will be putting out short interesting notes/thesis/pointers on companies I find interesting or worth studying.
none of the companies will be a recommendation
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SHANKARA BUILDING PRODUCTS
ABOUT
One stop shop for building materials starting from TMT, cement, and construction chemicals to plumbing, sanitary ware and fittings, tiles, adhesives and surfaces. Also have electrical, lighting, paint, modular kitchens, hardware and appliances that form a part of their portfolio. MS tubes, structural steel and roofing solutions, complete their basket of offerings.
Their business is structured across three key revenue streams – retail, enterprise and channel.
- The retail segment is the largest and the fastest growing segment of the Company.
- In the enterprise segment they are looking to focus on margin accretive opportunities. The emphasis is more on bottom line growth rather than topline growth for this segment.
- The Channel segment continues to be a strategic business for them. It builds understanding of the markets and the emerging trends.
Shankara is located largely in Southern and Western India. This is the fastest growing region of the Country.
The India growth story has moved beyond the metros and larger cities to the smaller towns and rural areas. Shankara has a substantial presence beyond the metros.
Karnataka continues to be the major contributor of their business, having a share of 48.3%
They make certain roofing products under their own brand which have a good market in the retail segment.
The focus is on customizing some of the products which cater to the needs of certain enterprise customers.
Have a warehousing network spread over ~ 5,33,073 sq.ft. This helps them to deliver their cluster based retail stores in an efficient manner. It is very critical in ensuring storage of material and timely delivery to their retail units.
The Company owns most of their warehousing space. Also owns a fleet of trucks.
plans to manage the same square footage of retail stores and add 2-3 stores in FY '24. (focus on online presence will help reduce fixed costs related to store expansion)
is focused on growing the non-steel business (higher margin) and aims to achieve 20% to 25% of total volumes in this vertical in the next 4 to 5 years.
Non-steel products have a higher gross margin of around 10% compared to steel products with a gross margin of 3.5% to 4%.
ROCE for non-steel business is expected to be significantly higher than steel due to higher margins.
The company has significantly reduced its steel inventory, which has helped bring down the working capital cycle.
There has been an increase in retail walk-ins. Their brand equity is steadily gaining visibility.
They are selectively launching a few luxury brands in the bathroom segment.
The Company added new brands like Grohe, Hans Grohe, Duravit, Roca, Philips and Viega in the CP and Sanitary segment.
They have also launched their own tile brand “Fotia” which is gaining acceptance in parts of South India.
Their customers include homeowners as well as professional customers like architects, contractors, interior designers, developers, plumbers, electricians, tile layers, masons, carpenters, painters etc., as well as small enterprises.
Being a one stop shop, Shankara eases the life of such professionals, thus preferred by them.
is looking to expand its colour-coated product range (higher margin) and has certain USPs
The Company successfully launched a mobile app Shankara Buildpro on android and IOS. They are working to utilize tech to improve footfalls in their fulfilment centers working on a model of eyeballs to footfalls.
NUMBERS
Company generated a total revenue of ₹ 4,029.72 crores in FY23 as compared to ₹2,418.40 crores in FY22, a growth of 67%.
₹2,235.72 crores (58%) was from the retail vertical and
The channel and enterprise business recorded ₹1,794 crores.
PAT stood at ₹63 crores, a growth of 84%, vis-à-vis the preceding year.
aims to improve EBITDA by 0.5% to 1% in the coming year.
has reduced its debt level and is at a comfortable net debt position of INR70 crores.
Return ratios improved in FY '23, with ROCE at 15.03%.
believes that the low utilization of working capital is sustainable.
The trade receivables have increased significantly.
MOAT
They believe that this industry is a very operations intensive business with low margins. The ability of a large player to operate at fine cost structures may be a challenge.
The Company has built a lot of insight in this industry in its 50 years journey which will stand them in good stead.
Shankara’s approach is now more marketplace oriented. They have over a 100 fulfilment centers with about 90 offline stores, a robust e-commerce platform which combines to give them an excellent Omni channel. This places them ahead of the current competition.
Risk
A lot of their sales are credit based. Therefore, in case the customer reneges on payments, this could lead to bad-debts and affect profitability.
Expansion
Company has opened new store/fulfilment centers under the ‘Shankara Buildpro’ brand at Morbi (Gujarat) and Nilambur (Tamil Nadu).
Further, as part of the conscious effort to consolidate operations, the Company has decided to close stores in the following locations: Chitradurga (Karnataka), Anantapur (Andhra Pradesh) and Ganapathy (Tamil Nadu).
The net store count after these measures will stand at 90 stores
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i will not be putting out everything there is to know about the company, just the things that i found in a short span of time or are interesting
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Very interesting… would be following your updates.
Please post on the company’s individual threads.