Carysil (earlier Acrysil) - Kitchen sinks

[Pragnesh]

Nov 2024(Q2-2025) concall summary

FUTURE GROWTH TRIGGERS

=We are quite positive that
we can achieve a 15% to 20% growth
next year.

1…EXPORT BUSINESS

A…Struggling european competitiors

=Our competition I said in the last earnings call, our all our competition is in Europe and they are really struggling with the cost aspect. So,
we have a lot of opportunities coming ahead

B…Higher margin products for US and europe businesses

= We have kind of substituted better margin products to the US from India and that has already helped the
last month profitability into green.

=So, this initiative of substituting the European products with
better gross margins from India is going to help the company move forward which is obviously
going to further help to expand once the volume expansion happens, the margin expansion will
also take place.

2…DOMESTIC BUSINESS

Revenue@29% growth

2021@65cr
2022@98cr
2023@130cr
2024@140cr

=The home improvement sector in india is probably the worst performing sector right now because of high
inflation and at a high interest cost. And in spite of this, our company has been able to post some great growths and able to sustain the margin.

=We are outperforming our peers considering the kind of demand

= This growth triggers are:

A…Dealer network

-expanding our dealer network from 1,500+ in FY21 to 3,500 in H1FY25

B…Gallaries
-increased galleries from 80 in FY21 to 95 in H1FY25

C…Premium products

= We believe that the overall
demand in the India retail market can be muted but the scope for Carysil because since it’s a premium product there has been a lot of traction for our products

D…BIS IMPLICATIONS

=Due to BIS, a lot of competition, especially the unorganized sector getting wiped off.

=So, any company which is going to able to manufacture great quality products, would be able to exceed
in technology capabilities is going to win. We are and we are probably one of those companies
who always believe in high quality goods. So, I think we are very confident moving forward that
this restriction is going to help us to kind of scrap out all these non-quality guys and then giving us an opportunity to enter the Indian market.

E…E commerce and electronic stores

= We are also focusing on the e-commerce line.

=We have started selling our kitchen appliances at electronic stores

3…QUARTZ SINKS

=I think we are expecting a good growth. The lifestyle products traction is improving, so we see that trend changing

=We are launching a complete new range of kitchen sink products which we are going to exhibit at the Ace Tech exhibition in Mumbai
November 14 to 17.

3…S.S KITCHEN SINKS

=We have reached 90% capacity

=We are already looking for a new place right now to expand the capacities. We are also putting a new investment in the PVD machine because there’s a lot of traction coming into that business. We are also starting the third shift in stainless steel which we’re not doing till now.
So, we will have to take a lot of new initiatives now moving forward to expand the stainlesssteel capacity

=But I think we are looking at least 200,000 sinks for next year, anyway 250000 sinks capacity in FY25-26 increased from 180000 Sink as of now

4…FAUCETS

=We recently expanded our faucet division with an additional 40,000 units, bringing our total capacity to 50,000 units p.s. .

=Strategically, we are working toward further increasing this capacity to 100,000 units p.a.

=Moving forward we are launching
about 20 new faucet models in the Ace Tech.

5…APPLIANCES

=Our appliance capacity
expansion of 100,000 units is now live, and we are already seeing a positive market response

=We’re launching a whole new line of smart built in appliances with some amazing features.

6…EXPECTED FEW DEALS

=In the last earnings call I did
mention that there were some few deals on the horizon which are going to get realised got delayed. We got some final audits happening this month in our company where it looks quite positive and I think that’s the reason we did go for QIP

=================
PERFORMANCE

1…DOMESTIC

=Our domestic business is improving, with H1FY25 revenue up by 14.1% to Rs 75.3 crore from Rs 65.9 crore in H1FY24.

2…EXPORT

A…At Carysil FZ-LLC which is our subsidiary based in UAE in the GCC market has strong demand
traction. We continue to see promising growth and believe this trend will expand significantly.

B…Operations in Turkey have commenced and we’re excited about this new initiative of brand
building Carysil and due to its high growth potential.

C…EUROPE

=The market in UK in stable, while Europe has begun to show signs of revival, monitoring the situation closely

= UK subsidiaries Carysil Products and Carysil Surfaces Limited
are progressing well and we continue to see it perform better.

D…USA

= Regarding the performance of overseas subsidiaries, United Granite LLC has experienced subdued demand due to local US factors
resulting in muted performance. However, we anticipate a turnaround the beginning of the FY25-26.

