Carysil Surfaces Ltd (524091) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Acrysil Limited Business update Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Since we have recently ended the quarter, the company shall discuss any questions related to quarter at the time of results declaration. Request participants to limit questions only related to the acquisition. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Parekh, Chairman and Managing Director, Acrysil Limited. Thank you, and over to you, sir.

Yes, thank you. Good afternoon, everyone. A very warm welcome to the business update call of Acrysil Limited. Along with me on this call I have Mr. Anand Sharma, CFO; and SGA, our Investor Relations adviser. As you're aware, our company has been witnessing a strong demand for its product quartz kitchen sinks and stainless steel sinks in domestic/international markets. Accordingly, we had planned expansion for our quartz sink manufacturing capacity from 0.5 million sinks in 2020 to 840,000 sinks today. And further, the 360,000 sinks addition in capacity, which is going to be in 2 parts, 180,000 each, which is going to be completed in quarter 1 and quarter 2, respectively. We also had announced that the stainless steel also is going to expand to another 90,000 sinks to 180,000 sinks during the quarter 1. I'm pleased to announce that Acrysil U.K. Limited, which is a wholly owned subsidiary of Acrysil Limited, has agreed to acquire 100% shares of Tickford Orange Limited U.K., along with its wholly owned operating subsidiary, Sylmar Technology Limited. U.K. is one of the major export market of our company. This acquisition will allow Acrysil to further strengthen its presence and market share in U.K. market. This is our second acquisition in U.K. approximate period of 6 years. I'm talking about the Tickford Orange Limited, it is the parent company of our wholly owned subsidiary, Sylmar Technology Limited, STL, which is a manufacturer and distributor of customized of high-quality solid surface products for kitchen and bathroom segment. These products are used for both domestic and commercial purposes catering to the markets across United Kingdom. The manufacturing and distribution facility of STL is centrally located in Alfreton, Derbyshire U.K. STL is a leading player in the U.K. solid surface market with an estimated market share of 35%. It generates 80% of its revenue from sale of kitchen products and remaining from bathroom and marine-related products, which are yachts. STL has 3 brands: Maia, Minerva and Metis. As of CY '21, STL has reported revenues of GBP 12 million, and for CY '20, it was GBP 11 million. Although CY '20 was impacted by COVID-19, STL has been profitable and benefits from solid financial base and continued growth. The 3 pandemic levels of STL was approximately GBP 14 million for pre-pandemic previous 2 years. Talking about the overall cost of acquisition. Acrysil U.K. will acquire 100% equity shares of a total consideration of GBP 11 million. The acquisition will be funded through a mix of debt and internal accruals. The compliance of the acquisition will take approximately 45 to 60 days for the whole process. Nevertheless, the sales will start kicking in from April. In terms of customers, the company has a long-standing customer base with leading high street names like Selco, Homebase, Hafele, Magnet, Moores, Fairline, et cetera. STL has been built on an ethos of customer service without compromise. STL enjoys a strong customer relationship and have worked with large manufacturer of significant number of years. With this acquisition, Acrysil shall gain access to the large customer base, leading to potential new sales channels and will open up cross-selling opportunities for the company. STL has an outstanding reputation in the market and has been sourcing and manufacturing solid surface product for 35 years. The acquisition was a natural fit for us as STL is a highly innovative company focused on continuous R&D to create the new product to filling existing gaps in the marketplace, thereby, enjoying a strong brand recall and market share. This acquisition has catapult us to new orbit of growth. It will enable the company to enter the new product segment in the home improvement product category, expanding the current portfolio of the company. We believe this is a significant step towards achieving a formidable leadership position in lifestyle Kitchen and Bathroom segment globally. It will also help to scale up company growth and its long-term vision of INR 1,000 crores quite significantly. With complete, unique product basket in kitchen and bathroom segment, we are confident towards moving up the business trajectory and foresee a future of consistent success and value addition. Thank you.

Shall we start with the Q&A, sir?

Yes.

[Operator Instructions] The first question is from the line of [ Ronak Mehta from Equirus Securities ].

