Sirca Paints India Limited (SIRCA.NS) Earnings Call Transcript & Summary

Hello, and good evening, everyone, and thank you for joining us today for Sirca Paints India Limited Q2 FY '26 Results Call. I am Drishti from Finportal Investor Relations team, and it's my pleasure to welcome you all. We are joined today by senior members of the management team, including Mr. Sanjay Agarwal, Chairman and MD; Mr. Apoorv Agarwal, Joint Managing Director; and Mr. Hira Kumar, Company Secretary. Due to some unavoidable circumstances, Ms. Shallu Arora, the CFO, is not able to join. Let me now hand it over to Mr. Apoorv Agarwal to take you through the key financial highlights. Over to you, sir.

Thank you so much, Drishti, and good evening, everyone. I am pleased to share with you the financial performance of Sirca Paints India Limited for the second quarter of FY '26. Revenue from operations increased to INR 131.17 crores in Q2 FY '26 from INR 105.46 crores in the same quarter last year. This represents a robust growth of 24.37% year-on-year. This strong performance was primarily driven by the better product mix and a strategic focus on high-value product sales. Moving on to our profitability metrics for this quarter. EBITDA for the quarter 2 FY '26 increased to INR 27.40 crores from INR 18.96 crores in the same quarter last year, reflecting a healthy growth of 44.52% year-on-year. Our EBITDA margin for the quarter stood at 20.89% compared to 19.74% in quarter 1 of FY '26. Looking at the bottom line, profit after tax increased to INR 18.10 crores this quarter from INR 13.28 crores in quarter 1 of FY '26 (sic) [ quarter 2 of FY '25 ]. This represents a 36.3% year-on-year growth impact. Now, I would like to take this opportunity to share with you some key business updates from quarter 2 of FY '26 and outline our outlook for the coming quarters. In line with our long-term growth strategy, Sirca undertook a major operational integration and capacity expansion for the Wembley brand. We have initiated the consolidation of 3 existing Wembley manufacturing units into a single integrated production facility. This strategic CapEx initiative is aimed at achieving higher efficiency, scalability and cost optimization. The new facility currently under commissioning is expected to become operational around quarter 4 of FY '26. Once commissioned, it will mark a significant milestone for the company, enhancing manufacturing productivity, improving the margin profile and driving operational agility across both, our Welcome and Wembley product lines. The new product range in Wembley, launched under the Valentino sub-brand, has started gaining traction across the existing distributors of Wembley, reinforcing Sirca's commitment of building a comprehensive product portfolio that serves both, the premium and the mass-premium categories. In a significant development, Sirca Paints has extended its agreement with Sirca S.p.A. Italy for the distribution, manufacturing and use of the brand Sirca in India until 2041. This agreement is irrevocable, too. Under this extended agreement, Sirca S.p.A. Italy will continue to transfer the technical know-how to the company for manufacturing of high-quality, high-technology acrylic, UV and polyester-based wood coating products in India. These products are currently being imported from Sirca S.p.A. Italy. This agreement not only reinforces our strategic partnership, but also marks a key step towards greater self-reliance, improved margins and enhance value creation through local production of premium Italian formulations. This agreement not only reference -- reinforce our strategic partnership, but yes, it will also help us to grow together and improve the margins and localize the production. Let me also touch upon our R&D and innovation front, Sirca continues to invest in the research and development to stay ahead of the market trends and consumer preference. We are particularly focusing on the high potential categories such as acrylic-based, waterborne, where innovation and sustainability are emerging as key differentiators. Our continued investment in product advancement is directed towards improving durability, ensuring regulatory compliance and enhancing user friendliness, reaffirming our commitment to quality and technological leadership. On the demand front, we are beginning to see encouraging signs of market recovery, particularly in urban areas and organized manufacturing sectors. These improving sentiments, coupled with our differentiated and diverse product portfolio, positions us well to capture the next phase of growth. With Indian furniture manufacturing sector on a strong expansion trajectory, supported by rising domestic consumption and increasing global sourcing, we anticipate a substantial uptick in demand for PU and acrylic coatings across both, organized and semi-organized segments. From a brand and market development perspective, Sirca continues to deepen engagement with the interior designer community, a vital influencer group in the premium coating space. Our facilitation of the top 30 industry designers at an event called ARTH Dubai has significantly enhanced our brand visibility and strengthened our credibility within the design circles. At the same time, we remain focused on expanding our geographical footprint, particularly across West and the South of India. We are making steady progress through enhanced distribution network, dealer onboarding and strategic retail partnerships, all aimed at capturing emerging growth pockets and improving our overall market penetration. Overall, the outlook for FY '26 and beyond remain positive with strong execution of our operational integration, sustained R&D efforts and the extended collaboration with Sirca Italy, Sirca Paints is well positioned to capitalize on upcoming opportunities and drive sustainable value creation for all stakeholders. And now, I would like to hand it -- hand over the call to the moderator for the Q&A session. Thank you.

