on the quartz sink and stainless sink and faucets also. So what could be the revenue potential in the FY '27 or FY '28 from overall company?

Yes. So we will come back to you on this. But with the CapEx, like we said, we are expanding the capacity to another 250,000 sinks. So 250,000 sinks capacity can fetch revenue about INR 60 crores extra.

The next question is from the line of Sanjay from Bastion Research.

So sir, my question would be during the quarter, our gross profit margin has been declined by 70 basis points on Y-o-Y. And this is due to cost has been increased higher than the revenue. Can you please explain what led to high cost as in the last call, we have mentioned that the cost pressure is easing off and we will see margin improvement. While you mentioned that the EBITDA margin has been improved, it is due to other operating expense and not due to raw material cost. So can you please explain me the raw material cost increase in our books?

So this raw material prices are now stabilizing, okay? And the cost to income is on a weighted average basis, so impact will come further. Second, there is a product mix and geographical mix. So when we have high weight -- our thing going to defend the territory, the cost will be higher. So it all depends on what type of contract and which country we are serving. Based on that product mix, the costing for gross margin may change.

It will vary quarter-on-quarter.

It can vary on quarter-to-quarter. But on the absolute side, the cost is decreasing and it's stabilized at the point.

Sir, my question on the second front is we are seeing strong growth in volume, while prices in steel sink and kitchen appliances are falling and also the quartz sink prices has been flat Y-o-Y. Any specific reason on what should we expect or what should we expect going forward on the prices terms?

So I don't know from where you got the data, our appliances average prices has increased rather than falling. So I have a data which suggests that average appliances pricing was INR 11,891, which increased to INR 12,912. Maybe because you have the data, which combined appliances, faucet and everything else, that's why the average value you are getting lower, but that's not the case.

Okay. And sir, since last quarter, we have mentioned that the EBITDA margin should range to closer to 20%. Is the guidance is intact on the margin side?

Yes. So we've been continuing that for EBITDA margin...

19.4%.

19.4%, so we stick to our margin guidance.

The next question is from the line of Resha Mehta from GreenEdge Wealth.

Congrats on a good set of numbers and especially on the margin comeback. The first one is on the U.S. business. So I just wanted to know that are there any quartz sink manufacturing facilities in the U.S. itself? And I'm not asking necessarily the ones that have a European technology with them, but just basic quartz sink manufacturing facilities are there locally in the U.S.

So when you're talking about the quartz sink, what we are making, that there is no technology of manufacturing in the United States.

But the non-European or the non -- I mean, very local technology mundane technology may be there, right?

So I would -- yes, but that's probably like kind of the -- it's a very crude technology to make something. So not I -- not premium sinks, yes.

And none of these retailers would actually prefer to buy those, right?

Again, I would say those are not typically quartz composite sinks. They may contain quartz, but they are not as hardcore quartz sink what we do of high quality and [indiscernible] and resin what we use. So those are not preferred -- that's a nonpreferred sink in the U.S., not just in the U.S. but across the world.

So I was just trying to understand what is the risk, let's say, this 50% tariff that is there and nobody knows how this tariff is going to evolve, right? But worst case, I mean, do these retailers then move to some local technology from their sourcing standpoint? Or how does it work basically? That was what I was trying to understand.

Yes, yes. So I understand, obviously. See, first of all, I believe that 50% tariff has still not come. So there is a lot of speculation and there's a lot of panic reaction in the market by this. We are at a 25%. I'm very sure that both the countries are working very closely, and they'll find an amicable solution. It is all about part of negotiation, just trying to get the best deal out, like we do it in the business. I am absolutely positive. This still will be solved. We just have to buy some time. That's point number one. Point number two, we also think 25% tariffs will come, what will happen? Nothing happens. 25% tariff comes, so what happens. Now anyway, the inflation in large stake is going to kick in because the tariffs are not from India across. So somewhere that buck will be passed on to the customer, right? So I think like I said in my speech, the 25% tariff, our things are still more -- much more competitive than Europe. That's one. Now hypothetically, I'm saying, assuming that a 50% -- so 50% tariff comes also, right? So we have already planned a strategy A and strategy B with my customers that what next we have to do because we all know that this cannot go on for a long period of time, right? So somewhere -- suppose 50% tariff comes, somewhere we will bear, somewhere the customers will bear and somewhere it will pass on to the end consumers. But what I said, was very critical. We will secure the U.S. business. We will not let the U.S. business go out of our hands and to our competitors. Our biggest competition is sitting in Canada, which is having probably 35% plus tariffs. So we will find out a way out, which we have already strategized it, but that is too early to say what we are doing when there is still not a 50% tariff. So let the 50% tariff kick in, and then we will come out with the strategies of what company is going to do next. Now it is not easy for someone at Lowe's biggest -- second largest retails giant of 1,800 stores plus has already Carysil sink installed in their India stores. We cannot take it out, you see. So -- and the Lowe's team is coming to see our factory on October, they're very positive. I think overall, that is very positive. Obviously, on the capital market side and most of the side, there is a panic situation [Foreign Language] it's part of negotiation. We will come out stronger. We'll come out stronger.

Right. And on this quartz sink capacity, so just a clarification here. Today, we are at 75% utilization for our quartz sink. So -- but this 75% is on the 10 lakh capacity or we were to ramp it up to another 2.5 lakh. So this 75% utilization is on the 12.5 lakh quartz sink capacity.

