CARYSILNSEQ4 FY2022May 18, 2022

CARYSIL LIMITED

7,845words

162turns

19analyst exchanges

2executives

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Management on call

Chirag Parekh

CHAIRMAN & MANAGING

Anand Sharma

CHIEF FINANCIAL OFFICER - ACRYSIL LIMITED

Key numbers — 40 extracted

Rs. 1.2

cts globally. I am delighted to share the board of directors have recommended a final dividend of Rs. 1.2 per equity share in addition to an interim dividend of 1.2 per equity share declared in February 2

Rs.2.4

of 1.2 per equity share declared in February 2022. The total dividend of FY2021-FY2022 amounts to Rs.2.4 per equity share, which is 120%. Coming to our recent acquisition, I am pleased to inform that Acr

120%

February 2022. The total dividend of FY2021-FY2022 amounts to Rs.2.4 per equity share, which is 120%. Coming to our recent acquisition, I am pleased to inform that Acrysil UK Limited our wholly owne

100%

sed 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 Techno

11 million

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. Coming to the company

56%

Our company has recorded strong performance in FY2022, which is marked by total income growth of 56% Y-o-Y and company has maintained EBITDA margin of 22.7% for FY2022 despite of high shipping cost

22.7%

, which is marked by total income growth of 56% Y-o-Y and company has maintained EBITDA margin of 22.7% for FY2022 despite of high shipping cost and increase of raw material prices. Our company has b

66%

een consistently putting effort on controlling costs. Our company’s profitability has improved by 66% in FY2022. With shift in preference for Quartz Sinks from traditional sinks the share of business

77%

artz Sinks from traditional sinks the share of business from Quartz Kitchen Sinks has remained at 77% of our total consolidated revenues. With sharp increase in steel prices the price differentiate

Rs.381.8 Crore

bally and has seen a significant shift towards Quartz Sinks. Export revenue for a FY2022 stood to Rs.381.8 Crores, a growth of 61% over FY2021. This was an account of robust demand from international markets an

61%

ant shift towards Quartz Sinks. Export revenue for a FY2022 stood to Rs.381.8 Crores, a growth of 61% over FY2021. This was an account of robust demand from international markets and tie-ups with l

Rs.97.5 Crore

ternational markets and tie-ups with large retail houses over the year. Domestic revenue stood at Rs.97.5 Crores, a growth of 53% over FY2021. Demand from domestic market has improved on account of increased

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Guidance — 20 items

Chirag Parekh

opening

“Demand from domestic market has improved on account of increased consumers spend towards home renovation improvement, we expect this momentum to continue moving forward.”

Chirag Parekh

opening

“We expect our partnership with Ikea to further strengthen as we expect to supply them other kitchen and bath products moving forward.”

Pritesh Chheda

“I wanted to know what is the quartz sink volume that would have done for the full year and when this 1.2 million capacity comes up by let us say quarter three of this year, when do you think that you will be able to fully utilize that capacity?”

Pritesh Chheda

“No, I was asking this 1.2 million volume, do you think that you will be able to fully utilize the capacity in FY2024?”

Anand Sharma

“No, I think is some gap in understanding that is not the right understanding, current turnover is 493 Crores and with the additional capacity comes in add another 20% to 30% to the industry line up and apart from that there will be additional from the acquisition, so it is not going to 1000 Crores of your understanding I think your maths is not correct.”

Chirag Parekh

“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 I think you know we should let us say next year what happens, but as of now I think as far as the current situation the capacity expansion and the acquisition looks like about $100 million run rate.”

Udit Gajiwala

“Secondly, can you just highlight, what will be our export geographic distribution for 2022 and what are the impacts of geopolitical situation like you know demand must have soften and like you said that the dealer have already stocked up inventory, so how do you see the year panning out?”

Chirag Parekh

“So, I think coming at the first point I think US would be still about 25% to 30% of our market share following by UK and Europe by another 30% and then it will be the India would be another about 20% to 25% and then balance 15% to 20% will rest of Asia and Gulf, so this is just a broad market segmentation.”

Udit Gajiwala

“Right and Sir, lastly if you can just help on the margin front like that the acquisition that we did is below our benchmark margins like it is 18% margin and we are seeing RM inflation and everything so how do you see margin going ahead at this time coming if you can throw some light that will be helpful?”

Chirag Parekh

“Yes, for our company, our endeavor will be that, we have a plan in place how do we improve slowly and gradually the margins close to 18% to 20%.”