Sir, so to understand on this acquisition first. So you said about the phase of the company before and during the pandemic. But how is that on the margin front? So EBITDA margin will it be lower than our consolidated EBITDA margin at entity level? Or will it be equal to that? So I wanted to understand on that front. The second thing I wanted to understand is that you said you will be gaining traction in newer product segment. So can you elaborate further on that as well?

Yes, sure. So the current EBITDA margin of the company is around 15% to 16%. And moving forward, we do have some initiatives which company will take once we have it in our hand, which is going to be from this month. So there are some significant changes we will do, and we'll try to improve the margin further. Nevertheless, we need to understand that we're still in a pandemic situation. And based on that, I think 15%, 16% is a good EBITDA. So it's quite close to -- it's not significantly -- there's not a big gap, but it's quite close. Secondly, opportunities is that you need to understand it's a great value proposition is because you have -- we are getting such a large access to the customer base. And when you are -- as per the large customer, there are a lot of opportunities. It will significantly grow the current home style, the Acrysil Products Limited business, which is into primarily kitchen sink and faucets. So we have already given you the names of large retail outlets and all, I think that's probably going to be a significant increase benefit to us. Second thing we need to understand is that we are entering into the worktop market, which is we find a great synergy along with the kitchen sink, that's a multibillion dollar market just not in U.K., but across the world. So while these company is into solid surfaces, which it is a 35% market share, the solid surfaces market as a category is only 10% of the global quartz top -- I mean the global worktop category. As we all know, there is a significant opportunity for the quartz kitchen tops are concerned. The company do have plans to introducing quartz tops and use these channels to significantly improve sales. Third thing, bathroom category is what we were never done in the U.K. market. We know we have the brand called Sternhagen in Germany. And we plan to take this brand, use these channels in the bathroom to launch the bathroom products in U.K. Thank you.

Okay, sir. And sir, just a related question, whether this acquisition will also help you in getting the footprint in the European market? Or is it something that you will first concentrate on the U.K. itself and then over next 4, 5 years, you might want to move into the European market?

So Europe is definitely a potential since it's been quite close to U.K., and we have a great technology. But I think what we have is we can still -- there is a big gap in for the U.K. market. So we see a large growth opportunity in the U.K. itself. So I think for a few years, we will be focusing on U.K. And then at the right time comes we will see, take it across Europe.

[Operator Instructions] The next question is from the line of Udit from Yes Securities.

Sir, the question is that you gave in the last 2, 3 years, of course, the COVID pandemic has hit the company's performance. How do you see the growth trajectory in the company that we have acquired?

So now I think as the world is coming back to normalcy gradually, and we have start quite habituated to live in this pandemic situation. And I think the -- whatever the pre-COVID level sales we have, I think we actually -- it should normalize by this year. So we should get back to the GBP 14 million level.

And you mentioned in your opening remarks that we will start to come into operations after H1. Is that understanding correct?

Yes. The sales consolidation will start from quarter 1 itself, April quarter 1 itself.

Got it. And sir, can you explain the debt to internal accrual proportion that will be used for this cost?

Yes. So the total acquisition is GBP 11 million, out of which GBP 7.7 million is the debt and GBP 3.3 million is internal accruals. And when you understand these are both in our U.K. book. So the GBP 3.3 million internal accruals have been through our U.K. subsidiaries.

The next question is from the line of Keval Ashar from DSP Mutual Fund.

Yes. Congratulations Chirag-bhai for this acquisition and also expanding your target market. So Chirag-bhai what is the size of opportunity that we have in slabs market? And at what rate do you see this market growing for us?

So I think for a company, we've always seen the surfaces as to be one of the greatest supplement product to add with our kitchen sinks, and which has always been a massive view -- massive market across the world. So this is going to be a first step in U.K. by which, like I said, it's going to be a great value proposition. You're actually entering a huge, huge market. Now like I said, that when you have the solid surface, which is just doing about GBP 12 million to GBP 14 million in U.K., while the whole quartz worktop share is still pending. So we plan to introduce that very soon into this. And plus the new channels we have, just when we acquired the company, there has been some breakthroughs with some new customer wins in U.K. So I believe that in the -- I think in the next -- I think within the next 3 to 4 years, we should be able to -- I mean at least we are targeting to double our revenue in U.K.

So sir, would it be only the revenues from slabs or the total U.K. revenue considering quartz sink and slabs both?

