Summary of the SOIC Analysis presented below
Contract manufacturer for quartz sink kitchen workstations, using customised moulds for companies like Grohe etc. Indian brand is retailed as Carysil. US, UK, Germany are key markets. Strong growth in FY22, thereafter greenfield capacity expansion is required
Overall
• One of the 4 manufacturers of Quartz sinks – Acrysil, Schock, Blanco, Franke; only quartz sink manufacturer in India (Carysil brand – known for its premiumness, competing with cheap Chinese imports or Hindware) and Asia.
• Acrysil establishing themselves as a preferred global supplier with cost competitiveness. Scope to increase market share high – ie capture market share from other players as well as increase volumes due to a growing market
• Sector tailwinds, especially for next 2-3 years
a) Recovery in world housing market: US being the fastest
growing market with demand from housing starts.
b) Shift in Taste and Preference from Stainless steel sinks to
Granite sinks (Composite Granite is Quartz) – 10 yrs ago, 3%
of total sinks (market size of 8-9 mn sinks) were quartz;
currently, it is 8% of total sinks ; of this Schock technology
based sinks is 75%
• Current capacity is 7 lakh tpa; 6 lakh for quartz sinks, 0.9 lakh for stainless steel sinks and 0.1 lakh tpa for kitchen appliances.
• Technology:
a) Technical know-how through access to Schock Technology which
leads to higher precision & lower manufacturing defects.
b) In stainless steel sinks, they are bringing a PVD vapourisation
technology for which they incurred Rs 3 cr capex; stainless steel
with metallic finish
• Advantages of quartz sinks over traditional sinks – stain resistant; anti-bacterial treatment, scratch proof, UV protected. Quartz sinks are made from 76-80% quartz and 20-24% acrylic with easy installation. Finishing better than Hindware
• Strong partnerships with Ikea (contract manufacturing agreement for proven models Quartz sinks. Acrysil will take market share of current suppliers and this can be a very large opportunity), Grohe (contract manufacturing for Grohe for quad sinks and now stainless steel sinks), Menard (confirmed orders for Rs 25cr; will expand to 18 SKUs from 4 SKUs tie up to sell quad sinks), B&Q, Homebase, Home Depot and Lowes (online sales program). Grohe is 10% of export sales (started as Rs 50-60 cr annual order, which was achieved in 7 months itself). If capacity constraints are removed, more strategic tie-ups possible
• Sets up customised moulds for clients
• Indian quartz sink market is growing at 20%
Revenue profile: In FY21, 76% Quartz sinks, 14% Steel sinks, 10% are kitchen appliances
80% of revenues are exports which comes through contract manufacturing and rest 20% is domestic business. They started focussing on domestic business from FY12 onwards- dealer network has increased to 1500 in 2021 from 400 in FY14; and now have a pan-India network; distribution strength higher in south as compared to the rest of the country
Future revenues (assuming 8.4 lakh tpa capacity onstream) will become~ Rs 462 cr, assuming constant realisation of Rs 5500. In FY21, revenues were Rs 315 cr. Company has guided a medium-term revenue target (12-18 months) of Rs 500 cr and long term revenue target of Rs 1000 cr.
Long term revenue target: The existing location can only house 8.4 lakh tpa and there is no further land for expansion. They will need to go for greenfield expansion in FY23, likely doing a QIP for the same to reach long term revenue target.
Volumes:
• 20% capacity expansion from 7 lakh tpa to 8.4 lakh tpa by Q3FY22
• Housing sector tailwind in US and India (share of domestic sales increasing)
• Growth in India will come with a lag (although market is growing from a small base), but main growth is coming from exports to Western countries (especially US).
Margin expansion:
410 bps GPM to 55% and 470 bps EBITDA margin expansion to 22.7% in FY21 vs FY20. Average price realisation increasing – starting prices of quartz sink is Rs 7500 till Rs 40,000
Maintained net working capital – especially important since this is an export driven business
Strong management execution capabilities
RISKS:
• Threat of substitutes for quartz sinks
• Capital misallocation in newer segments
• Slow-down in US housing market
• One time product and not an annuity product. There is no repeat business, even though management claims replacement cycle of 5 -6 years. This company can become a large fish in small pond
PS: Invested