Its always good to zoom out
Mar19 vs mar22
sales 254 vs 493
OPM 17% vs 21%
NP 17 vs 65
New capacity coming up and demand was higher than what could be catered
So demand coming down but not expected to come down below supply in medium to long term
Structural story remain intact
Invested and biased
Dont treat this as recommendation
Tracking business quarterly may not make much sense . Overall with expansion and acquisition they are in tract to achieve the long term goal of 1000 Cr I guess in next 3 year they shud be at 1000 cr.
It’s a compounding story and not a immediate re-rating or margin expansion that may playout.
I believe the stock at current price can do a 20-30 % growth year on year with a 3-5 year view.
Now their Dealer\Distributor are constant but not reflected in Domestic Market. o till evolving here. o all new capacities are supposed to be for export in that context acquisition look fine.
Cost Pressure visible here.
With debt Balance sheet might get bit stressed but Company is still in growth phase so it’s fine.
Domestic volumes can be checked
Invested from lower level
In con call…management looks bearish…major market for Acrysil - USA and UK/Europe remain affected and future growth and margin might get negatively affected !! Rise of debt due to UK acquisition (Debt might go >200 Cr for the company having FY21 sales 300 Cr)
However, it might be opportunity to add if you feel Acrysil is a long-term story
Other expense line would have two major contributors in Freight and Power costs. Bulk of their revenues come from exports so freight costs would be the culprit.
They use a special sand called “Granucol” which has quartz content. I reckon it is imported. There are a couple of crude derived RMs (Methyl & Polymethyl Methacrylate). Granucol and Polymethyl Methacrylate would constitute the bulk of costs.
There seemingly could be a combination of inbound freight as well as price impact for these. Freights could possibly be hitting at both input and output prices.
With FY22 sales of 490Crs combined with the upcoming expansion, FY23 sales should be somewhere around 600 odd crs. from the current business. Add to it 100-150 Crs. of sales form the new acquisition which means ~700-750 Crs. should be a realistic assumption for FY23 consol revenues. With an EBITDA margins of 18-20%, ~120-150 Crs. could be a base case EBITDA for FY23.
Debt of 200 Crs. on an annual EBITDA of INR 120 Crs. is manageable I believe. At CMP of INR 600, the company is selling for EV of ~INR 1800 Crs. (1600 Crs Mcap + 200 Crs Debt). That brings us an EV/EBITDA of about 12-15 based on above EBITDA assumptions. Can’t say undervalued as such but decently valued as of now.
Disc: Invested from lower levels
Acrysil note below which include snippets from Q4 Concall and my take on valuations at the end.
Apologies for the typos and shorthand if any.
Only company in India and Asia and among 4 companies globally to have the technology to manufacture Quartz Sinks.
Export revenues :80%
Domestic revenues: 20%
Quartz sink:77% of revenues.
Current capacity of 8,40,000 units PA.
After addition of 3,60,000 units PA by end of FY’23, total capacity will be 12,00,000 units PA.
Capex will be 68 crore for additional 3,60,000 units.
Stainless steel sink- 14% of revenues
The Company is doubling production capacity of stainless steel sink from the 90,000 units p.a to
180,000 units p.a. Will be completed by Q1 FY’23.
Proposed capex of ~Rs.11 crores.
Globally there are only 4 players producing Quartz Sinks. 90-95% of the industry makes use of Stainless Steel and only 5-10% makes use of Quartz Sinks”
Acquired 100% in Tickford orange for GBP 11 million, roughly about 110 crores.
Tickford CY2021 revenues were 12 million GBP, translating to acquisition cost of less than 1 times price to sales.
CY 21 profits of Tickford were 1.8 million pounds which is 18 crores.
Acquired at 6 times earnings.
Export sales have grown by 60% YOY and domestic sales at 50% YOY.
6,50,000 quartz sinks sold in FY’22
Total revenue from quartz sinks : Rs. 373 crores
Realisation per quartz sink: Rs 5700
104000 steel sinks sold in FY’22
Total revenue from steel sinks: Rs. 68 crores
Realisation per steel sink: Rs 6500
Projected FY 23 sales
40% increased utilisation in quartz sinks,@75% capacity utilisation(since capacities are going to come on stream between Q1 and Q3) : 370 crores +(75% of additional 150 crores) = 370+ 110= 480 crores.