No, I'm talking as the U.K. business as whole.

Okay. Got it. And you've seen -- yes.

There are a lot of cross-selling opportunities like I said. So we just want to be in that category.

Correct, correct. So we'll use our synergies of offices for this.

Right, right, yes.

Got it. And if we see currently quartz sink is a major growth driver for us and also a major revenue contributor for Acrysil. Now since you've acquired this and this is a high-growth segment, in next 3 to 5 years, how much revenue do you see contributed from this segment for Acrysil?

Like I said, U.K. is -- this is about INR 120 crore, INR 130 crore business, our Acrysil U.K. products is growing at about -- at an annual rate of about INR 100 crores. So U.K. itself is about INR 220 crore, INR 230 crore of revenue. And if we are able to continue -- as you know general history that Acrysil products 6 years back, we acquired it was a INR 2 million revenue company, which we built to INR 10 million approximately in the last 5 or 6 years. So that shows that the company has the bandwidth capacity and the market to significantly multiply sales. So I think we should be probably going with that confidence to at least double our revenue in the U.K. product in the next 4 to 5 years' time.

The next question is from the line of Nikhil Gada from Abakkus Asset Management Company.

Yes. Congratulations on the acquisition.

Thank you, Nikhil.

Yes. So 2 questions from my end. Sir, firstly, if you could help us with the market size of U.K. because when we say that we have a 35% market share and if I look at the revenue of the company from solid surfaces, which would be around INR 100-odd crores. So are we saying that the market is around INR 300 crores to INR 500 crores in U.K. for this product?

Yes. So you're right. So these are solid software, these are specialized ATH-based surfaces. These are some very niche category. And this technology is that they do a seamless integration of kitchen sinks to the worktop in 1 piece. While I say that this should be around, I think, about 35% market share so this should be about approximately INR 500 crores market. But there will be another -- there is another INR 1,000 crore plus market, which is there for the quartz tops. So our company would -- while we are doing this to access larger market share in the solid surfaces, we will also be planning to add a lot of quartz tops along with this.

Sir, just on the quartz tops. Is there a technology which is there already with the company we are acquiring for quartz as well or the technology is something which we already have in-house and it is just that the channel will help us introduce the product for quartz?

No, I think both Acrysil and U.K. has -- do know how to fabricate the worktops and install it. So we're going to quickly use these channels.

Understood. Understood, sir. And sir, just secondly, could you help us with what kind of capacity STL has and what is the utilization currently? And is there any near-term CapEx plan over there?

So whatever the information I, still, am actually finding the U.K. soon. But whatever information we have that the STL is doing about 65% to 70% capacity at this point. There is a significant land which is available next to it. And I think we have enough room for expansion further into the solid surfaces. And we also have the place to -- even to do the fabrication for the quartz top surfaces.

Understood, sir. And sir, just a last bit on the asset base, could you help us what would be the asset base of the company as of now? What will be the gross block of the working capital deployed?

Anand, you may want to pitch in, yes.

Yes. So Nikhil, this company is more on a light asset base. So GBP 400,000 is the gross block.

Okay. GBP 400,000, right?

Yes.

And sir, what would be the capital working capital deployed in the market as of now?

Working capital?

Sir, what would be the working capital of the business as of now?

Working capital is around 70 days.

Understood. Understood. Understood. And sir, just Chirag-bhai, just 1 last question. I understand this product is very similar to acrylic panels, solid panels. So I think India also has a, let's say, a market size of INR 700 crores to INR 1,000 crores, which is largely imported. So are we also looking at introducing this product in India some time soon?

So I think we have definitely an idea to do a backward integration in long term. What we see this product has to be a perfect fit for India because India does not have the similar integration of the worktops to a sin. Like we do know this because Carysil sinks -- when I see my Carysil sink getting fitted into any of the worktop, we always see that the fabrication is not up to the mark what the Europeans and I mean the other countries. So India itself would be a significant market for this technology and for the worktops. Second, on doing the backward integration, there is a huge potential for us moving forward to put up the own manufacturing because if we get INR 100 crore, INR 120 crores of business, we can do it for captive consumption, and this is going to help to set up a base for the quartz and for the worktops, both acrylic and for the quartz tops. And this is how we plan to grow across the world. So this is going to be a big stepping stone for us moving forward.