[Operator Instructions] So the first question is from Kunal.

Okay. Three quick questions, sir. First is about your trade receivables, which saw a large jump from where they were in March '25 -- at the end of March '25. They have increased 48% from then, and hence, CFO has been very measly despite making good profits. So can you explain that, please?

The trade receivables from the March sees a jump also because of the addition of sales from the brand Wembley. So there has been additional sales, which has been a part of the total or overall revenue growth. Though we have seen between the quarter 1 and 2 being tough considering the overall market conditions, we have seen a little tightness towards the debtor side, but the major chunk of the jump is seen because of the Wembley sales being consolidated in the revenue. So the -- that is why the big jump sees from the March numbers.

'25, okay. Understood. And do the Wembley and Welcome brands, do they have a longer debtor cycle?

So because it was a transition period, and we had our terms and condition also with the old owners of the brand. So -- because it was the transitional thing, there were some teething problems with the closure of accounts with the old company of the existing distributors, which were majorly sorted by the mid of the quarter 2, and the payments -- the newer payments to the company started coming in, but the average credit periods remains around 60, but because of the transitional change, it took -- it went to 90, 95 days. But in the coming quarters, it will again come back to the 45-, 60-day cycle.

Okay. So this was temporary. And I've been confused about this for some time, but can you explain if the Wembley and Welcome brands were acquired at the same time and from the same person?

No. So the Wembley brand was acquired in the -- on the 21st March 2025, so in this year. And the Welcome brand was acquired in June...

Last year.

Yes, last year. Yes. And the owners are different, but they are 2 retail brothers.

All right. That was why I was confused. And also, can you explain what products does the Valentino sub-brand cover? And what type of customer will it cater to?

Yes. So with the polyurethane technology becoming like a consumer and mass product, under the brand Valentino, we are going to cater to the retail and market retail demand of the polyurethane coating, so general mass polyurethane products.

I apologize. We got some technical issues. I would like to take next question. [Operator Instructions] The next question is from [ Hemant Soni ]. Mr. [ Hemant Soni ], you can ask the question.

Just wanted to ask one thing. I mean, what will be the revenue guidance for this year? And the INR 1,000 crores of revenue, I think we have an aspiration. It will be hit in which year, sir?

So we, as a company, are expecting to grow at a 35% to 40% CAGR growth, and considering that, by FY '30, we would touch the revenue of INR 1,000 crores.

And sir, for FY '26, shall we expect 35% to 40% only?

Yes. For FY '26, we are expecting approximately 35% to 40% growth.

[Operator Instructions] The next question is from [ Khushi Jain ].

Yes. So my question was around EBITDA margin. That has actually expanded to a higher band of 21% versus it was 18% in the same quarter last year. So we exist that Wembley and Welcome are now integrating, but operate at a relatively lower profile than what the stand-alone Sirca brand is, so what has been the key triggers for this margin expansion?

So the main trigger has been the quarter 2 has seen some relaxations at the raw material side, especially solvents, which allowed us to have better gross margin in the product lines of Wembley and Welcome also, plus the sale of higher-value products like acrylic has contributed decently in the quarter 2 revenues, which are, again, the better margin products. So overall, at the EBITDA level, we have seen this jump.

Another question was, could you please share the Welcome and Wembley revenues for this quarter and half year, if possible?