Steel sinks capacity is doubling but utilisation will be for 3 quarters = 68 crores+75% =120 crores
Additional revenues of 120 crores for Tickford
Total FY’23 revenues: 720 crores
EBITDA margin:22%
EBITDA: 160 Crores
Interest cost:20 crores
Depreciation:25 crores
PBT: 115 Crores
Tax:25%
PAT: 85 crores
Currently trading at 16 times FY’23 earnings which is reasonable but immediate factors which may have an overhang on sales going forward is high global inflation because of which customers may curtail discretionary spends.
Discl; Studying, no investments yet.
Few important points from concall may 2022
1…Acquisition
=.Coming to our recent acquisition,
I am pleased to inform that Acrysil UK Limited our wholly owned subsidiary of Acrysil Limited has acquired 100% shares of Tickford Orange Limited, UK holding company of its operating subsidiary Sylmar Technology Limited on April 1, 2022. Sylmar is a manufacturer, distributor, and customizer of high quality solid surface products for kitchen and bathrooms.
=Being a leading player in UK solid surface market, this shall augur well for Acrysil to strengthen its presence and market share in UK and opening up new sales channels and
cross selling opportunities for the company. Acrysil UK acquired 100% equity shares of a
total consideration of 11 million pounds. The acquisition funded through mix of debt and internal accruals
Q=2021 the profit of Tickford Orange was 1.8 million pound
that is around 19 Crores to 20 Crores, the acquisition cost that 11 million pounds, so we have got is at a very less rate, that seem a bit cheap enough so this is distress sales or this is a normal process?
Chirag Parekh: Yes, it is a normal sales, it is just the promoter to realize the value of the company, so there
was no distress, but we are lucky enough to get discounted because it is already our client and we had a great comfort level, so that is why we are able to do it.
2…Acrysil Ceramictech Limited.
=.Let me update you on our incorporation of wholly owned subsidiary of Acrysil Ceramictech
Limited. The wholly owned subsidiary incorporated on April 12, 2022 with the objective of manufacturing and selling of Hi-Tech Ceramic kitchen sinks and bath products. Globally, it
has a market share about 10% a very few players are manufacturing it. Being a specialized
category like the quartz kitchen sink, we will use our expertise to manufacture this product
and elaborate our sales channel for ceramic kitchen sinks and bath products.
Q…can you please put colour on Acrysil Ceramic Limited like
in the terms of when the operations are likely to be commence or what is the size of market opportunity is there?
Chirag Parekh: Sure, like I had said that we are exploring the opportunity and to tie-up with large customers
of ours and is in the process, so once it is done I could expect it to have this within the next three months time and it is going to be a Greenfield project and this is going to be the HiTech. So, the whole manufacturing procedure ceramic is going to be for Hi-Tech ceramic sinks which only a few companies in the world have that technology and we have been able
to get access to this technology. This will be the first company in India to manufacture HiTech ceramic kitchen sink, so we are already in the process of negotiation with very large
customers across the world and once if we put up the manufacturing facility it will be on at least about 60% to 70% buyback arrangement and we will use this as a leverage for the products for bathroom.
3…Capacity expansion.
=.Coming to our capacity expansion. Our expansion plan of 160,000 Quartz Sinks is progressing as per schedule and expected to be completed in the current quarter. This will take the quartz manufacturing capacity from 840,000 sinks to 1 million sinks per annum.
The further expansion of 200,000 units of quartz kitchen sinks is expected to complete by
Q3 FY2023. Coming to our stainless steel sinks expansion, our company is doubling capacity of stainless steel, which is expected to finish by the Q1 from 90,000 units to 180,000 units per annum
4…Ikea and Grohe contract
.=Coming to our contract with Ikea we are supplying kitchen sinks for them for the global
requirement. The supply of Ikea in FY2023 expected to double twice of FY2022, this partnership is a testament of our commitment and global standards of our products. We
already got the award for the same. We expect our partnership with Ikea to further strengthen as we expect to supply them other kitchen and bath products moving forward.
=We also got a strong commitment from a leading bath manufacturer Grohe AG Germany,
they have strong commitment for the purchase of quartz and stainless kitchen sinks.