Okay. Good question again. I think our capacity with the IKEA coming in, we would be reaching our peak capacity by October, as early as October. Our company will have to plan to expand to another 250,000 sinks very, very quickly. We're just waiting for what is coming out in the next 30 days' time from IKEA side. And we need to understand that we have got about more than 75% of the global IKEA business. That's a massive business. It's completely derisking us from United States. Even in the worst-case scenario, something goes wrong in United States, right, in the next 5 years' time. But company -- we are not even planning. We have already derisked ourselves by having this massive agreement with IKEA and all is non-U.S. business, right? So keeping in mind right now, U.S. is going as what it is, we'll have to still expand into 250,000 sinks extra. Because what's happening over the horizon, we have so much deals and traction coming in that we will need this minimum 250,000 sinks additional capacity to attract the customers who come to us. If we have bottomed out of the capacity, nobody is going to come to us. So it's a matter of time in 30 days, we'll know what volume -- we are expecting some quite large volumes from IKEA coming in very, very strongly. And I think in 30 days' time, we will come to know what we need to -- how fast we need to add 250,000 sinks capacity. And I think by the next 30 days to 40 days, we'll also know what's happening between the tariff between India and U.S. also.

Right. So basically, the 75% utilization on the 10 lakh capacity. We have not yet...

Yes. It's on a 10 lakh.

Right. And the next one is on the U.K. business. So with the FDA having been signed with U.K., how -- in what shape and form really can it benefit us? And also a related question that Carysil products, can it start sourcing all of its stainless steel sinks requirement from India with we're expanding our steel sink capacity? And how would that benefit the P&L?

Yes. So right now, good. I think, actually, you know a lot about our company. So I think the stainless U.K. FDA deal, I think we are -- we consider ourselves as an Indian U.K. company only. We don't consider ourselves as an Indian come U.K. company. So I don't think there's a big benefit on terms of the trade. But obviously, there's a lot more confidence within the company, within the country. So that kind of gives a lot of comfort level to do more and more business. That's point number one. Number two, we're already transferring almost 50% of the stainless steel business to us. And you -- remember, we said it in -- we need to expand in 250,000 sinks more. So that technology of the stainless steel sink, which we are not able to produce now for the U.K., which we will take care in this new expansion.

And does that benefit your P&L?

Yes. So my target to my U.K. team is that by end of -- by '27, I think 100% of the business needs to be transferred. So we are -- I mean, obviously, it's our company so we can say what we say that's going to happen, but we need to come out with those quality things. And for that, we need to enhance our technology and the cost competitiveness. So the more volumes will grow, let's say, we cross 0.5 million sink stainless steel, we will automatically will get a price edge.

Understood. And last one on the Carysil Surfaces, right? So see in FY '25, which is the last financial year, here, the revenue was largely flattish for Carysil Surfaces. While Carysil products being in same U.K. based, it grew its revenues by 29%. So why this divergence in the growth trends of both these subsidiaries despite being based in the U.K.

So the thing is it caters to a very different segment of the customer. So where we have like a degrowth in the surfaces because they supply more to the retail store chains, and we need to be careful that if we are not getting our money secured, we do not supply. So while the demand is there, we need to secure our collection, our receivables. So we do not take risk as far as the receivables are concerned. That's the reason, nothing else.

But do we see surfaces also to kind of get on to the growth trajectory in this financial year?

You see my team is expanding very, very fast to the new customer. It is just a matter of time. So it is going to bounce back, but it takes time by the time you go to the new customers because it's a factory, you get orders, fabrication, the turnaround time is 60, 90 days. That will happen. It is happening. The U.K. has bottomed out now. It cannot go worse than this. And I'm sure you will see some good news in quarter 2.

And lastly, the domestic business has grown by 10% this quarter, which is a good sign to see. So what's driving this revival? And can we expect this continued growth momentum in the domestic business?

We continue as in our focus as premium products. Any company who is a branded focused on premium product is definitely going to grow. And our emphasis, like I said, on expanding our customer network, product portfolio is only going to drive. Carysil has now become a premium household name in the kitchen category. I do understand where you're coming from, where we have seen a lot of other company results. And I always say, keep focus on premium products, that's where India is going to go in the future. And it's not just sales improving. There's a massive margin improvement also in domestic business. So we will -- we are going to continue this momentum in India in spite of there is a growing demand, but I think that's for the lower end of products.

[Operator Instructions]

And operator, please keep 2 minutes for a call because otherwise, everybody will not be able to get an opportunity to ask. Thank you.

[Operator Instructions] The next question is from the line of Naman Parmar from Niveshaay Investments.

Congratulations on a great set of numbers. Firstly, I wanted to understand on the domestic side, how much is the dealers and distributor has been added in the quarter 1 and how much stores has been added?

See, we will give all this information on an annual basis because every quarter, it's difficult for us to add because there are a few dealers getting added, a few dealers, we are not allowing them to operate at a low level. So it all gets churning, and...

I'll just add to it. I think our endeavor to add to 5,500 dealers by FY '26 resumes. We have already signed up 45 galleries. Remember, I said we're going to add about 100 galleries this year. We have already signed up 45 galleries in quarter 1 only. Our thrust is going to be more on opening galleries and experience centers in India, which would enhance the brand equity. As far as 2 is concerned, we are expanding our dealer network about 200 dealers a quarter. I think we are on track. I think we should be adding about more than 1,000 dealers by end of the year, which will take us to 5,000 plus end of the year.

Okay. Understood. And secondly, on the right issue that is happening on the subsidiary company, [indiscernible] so out of the INR 9 crore investment that will be going, how much will be for the CapEx and how much will be for the working capital?