Q2 Results: https://www1.nseindia.com/corporate/SIRCA_10112020161032_OUTCOME.pdf
Company has posted a loss, mainly due to the fire. Insurance claim is pending
New borrowings for 17.46 crores
Slight improvement in trade receivables.
On a positive note, companyâs revenues have reached pre-covid levels. Also as i see in the financial statement, the management has said there wonât be any impact to financials of FY 21 on the whole.
Q2 earnings call transcript. The management sound very positive with a lot of key takeaways for next few quarters and years post Covid and Fire incident. Also noted in this call, a couple of new manufacturing facilities in South on cards in 1 or 2 years with internal accruals.
Sirca Q2 earnings call transcript.pdf (873.0 KB)
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Today Sirca has announced few exclusive Agreements with San Marco Group
and Durante & Vivan Group.
SIRCA_17122020131700_Press.pdf (928.4 KB)
Sirca whilst strengthening its roots on wall paints, now it seems wants to position in adhesives segment too.
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@sameernics hello sameer sir after reading long thread of sirca paints , first of heartly gratitude to you sir and other members , my question how do you do valaution part at this stage p/e 171, thanks in advance
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The last 2 quarters have been a washout for two very different reasons. Q1 FY21 was of course a damp one due to Covid related lockdowns which hit the sales very hard, dropping from an average of about 30 Cr to just about 11 cr. I think the company still did very well to limit the damage to only 70 lakhs of net loss. The next quarter it was unfortunately hit by a massive fire at its manufacturing plant, resulting in a loss of about 10+ crores. Sirca of course had the plant fully insured, so it is likely to receive most of that amount (if not all) when the insurance claim is settled. But as of now it has taken the hit on its P&L for that amount, resulting in a loss of 4.3 cr.
As a result of these 2 quarters, the EPS for 6 months has turned negative, and this results in the TTM EPS dipping to Rs 1.43, thus optically jacking up the P/E to a sky high 172. But fundamentally, I think the company is in as strong a position as it was prior to Covid crisis. So the current P/E is optically misleading. A good indicator of the health of the company is the fact that its Q2 sales, at 38+ cr. has comfortably breached its previous pre-covid quarterly sales high. So normalcy seems to be returning to the operations.
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Great explanation.
Is there a product level / category level of sales info available in the website or anywhere ? Just interested to know how does the wall paint segment is doing and any data pertaining to wall paints segment would be useful.
You could read the transcript on the investor call. It is mentioned there.
I disagree, management said there isnât going to be any loss due to fire & that they immediately moved to a different manufacturing facility, they launched several new products too, management was very much optimistic, according to them Sab Changa Si
Then what went wrong? I believe there a vast difference between what management says & what the numbers say.
Disclosure: Excited
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I disagree to your belief and assumption. The management has clearly said there wonât be any loss as it is fully covered through insurance. The management has disclosed everything from time to time via exchanges, quarterly investor calls and presentations. I agree with @bhambani comments and analysis. So elaborate what is misleading with facts. Cheers !!
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The problems are also made worse by rapid expansion. The following is employee count as per EPFO data.
| MAR-17 | 98 |
|---|---|
| SEP-17 | 122 |
| MAR-18 | 138 |
| SEP-18 | 181 |
| MAR-19 | 195 |
| SEP-19 | 236 |
| MAR-20 | 329 |
| SEP-20 | 351 |
| OCT-20 | 358 |
| NOV-20 | 376 |
It hasnât translated fully into sales, atleast not yet. A similar increase in revenue would have resulted in sales of 278Cr (as of Mar 2020, about 3.35 times).
Disc: not invested but interested.
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Covid linked lockdown and slowdown is behind us. Sales are already back to pre-covid levels. With new products and additional exclusive agreements, the revenues are expected to be northwards from hereon. Precisely that is the reason markets gave a thumbs up in spite of Covid impact and Fire incident.
Has the insurance amount been collected? I remember in the last call, they had mentioned that it would be done so by Dec end.
Looked in isolation, these will appear ârapid expansionâ as you term it. All these figures need to be seen in the right context. Sirca has always been a decently profitable company, with very low debt levels. The primary reason for it to go public was to raise funds to setup manufacturing local operations in India. Post IPO in May 2018, it paid off whatever little debt it had and setup 2 manufacturing plants which went on stream in 2019. These plants were setup completely under the technical guidance of Sirca Italy, as per their technical and quality standards.