Risks & concerns — 4 flagged

Secondly, can you just highlight, what will be our export geographic distribution for 2022 and what are the impacts of geopolitical situation like you know demand must have soften and like you said that the dealer have already stocked up inventory, so how do you see the year panning out?

— Udit Gajiwala

In the event of because of European thing if there is a slowdown in that part of the world, can you not push volumes in this country, in the past calls you had indicated that because of supply side constraints, the market share in India was constrained and you could look to build that up?

— Prateek Agrawal

So, we will be exactly doing that, we would be passing on the capacity to India if we witness if any slowdown in the orders from US comes in.

— Chirag Parekh

Number two, the current margin of the acquisition company is around 17% to 18%, now with the company acquiring the other company we have plan to increase its margin, so overall company level we had benchmarked 20 plus EBITDA margin going forward, so we do not see anything impact of the acquisition on our margin profile.

— Anand Sharma

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Q&A — 19 exchanges

Thank you for the opportunity, Sir. I wanted to know what is the quartz sink volume that would have done for the full year and when this 1.2 million capacity comes up by let us say quarter three of this year, when do you think that you will be able to fully utilize that capacity?

Chirag Parekh

So on your first question, last year we did total 650,000 quartz sinks and the current quarter which we have been the last quarter, I think we are going almost at the rate of about 800,000 annual capacity. Quarter three expected capacity expansion of 1.2 million sinks, see right now coming back to what is that quartz trend is concerned, Mr. Pritesh, that I had just gone on global tour, so something is very interesting and exciting that the quartz sinks volume continue to grow that is number one, number two is that because of the supply chain disruption, there has been a little bit of stocking

Good evening and congrats on a good set of numbers. I broadly had two questions so the first question was, just trying to understand what is our right to win in quartz sink market, are we the lowest cost producer or you know because there are four more competitor as you have mentioned, so how are we able to differentiate ourselves among them and if you could just broadly give us the market share of the larger players as well and the second question would be you know with all the capacities coming on stream, we are broadly looking at a double like given all the capacities are doubling, so we ar

Chirag Parekh

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 and while I say that also I would like to reckon the fact that our quality is very high expected even in competition with the other global players, so we are very confident with the breakthroughs we have with large accounts in US, UK and Europe and with Ikea, we should be able to continue our momentum of growth so that is one. Number two as far as the market share of the other four competitors largely 80% of the shock technology has been commanding t

Sir, Thank you for taking my question. Firstly, just want to clarify that 160,000 capacity that has come in this quarter, is it on the Greenfield?

Chirag Parekh

No, that is not on the Greenfield, it is part of the expansion of our current plant manufacturing. Secondly, can you just highlight, what will be our export geographic distribution for 2022 and what are the impacts of geopolitical situation like you know demand must have soften and like you said that the dealer have already stocked up inventory, so how do you see the year panning out? So, I think coming at the first point I think US would be still about 25% to 30% of our market share following by UK and Europe by another 30% and then it will be the India would be another about 20% to 25% and t

Sir, thanks for the opportunity and congrats on a very strong growth. Sir, first question is a sort of a follow up to the previous participants, so when we say that there can be an order deferment from Q1 to Q2 and there was significant inventory built up by the distributors, did it aid our sales for Q4 and that can have a ripple effect on Q1 where we might have a lower order booking, is that understanding correct?

Chirag Parekh

I do not see there is going to be a significant difference, I think we are as per quarter one also we are on a very strong path of growth, the backlog what we had if you remember the last quarter in the investor calls, we had a huge backlog of orders which customers are filling it with orders so one good part is that the backlog is cleared now. People are getting delivery time in less than six weeks now, so I think that is a good thing. Till now nothing major, I think it is not significant deferment which will happen, if it happened it will be a little bit of deferment may be by not all custom

What we understand is that the three German supplier might be facing a lot of difficulty due to this ongoing crisis and so are we seeing any demand generation switching to us because of that? update on tie-up with other big box retailers across the world if you can throw some light on that, my second question was related to the consolidated debt that the peak debt that you will be seeing after this acquisition of UK and new capacities coming up?