Sorry to interrupt, Mr. Nikhil, may I request you to please rejoin the queue. We have participants waiting for their turn.

Sure, sure.

The next question is from the line of [ Rishabh Duggal from SDE Research Private Limited ].

So I just want to know how much would be the potential sales from cross-selling opportunities arising from the acquisition?

So like we said, there are a lot of opportunity, and we plan to see at least somewhere around 20% to 30% growth year-on-year. And I think based on that, we should be able to multiply revenue in a few years' time.

Okay. So you are saying 20% to 30% growth on Acrysil's book?

U.K. business, I'm saying.

U.K. business. So major of this will be contributed from the STL's book. You're saying that?

So there is -- no, not just the STL book, but the Acrysil products and the STL put together. So because there will be a lot of advantages, STL, has a lot of with Acrysil products. So all in all, as a U.K. business, we expect a good growth.

Okay. Since you have talked about cross-selling opportunities, I just want to know that what would be your competitive advantage in pitching your sinks to STL's clients?

Being a branded business and for a long time, more than 35 years into the U.K., there are various national distributors, which currently the Acrysil products is -- does not have a entry into it, like example VIC's, Homebase these large retailers, a lot of other kitchen manufacturers. Now this is going to give us a big entry into this, and that's how it's going to help to scale up the Acrysil business.

Okay. So how will you justify the valuation?

So I just want to add, while this STL does the worktop, they integrate the sinks into it, since it's now our company, we would be able to transfer all the sinks, which is integrated to the worktop with Acrysil sinks.

Okay. Okay. So sir, the clients at STL, sir, they don't sell some -- they don't sell quartz sinks?

So there are few common clients between Acrysil products and STL, but there are large client customer base, which Acrysil still does not sell quartz sink to. And with the help of STL, we will have the access to that.

Okay. Okay. And how would you justify this valuation?

No. So I mean it's a -- I think any acquisition at a 15%, 16% EBITDA level and where you see the growth trajectory to be very good in the next few years' time. So I think that's a -- we see about the return on investment in about 6 to 7 years. And like I said, there are many opportunities with this acquisition like a technology which we are getting, seamless technology, we're getting the branded business in the U.K., which we want to now going to come out with a bathroom product. We may add our kitchen faucets, we may add kitchen appliances to it. So there will be a great -- we are going to take the full advantage of the customer base, what they have in U.K. And plus, we need to understand that Acrysil products, which is the current -- which is distributing sinks and tanks, will get a significant advantage to it. And so that's going to help us significantly to get our strong presence in U.K. market and help to scale the growth.

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

So you said that the products that STL manufacture is basically high-quality solid surfaces. Is it like kind of kitchen tops which are granite-based in India?

No. These are -- so these are like -- these are based from ATH like you have the Dupont Corian kind. So these are very different than what we have it in India. So these are the advantages. These are much softer surfaces. So you can actually do an installation at site with wood working, firstly you don't need large quartz cutter, diamond tools to cut this. So at the site, you can do a great finishing work. Yes, with the wooden equipments.

The next question is from the line of Nakshita Mehta from Credent Asset Management.

I just wanted to understand the debt position of STL. Do they have any debt? And if you can just tell us about that.

It's a debt-free company. They don't carry any debt on their books.

The next question is from the line of [ Dhruv Dartwood from Fine Apple Ideas ].

Sir, actually, I just wanted to know on the revenue and profit numbers. If it is something you want to share?

Yes, yes, yes. So the revenue for the financial year FY '21, they follow the calendar year January to December. So the turnover was GBP 12.3 million. EBITDA was [ 2.05 ], 16.7%. And profit before tax, GBP 1.8 million.

Okay, sir. Also, I wanted some more on the technology front. The technology which you are using which is the shock technology on the sink front. Is that technology will be shared with the new subsidiary coming in?

No, we will not be sharing because this is a completely different category.

Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to Mr. Chirag Parekh for closing comments.

I would like to take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. For any further information, please get in touch with Strategic Growth Advisors, our Investor Relations advisers. Thank you once again. Stay safe.

Thank you. On behalf of Acrysil Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.