Now, as will be required, one can imagine that the plants will require staffing, even before it goes live. So the first burst of employee count that one sees between Mar 2019 and Sep 2019 is likely for the manufacturing facilities. There on, once youâve setup your facilities, you would also need to sell your products in the market too! In India, paints and allied products are all sold through established dealer networks. And we know which brands currently dominate these dealer networks. So, for a smaller player to get the distribution muscle, they need to invest aggressively in field sales teams. So, the 2nd phase of headcount bulge we see, between Sep 19 and Mar 20 is coming from addition to sales and distribution team. As of march 2020, almost half of Sircaâs headcount is in sales - 143 out of 327, almost doubling from 83 sales staff in March 2019. All this is done, so that they can support their burgeoning dealer network of 1600 dealers in March 2020, more than doubling up from about 600 dealers in 2019.
Obviously, these additions to headcount will be adding to the cost for the first 6 to 12 months. These will put a burden on the finances, while they are being trained, oriented and aligned to the organisation, and also while the production comes on stream and distribution lines are being setup. So while one can see it as a cost, it it actually an absolutely necessary investment into the business, without which there will be no growth, no expansion!!
So there are two ways to look at the data⌠either one can see it as a cost, or one can see it as a solid, well planned investment.
And as far as corresponding change in revenue is concerned⌠We all know, revenue is a trailing indicator of growth, but a very, very reliable indicator. CAPEX, capacity expansion, hiring are all leading indicators of growth, though these can be very unreliable indicators. Many a times there can be divergence between these leading and trailing indicators, which is what we term as risk. Triggers can be many - industry environment, economic factors, poor management decisions or brutal competition. Whatever the factors may be, we can certainly agree on one thing, that this year has tested the global economies as brutally as anything has in the past. And Sirca has come out very, very well from this test. And I am yet to see anything from managements part to doubt their capabilities / commitment to the companyâs well being. So with all this, I will continue to believe in the story, till I see any specific warning signs.
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I have nothing against the company, just provided an additional data point to the reasons you already mentioned 
I agree itâs an investment but what if it doesnât work out? They will be forced to give more discounts in that case, on top of all the work they have already done. A bit too aggressive for my taste. Will keep tracking though.
Have covered your concerns in the last para of my last post⌠let me state it another wayâŚ
I agree itâs an investment but what if it doesnât work out? They will be forced to give more discounts in that case, on top of all the work they have already done. A bit too aggressive for my taste. Will keep tracking though.
If one allows oneâs thinking to be paralysed with that thought, no company will ever venture into any new project / initiative. Nature of reality is that inherently, everything has risk in it. Even the best of companies have had failures. What one needs to assess is the capability of the management to succeed, and also given the variables, assess the probability of their success. Once that is achieved, you can take a call on whether to invest or not.
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What one needs to assess is the capability of the management to succeed
That is exactly my biggest concern with this company. Their past experience and competency comes from distribution. There is no evidence that they will be able to run a fully fledged paint manufacturing facility profitably, yet. The fire could have been a result of lack of experience for all we know.
And everyone has a different risk profile, I would rather wait and watch and then invest. Iâm not looking for huge returns, I have a specific goal to reach and I invest accordingly.
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One key trigger could be increase in the stake by Sirca Italy. That will be a key development as it would add tremendous credibility in the company.
Has anyone used their products? What has been the quality?
One question I have is - why is their current utilization only 25-30%? Isnt it very low - and seems they are not guiding for full utilization in next 1-2 years. With Sirca brand, shouldnt utilization been much higher?
It could be a good time to add as prices have broken above 200 DEMA with multi year high volumes.
Disc: Not currently invested. Looking to add
Best of best companies would have had fire accidents and there are plenty of examples. It doesnât mean that they lack experience in running the factories. Sirca Indiaâs manufacturing is fully backed up by Sirca Italy technicians this is what I remember from one of the managementâs interview. As regards to profitability of paint (wall paint in this case) manufacturing, one needs to trust the company and give some time to establish. Sirca has very strong brand recall in coating products, so I have no doubts why they canât repeat the same success in wall paints and other products. In the last investor call the management has confirmed that their wall paint is seeing significant growth. Management sees no big difference in the margins of imported as well as domestic manufactured products.
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Answers as to when stake would be hiked by Sirca Italy and ramp up in capacity utilization are already mentioned in one of the investor call transcript.
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