E…CAPACITY UTILIZATION

Quartz @63%
Stainless steel sinks @90%

F…Margin is lower due to
=Product mix and
=Raw material costs.
=Freight cost

Disc…invested since 2020-2021 with avg buy price of Rs 247

-Stock/net profit is in consolidation phase since last 3 yrs ,i think due to macro factors.

[AmarP]

@Pragnesh

15% to 20% growth

Thanks for sharing this. The Management is positive for 15% to 20% growth, but growth has been muted for the last 4-5 quarters. Can we trust the undelivered management commentary, and what are the growth triggers for this business in the next two years?
Appreciate your views on this. Thanks,

[puran_tak]

@AmarP

Management is positive for 15% to 20% growth, but growth has been muted for the last 4-5 quarters. Can we trust the undelivered management commentary, and what are the growth triggers for this business in the next two years?
Appreciate your views on this. Thanks

There is always problem with management like overpromosing and under delivering’s but we should also look another aspect of management but they have hunger to grow. By looking last 10 year i am confident with management with vision just they are not able to manage the timing

[puran_tak]

Thankyou Pragnesh sir for your insight but have you tried to though of KEY RISK of this business, i.e. schock or frankee opening plant in India then our company wont be having that advantage of labour cost.

[Pragnesh]

Your points are valid
But i dont over analyse fundaments.

[Pragnesh]

As per carysil management,

“The home improvement sector is probably the worst performing sector right now because of high
inflation and at a high interest cost. And in spite of this, our company has been able to post some great growths and able to sustain the margin”

A…For domestic business

If we see other indian comanies, hindware management has guided same about this industry

Now, lets see operating profit of various indian companies from 2022 to 2025ttm

Operating profit(2022-2025ttm)
-Cera 221cr /277 cr
-Kajaria@612 cr /670cr
-Hindware@176cr /199cr

While carysil has 29% domestic revenue growth
2021@65cr
2022@98cr
2023@130cr
2024@140cr

Carysil has really performed well as compared to other companies in real estate/home improvement sectors as both these industries will have parallel growth

B…International business

=Here, we all know global macro factors affecting usa and europe business.

=Carysil has operating profit (2022-2025 ttm)
@105cr /143cr@12% cagr growth in such adverse global macro economic

C…Interest and depreciation effects

=Interest and depreciation expense have made big dent on net profit

=Operating profit(2021-2025 ttm)
105cr /143cr@ 12% cagr growth

=Net profit(2021-2025)
65cr/64 cr@ flat growth

So, i think 15-20% growth target is perfect guidance by management.

Disc…invested

[tushar_raghatate]

I had the opportunity to attend Ace Tech 2024 held at NESCO, Mumbai, where I met Chirag Parekh, the promoter of Carysil.

My Observations:
The promoter was actively engaging with several architects and distributors visiting their counter, providing detailed explanations about their product offerings. There appeared to be a significant level of interest among the visitors. The faucet range was extensive and well-curated, catering to diverse preferences.

Nirali (Competitor present in the Expo) is a prominent brand in the Steel sink segment in India. While they also produce quartz sinks, the sales team clarified that Nirali primarily represents their steel sink portfolio, whereas Carysil is positioned as the brand for quartz sinks. Furthermore, market feedback from Pune confirms that Nirali is performing exceptionally well in the steel sink category, maintaining a strong reputation in this segment.

Carysil also showcased Brezzera’s coffee machines , which they plan to distribute in India. Brezzera is one of the market leaders incoffee-making machines. ([Website]- (Bezzera - Espresso coffee machines since 1901))

Knowledge purpose, Not invested

[tushar_raghatate]

Volumes are steadily increasing over time.

[puran_tak]

I’ve been analyzing Carysil’s business segments and I’m particularly interested in the growth potential of their solid surface category. While I understand their current revenue contributions, I’d like to get insights into how we can estimate future revenues for this segment.

Specifically:

Hi Everyone,
While I understand their current revenue contributions, I’d like to get insights into how we can estimate future revenues for this segment.

1. Does management provide any guidance or targets for the solid surface category?
2. Are there any industry benchmarks, demand trends, or market reports that can help project the growth rate for this segment over the next 5-10 years?
3. What factors or metrics should we focus on to better understand the growth trajectory (e.g., capacity expansion, market penetration, pricing trends)?

[Abhay_Srivastava]

Can someone please talk about the Capex plans of the company?