=As of now like I said we have been awarded to double our sales with Ikea and necessary investments have been done. We should start within the next two to three months, Grohe
also we have done investment in quartz and steel, that also takes momentum and third on
the Ikea on the kitchen sink front is that we are now exploring the possibility of adding the
new product lines along with this, the team is going to visit us soon and then we will see the outcome how it goes. But if it starts all the Greenfield projects will take about a year’s time
5…Moat
=As far as the quartz kitchen sinks are concerned I think we are definitely the lowest player in the world, approximately about 15% to 20% cheaper
6… Growth
=We expect that after all
the initiatives of our company is being done which we expect to be done by end of this current year we would like to continue our momentum of growth of 30% to 40% with our initiatives of ceramic kitchen sink, faucets and built in appliances
7…, Domestic
=On domestic we have witnessed a very strong growth and we
have never able to witness such a strong growth in the last few years and because of a collaboration with Vaani or our new range of appliances by able to supply more sinks to the
domestic market because now we have the capacity in place, we have witnessed a very
strong growth even quarter-on-quarter about 24%,
= A&P spend for us for the
domestic market I think it is about 2% of total sales.
=Company has been focused on increasing penetration in domestic market by increasing
marketing and promotion activities. Our recent collaboration with Vani Kapoor for our new Carysil marketing campaign #Th HeartofmyHome has been carried out successfully during
the year and it showcases a new range of built in appliances including built in coffee makers, which signifies a cutting edge innovation technology and design pioneered by Carysil.
8…Debt
Our current debt consolidated is Rs.136 Crores, with the new acquisition loan it will
increase by another Rs.53 Crores for this year, so another Rs.189 crores so it is of about Rs.200 Crores max.
=So, you can see our debt and EBITDA, our EBITDA is about 115 Crores, debt we had currently is 136, so it is a very comfortable position it is a 1.2 time of the EBITDA, coming
to the 2022-2023 when we are talking for 200 Crores benchmark, EBITDA we are expecting around 150 Crores, so we are keeping our debt in a very comfortable position,
debt equity is 0.53, in all the probability will not go beyond 7 max, so within that parameter
we are vigilant about the debt and we are keeping within the limits and as per our plan.
9…Large retailers-new customers
=we are in advanced talks with some large retailers
across the world, there are more and more opportunities for us, so as and when it goes through we shall let you know.
10…Appliance and bathroom products
=On the appliances side, I think we have touched the turnover of close to 20 Crores and I think five years back was I think less than 5 Crores
=Bathroom products we launched only five years back and bathroom is not a category which we are
focusing, this year now we have done collaboration with Susan Khan and Farah Khan so we
will see a sharp increase in bathrooms sales, but currently the bathroom sales for us is about
insignificant is about 1% of our total sales of the company
11…Receivables
on the export side, we were able to reduce the receivables with improvement with few
customer by 30% very important customers, the new customers also have a very short credit
line and as far as the domestic market we had earlier 90 days payment term cycle, now it has gone below 45 days so these are the two major improvements.
12…Equity fund raise
Q.=There was an enabling resolution taken a few quarters ago, that is for an equity fund raise, I just wanted the current thoughts on that?
Chirag Parekh: These are the new expansion plan, which we will for the ceramic, faucet and built in
appliances.
Disc…invested from lower level and may add on dip
My latest portfolio
short term concerns which i could see
| Qtr | Jun-19 | Sep-19 | Dec-19 | Mar-20 | Jun-20 | Sep-20 | Dec-20 | Mar-21 | Jun-21 | Sep-21 | Dec-21 | Mar-22 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EPS Qtr | 2.22 | 2.14 | 2.55 | 1.46 | 1.72 | 3.52 | 4.53 | 4.88 | 5.04 | 6.63 | 6.47 | 6.13 |
| EPS Growth Q-o-Q | -4% | 19% | -43% | 18% | 105% | 29% | 8% | 3% | 32% | -2% | -5% | |
| EPS Growth Y-o-Y | -23% | 64% | 78% | 234% | 193% | 88% | 43% | 26% |
One reason for EPS growth slowing down QoQ could be because their capacity was getting fully utilised hence no major growth in topline and bottomline got impacted due to RM and other inflationary pressures. Mgmt did a good job in maintaining the margins in this scenario. With new capex getting live in this year assuming high demand for quartz sinks, order backed capex, additional capacity getting fully utilised the next phase of growth could start. The guidance from mgmt is also around 150 cr in ebidta for this year which seems possible to an extent
With increase in mortgage rates around the world in addition to rising inflationary pressures, leaving less money in hands of end customers to spend on discretionary expenses like home remodeling, would seriously challenge assumption of sales growth in the coming years. This in addition to increased capacity can quickly turn into double whammy of dwindling demand and increasing costs. I hope I am wrong but with so many opportunities around, I exited at loss post concall.