Chirag Parekh

We have not heard or witnessed anything by the German players they are having a tough time because of the geopolitical situation that is one. I news we have that all the companies have increased the capacity towards the demand in quartz sinks I think that is one and number two question was on debt, right? Yes, Sir. 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, max would be Rs.200 Crores? Yes. Sir, any update on your let us say tie-up with oth

Chirag Parekh

So, we will be exactly doing that, we would be passing on the capacity to India if we witness if any slowdown in the orders from US comes in. Yes, exactly that is what I was wondering, second now the steel sink and quartz sink prices have converged in fact the better steel sink may be costing more than quartz sinks in that context you should be seeing a very strong demand not only from the replacement market, but also from the OEM market? We are already seeing that right and that is why we are able to witness such a sharp growth. Right, Sir. Thank you.

So, this extra demand due to COVID in India as well as abroad will it sustain beyond COVID?

Chirag Parekh

Fundamentals of the company as far as the quartz sinks are very strong, so I do not think anything is going to move on the long-term, the demand for the quartz sink has continued to improve and will continue to improve, so there is no question on that. The recent rise in interest rate in US housing market is there any negative impact on our sales, Sir? No, we are not still witnessed any. The home improvement sector overall I witnessed more than we would have had a news about 15% to 20% of the inflation home improvement and most of the company has been able to pass onto the consumer able to mai

Good evening. If I look at the raw material as a percentage of sales it has come down in Q4, but in your early your commentary you said that EBITDA margins have come down because of raw material and freight, so can you throw some more light on this exactly on the raw material what do you mean packaging or something?

Chirag Parekh

We have been able to take packaging as a part of the raw material. Because if I look at just other line item of RM to sales that has gone down? Correct, packaging it is not raw materials, it is the material cost more than the raw materials and more it is on the quarter side, the trend is increasing for the raw materials so that has impacted quarter four as well as the entire year. So, overall if we were to look at next year that is FY2023, last year for the first three quarters our EBITDA margins were at close to 22% and this quarter, quarter four it has come down slightly to 20.5% around that

Sir, when I try and calculate out realization for quartz sink it comes to around Rs.5,700 per sink in FY2022 and if I recollect correctly it was at a similar level in FY2021 as well, so how do we see this going forward?

Chirag Parekh

So, that is all depends upon the product mix. So, going forward this ramp up our entire 1.2 million sink capacity, what realization are we looking at? As of now we were able to maintain that. Okay, no scope for further improvement, due to mix improvement? No, see that is what I am trying to say that country to country the price varies, the Indian market is more smaller sinks than largest sinks, but proportionately the RM cost and other material cost also will go down so the margins will not impacted, now just at the beginning of the year, so it is very tough to predict what is going to be the

Thanks for the opportunity, Sir. One question that I has is that because of the inflation and some kind of slow down in the housing market that we are witnessing in the States, are there any forward looking numbers in terms of order book or any other such parameter that you could specify which tells on a comparative basis how this year is, the beginning of the year is versus how the beginning of last year was and in terms of what kind of visibility, any numbers that you could give?

Chirag Parekh

No, number wise we do not have anything at this point of time, but we are still able to see momentum in the US real estate because primarily it has not been driven by new homes. Renovation? Yes, correct so the home improvement continues to do very well even now in the US. More like there were some demand coming out from various players who are our partners in US and Europe, there is anything that you can indicate what is coming out from there? No, as of now I think the order booking as per US part is concerned is good, it is in place as per target. Last year was a different scenario because CO

Sir, earlier you said that your debt can go up as high as 200 Crores, is that number right for FY2023?

Anand Sharma

Yes, based on current numbers what we have we had at about 136 Crores, which includes term debt and the working capital borrowing both. That is for FY2022? Yes, FY2022, for FY2023, there will be a borrowing of Rs.54 Crores coming for the acquisition, so adding everything together with some working capital we have benchmarked Rs.200 Crores for FY2022-FY2023. Thank you.

Sir, I wanted to know on the raw material side, what percentage of raw material goes into manufacturing of one sink how much percentage of mold, coated silica, PMA, MMA like that?

Chirag Parekh

30% approximately. Individually you can give the breakup, Sir? Individually means? How much of mold is used, how much of silica is used, so what is one quartz sink? That is a part of our formulation. Sir, how much do we import, Sir? The import is about 50% of our material cost. So, 50% that we import and the components and spare parts are still 100% imported, Sir? I do not have the details what are the spare parts for built in appliances all imported. Thank you so much, Sir.

My question is on the acquisition, 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. Thank you, Sir.

Thank you very much to give me this opportunity. First of all, thank you very much for the nice result you are giving year by year, can you bifurcate margin between exports sale and domestic sale?