So for this quarter, the combined revenue from Wembley and Welcome were about INR 29.50 crore, out of which INR 18.36 crores was coming from the Wembley, and the rest was coming from the Welcome.

Okay. Okay, okay. And when is the consolidation of Wembley plants likely to be completed?

So we are expecting by the late January 2026.

Yes, Hemant, you can now ask the question.

Sir, if I do a math and a back calculation, so growing at a 35% or 40% figure, I think the revenue will be close to INR 1,200 crores by FY '29 only, so -- I mean, are we some sort of conservative in our guidance of INR 1,000 crores?

Yes. So we are keeping our approach to be conservative. And yes, conservatively, we anticipate that by FY '26, we should reach the INR 1,000 crore revenue.

By FY '30, right?

Yes, FY '29-FY '30. So considering our conservative approach and the current market conditions, we look the INR 1,000 crore revenue to be touched by 2030.

And sir, one more thing -- I mean, as per, I think, the earlier con calls or the PPTs, we had guided for 25% to 30% kind of revenue growth in FY '26. I just checked it. So are we some sort of upping the guidance?

So the consolidated 35% to 40% revenue growth is after considering the consolidation of Wembley as well.

Okay. Earlier, Wembley was not factored in, right?

Yes.

So 35% to 40% CAGR looks easily achievable till FY '30, right?

Yes, yes, yes.

[Operator Instructions]

After just tie up with Sirca, where we get the right to manufacture the products in-house as well, what do you -- what are your targets for working capital for the next year?

Sorry, what is the targeted?

Working capital.

No, the working capital after manufacturing these new range of products, like acrylic and polyester base, the working capital of the company overall will go down because our import dependency will reduce. Today...

Yes, that's what I was asking, how much would this -- would it improve after this?

Yes. So we will come down to about 95 to 100 days.

95 to 100 days.

Yes.

Okay. And also, can you -- would you be able to elaborate on your targets for the Paints segment under the Oikos brand?

Under the Oikos, the company is focusing only on the special decorative paints, which are called as textures, which is a very, very, very niche market. So with the Oikos, this year, we are expecting a business of INR 10 crores out of the total company revenue, which is in terms of number not big, but yes, it is a high gross margin product and an entry -- and it allows us a quick entry at the interior designer level because it is a product, which is very nice and is applied, say, on a couple of walls in the whole house, but it is a product which has very less competition, high margin and add lights to our total product kitty. So with Oikos, our focus currently remains only on the specialized texture-based decorative paints rather than the solid paint.

Okay. And the 90 to 95 days working capital you mentioned, you expect that to happen by the next year?

Yes, by next year, because the production of the new line of products like acrylic and polyester will come in full swing from the first quarter of next financial year. So it will begin in quarter 4 -- yes, but it will come in full swing and the imports will -- the import inventory will go down from late March.

Next question is from Neil.

So basically, my question was, in your business, contractors plays a key role in selecting which paints you have to use. So what strategies do you use to ensure that contractors will prefer your products over other competitors?

Yes. So with contractor, we are doing the engagement program around the year. So first, we focus a lot on their training so that they can use the product in the right way and achieve the finish that this product deserves, which allow the contractors also to have more sites by showing their quality. Secondly, we run an app called Sirca Parivar app, where we have 16,000 registered contractors only from the northern part of India, which scan the products daily. And on the yearly basis, they become a part of an attractive reward program, which is given by the company in the form of gifts and also trips. And under this trips, the company has developed a very strong personal as well as business relation with these contractors, and that is why Sirca has become the preferred choice of these set of contractors.

Okay. Got it. And my next question was, basically, you have a very strong presence in North India, but what are your plans to expand your presence in other regions of India?

So Sirca, as an OEM brand, is strong -- is also very strongly present in the West and the South, where key furniture manufacturers and kitchen manufacturers are using our product. At the retail level, company has opened almost 7 new depots in this current financial year from Surat to Hyderabad to Bangalore and the latest one coming up in Chennai -- in Kerala. The company is also now aggressively marketing and retailing the products in the South and the West region, and we are gaining traction very slowly and steadily in these states also. So by couple of years ahead, we look that retail contribution of revenues from the South and the West will also become noticeable.