Capacity utilisation is early 80%s. 6.5 Lakhs on 8 Lakhs installed capacity. You’re right for steel sinks, utilisation at 1L is more than rated capacity of 90k sinks.
Demand forecasting is getting difficult. The expansion to 12 Lakhs sinks was announced 18-20 months ago. And that is proceeding briskly as scheduled. Now future capacity expansion plans on freeze… has put questions on the growth prospects.
Thought management can be more forthcoming on RM import details. Much much earlier they had mentioned that stable RM costs have been helpful. What’s the source of RM ? Factors affecting its cost is not clear… except that it is some form of granite crystals…
On Technicals with my limited knowledge, I have seen even though price has corrected sharply from 850s to 500s, the volume exchange is not alarmingly high. So I infer long term investors like Ashish Kacholia and Abacaus are still in the game. As management kept insisting maybe the picture will get clearer after Q2 as Q1 is already impacted due to under stocking by distributors.
Would be glad to be corrected on this 
Disc: Invested.
Company did Rs65crs profits in FY22. Market cap of company is Rs1552crs. Stock trading at 23.8x P/E
160K units quartz sink capacity will be added in 1QFY23. 200K quartz sink capacity will be added in 3QFY23. 90K steel sink capacity getting added.
On freight costs
On raw material costs
Revenue guidance for FY23 is Rs760 to 770 crores v/s Rs388crs in FY22 which is 2x
Given Acrysil trades at higher P/E than UK acquisition, the acquisition is EPS accretive.
Disclosure: Invested
I think you are comparing their consolidated revenue target with last year’s standalone revenue. Their consolidated revenue for FY22 was 484 crores. This means they are projecting a growth of around 55%.
Disc: Not invested. Will buy on dips
You are right. My bad. So still very impressive
Acrysil limited announced today that they are doubling supply of quartz kitchen sinks to IKEA, which is a part of International IKEA Group Sweden for their global requirement. They will start the production of this by end of July, 2022. Detailed article on this
While all we hear is incoming recession and global housing market downturn due to rising interest rates, Ikea (the biggest home improvement retailer) is doubling up its Quartz Kitchen Sink Inventory!
What are we looking at here?
While its a great news if (and only if) the volumes are substantial. But the company did not mention the quantity…so it could be word play to enhance market sentiments also…
They either should have mentioned contracted volume or at least what % of their capacity to be utilized for this additional business…
Ikea volumes as a percentage of sales are small. So this wouldn’t really move the needle that much.
Also, renovations demand is generally not affected before the new homes market. They cater majorly to renovations (hence, we are seeing retailers like Ikea). New homes are indeed seeing pressure. The situation is a bit different if we compare US and UK. But pressure will be felt till the inflationary trajectory doesn’t indeed cool down. As of now, the renovations market is stable.
As per my understanding, the medium term is anybody’s guess. Spends could get affected if there’s a sizeable economic contraction but still good value in the longer term.
One positive is their intent to also push quartz sinks in the domestic market. They earlier had capacity constraints which will get resolved with increase in capacities. By that they will be able to serve the Indian market. So that could ease pressure on idle capacities (if indeed such situation arises). No clue about the product competitiveness in the domestic market though. I’ve noticed players like Hindware also sell quartz sinks now. Though Acrysil is the only one with Schock technology. So it will be a bit difficult to test cheaper vs higher quality hypothesis in a more cost sensitive market like India. Would be a good question to ask the management though.
Discl: invested at lower levels and would add only during excessive pessimism