Chirag Parekh

Yes, Mr. Sharma you will answer that? Yes, our export margin is around 24% in exports and around 18% to 19% in domestic for the quartz sink. And how much capex plan for financial year 2023 and 2024? 2023 and 2024, we have not yet planned. Not yet planned, but whatever you have mentioned in the investor presentation that is only there right? Yes, as on date whatever we have planned we have already announced. Thank you very much, Sir.

Sir, thanks for the followup, my question is on the working capital side, we have seen a very strong improvement in our receivable cycle and on the other hand some amount of increase in the inventory days, so could you help us understand as in what has changed over here especially on the receivable days?

Chirag Parekh

So, 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. If I may ask when have we done the changes has not this been in this particular quarter because can we see a further improvement in 2023 and 2024 for the same? So, we have been doing this exercise based on our last call also where I had mentioned that the company want

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

We are in the process. The use of those funds will be for? These are the new expansion plan, which we will for the ceramic, faucet and built in appliances. Thank you.

Sir, my question is regarding your expansion thing like as we in last two to three years we are expanding aggressively so this expansion is backed by order, how it is can you explain on this?

Chirag Parekh

The expansion is based on growth it is more on the quartz growth and expansion and whatever the contract we have signed with the new costumer. So, whatever expansion, whatever we have planed as of now, we can easily absorb in the next two to three years, correct? Yes. Sir, what is our main raw materials and what is the source of that? Raw materials mainly are quartz with which few are imported and few from India. Can you get a break up what percent is coming from India? So, approximately 50% Indian and 50% abroad. That is from my side.

Sir, my first question is, how the profitability at overall level for Acrysil is going to be impacted which inclusion of overseas acquisitions like in this quarter also we have already saw a dip in margin, so do we expect further dip in margins with the inclusion of subsidiaries?

Chirag Parekh

Mr. Sharma, can you answer that I am not able to understand? Yes, first of all this quarter is not because of acquisition I know this margin is down as we explained earlier this only because of the increase in the freight cost and the input costs, which normally we pass onto the customer, we have already taken steps to increase the prices so it should normalize, so it is still going from quarter to quarter number one. Number two, the current margin of the acquisition company is around 17% to 18%, now with the company acquiring the other company we have plan to increase its margin, so overall c

I would like to take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries and any further information kindly get in touch with Strategic Growth Advisors our investor relations advisors. Thank you once again and stay safe.

Management

Speaking time

Chirag Parekh

Moderator

Anand Sharma

Nikhil Gada

Pranav Mehta

Chintan Mehta

Vinayak Mohta

Priyam Khimawat

Abhishek Agarwal

Jehan Bhadha

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Opening remarks

Chirag Parekh

Very good afternoon everyone. A very warm welcome to the Q4 and FY2022 earnings call of Acrysil Limited. Along with me on this call I have Mr. Anand Sharma, CFO and SGA, our Investor Relation Advisor. I hope you got an opportunity to go through our financial results and investor presentation, which has been uploaded on the stock exchange as well as on our company’s website. FY2022, the year was marked by second and third wave of COVID-19 and cyclone Tauktae, which affected our domestic operation account of statewide restrictions; however, with large scale vaccinations opening up, markets revival and economic activity has led to normalization in businesses. The last quarter of FY2022 has been impacted by increase raw material prices, elevated freight cost and other geopolitical issues. Despite of these issues we have strong momentum in demand for home improvement product especially the Quartz Kitchen Sinks. Home improvement sector has witnessed traction over last two years post-pandemic

Anand Sharma

Thank you, Sir. Good afternoon everyone. Let me take you through to the financial performance of the company for the financial year 2022 and the quarter. Q4 FY2022 performance. The total income including foreign exchange gain stood at 141 Crores for Q4 FY2022 as compared to 104.3 Crores in Q4 FY2021, recording a growth of 35%. This growth was on an account of a strong demand from both domestic and international markets. EBITDA of the company stood at 31.3 Crores excluding ESOP expenses as compared to 24 Crores of Q4 FY2021, recording growth of 30%. EBITDA margin for Q4 FY2022 stood at 22.2% excluding ESOP expenses as compared to 23% Q4 FY2021. Margins have been impacted due to high freight cost and increased raw material prices. Profit after tax and minority interest stood at 16.4 Crores in Q4 FY2022, as compared to 13 Crores of Q4 FY2021 recording a growth of 25%. FY2022 performance, the total income stood at 492.4 Crores for FY2022 as compared to 315.5 Crores FY2021 recording a stron

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