The company is barely generating cash every year. The working capital cycle is poor with 150-200 days cash conversion cycle. Even their profit is not with them in form of cash.

Also, they are making sizeable capex from FY22-FY24 (13-15% of revenue). After the working capital led cash strapping and huge capex, the business requires a lot of cash from borrowing to sustain growth.

I just came across this company. Want to know more. Any POVs on -

• How much Capex is needed for the company to sustain growth? Is the current Capex investments one-off or is it usual for the business?
• Also, are there plans in motion to improve cash conversion cycle?

[Deven]

@Abhay_Srivastava

The company is barely generating cash every year.

Hi @Abhay_Srivastava, their CFO to PAT is 100% which is rare from many companies. They generate positive cashflow from operation - which is imp parameters from us to watch. Don’t have fig for capex handy.

[murali603]

@Abhay_Srivastava

Can someone please talk about the Capex plans of the company?

The company is barely generating cash every year. The working capital cycle is poor with 150-200 days cash conversion cycle. Even their profit is not with them in form of cash.

Also, they are making sizeable capex from FY22-FY24 (13-15% of revenue). After the working capital led cash strapping and huge capex, the business requires a lot of cash from borrowing to sustain growth.

I just came across this company. Want to know more. Any POVs on -

• How much Capex is needed for the company to sustain growth? Is the current Capex investments one-off or is it usual for the business?
• Also, are there plans in motion to improve cash conversion cycle?

As per my understanding, Their asset turn is very high ~5-6x. They are doing some small capex like 10-20Cr for 50-100Cr top line

[Senthilprabug]

[Abhay_Srivastava]

This is exactly what I was thinking. Looks to be cash burning business. Absorbing each year’s operating cash flow into capex along with borrowing even more money.

So probably the answer is the fate should be same because of track record

[rkirana]

Stock was dead at 100 Rs odd for almost 10 years and has shot up suddenly 2020-2022. Anybody knows what changed?

I can see a P/E expansion 2020-2022 and it is quite confusing as the P/E in 2021-22 returned to pre-covid and earnings jumped like crazy. Abakkus bought at low price like 100Rs and the stock went to1000 Rs to become 10-bagger

[MHS]

@rkirana

Stock was dead at 100 Rs odd for almost 10 years and has shot up suddenly 2020-2022. Anybody knows what changed?

The below snap should tell what happend:

[Dinesh_476]

Carysil Ltd has shown strong revenue growth (~20% CAGR) with stable OPM (~18-19%), but its aggressive capex and rising debt (₹312 Cr in FY24, D/E 0.9x) are concerning.

While sales have grown, fixed asset turnover (NFAT 1.87x) and ROCE (13.3%) are declining, indicating inefficient capital deployment.

Negative free cash flow (FCF), increasing working capital cycle (142 inventory days), and high interest costs (₹22.93 Cr in FY24) add financial strain.

The company must ensure its expansion yields strong returns; otherwise, it risks profitability pressure and liquidity stress.

[dark_hunter]

@Dinesh_476

While sales have grown, fixed asset turnover (NFAT 1.87x) and ROCE (13.3%) are declining, indicating inefficient capital deployment.

Not specific to carysil

But in general when there is aggressive capex, ROCE and asset turn will be muted in the near term

[Dinesh_476]

From capacity expansion and utilization & sales volumes perspective the company is doing exceptionally good.

**What is concerning is profitability & ability to generate free cash flows. **

Capex is consistently higher than the cash flow from operations combined with high working capital days (200+) and this lead to increase in debt & equity dilution. => High Depreciation & Interest costs.

Being a premium product

• Why the company unable to get high margins/profitability?
• Why it doesn’t has bargaining power with customers (receivables days-60+)
• Why does it has high inventory/working capital days?

Looks like the company is working more like a contract manufacturer for big buyers (IKEA , Grohe, Home Builders & Others). & facing price competition in export markets.

Even if I consider 1000 Cr revenue (guidance from Management for FY25) ( or 2.5X of net block)
Average NPM = 9% => 90 Cr
Assumed PE = 20 / 22 / 25
Market Cap = (20 / 22 / 25) *90 = 1800 / 1980 / 2250 Cr.

Current Market Cap is 1737 Cr at share price Rs.611.

Disc - No Holdings.

[rkirana]

Looks like this is part of Marcellus Little Champions by Saurabh Mukherjea. that itself is a strong signal to exit!! He mostly buys firms that were consistent compounders in last 5 years and going to lag next 5 years!
Good reason to exit the stock