CARYSILNSENovember 16, 2022

CARYSIL LIMITED

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16analyst exchanges

2executives

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Management on call

Chirag Parekh

CHAIRMAN & MANAGING

Anand Sharma

CHIEF FINANCIAL OFFICER – CARYSIL LIMITED

Key numbers — 40 extracted

rs,

els maintained due to COVID period by our customers. Based on the feedback received from customers, we understand that the secondary sales of Quartz Sink are still growing and it continues to have s

3 million

rgy crisis. As a result, their production costs have grown up to a very large level. Currently, 3 million to 4 million sinks are being manufactured in that area around Germany and Italy. The rise in cost

4 million

As a result, their production costs have grown up to a very large level. Currently, 3 million to 4 million sinks are being manufactured in that area around Germany and Italy. The rise in cost and the inab

58%

an aim to increase 3,000 by end of 2023. For H1 FY2023, our domestic revenues have increased by 58% Y-o-Y to Rs.71 Crores. We aim to achieve a turnover of Rs.300 Crores in the domestic market in th

Rs.71 Crore

rease 3,000 by end of 2023. For H1 FY2023, our domestic revenues have increased by 58% Y-o-Y to Rs.71 Crores. We aim to achieve a turnover of Rs.300 Crores in the domestic market in the next two to three

Rs.300 Crore

ur domestic revenues have increased by 58% Y-o-Y to Rs.71 Crores. We aim to achieve a turnover of Rs.300 Crores in the domestic market in the next two to three years. I would like to hand over the line to M

Rs 139.2 Crore

financial performance of the company. Q2 FY2023 performance: Consolidated total income stood at Rs 139.2 Crores for Q2 FY2023 as compared to Rs 121.9 Crores in Q2 FY2022. The consolidated income for Q2 FY20

Rs 121.9 Crore

2023 performance: Consolidated total income stood at Rs 139.2 Crores for Q2 FY2023 as compared to Rs 121.9 Crores in Q2 FY2022. The consolidated income for Q2 FY2023 includes income from the newly acquired subs

21%

ly acquired subsidiary Sylmar Technology Limited. While our export sales is down by approximately 21% on a Y-on-Y basis, on account of geopolitical situation, the decline was partly offset by 20% gro

20%

ely 21% on a Y-on-Y basis, on account of geopolitical situation, the decline was partly offset by 20% growth in our domestic market on Y-o-Y basis. EBITDA of the company for Q2 FY2023 stood at Rs 2

Rs 22.7 Crore

20% growth in our domestic market on Y-o-Y basis. EBITDA of the company for Q2 FY2023 stood at Rs 22.7 Crores as compared to Rs 29.7 Crores in Q2 FY2022. The decline was primarily due to lower sales leading

Rs 29.7 Crore

rket on Y-o-Y basis. EBITDA of the company for Q2 FY2023 stood at Rs 22.7 Crores as compared to Rs 29.7 Crores in Q2 FY2022. The decline was primarily due to lower sales leading to under absorption of the fi

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Guidance — 20 items

Chirag Parekh

opening

“The high inventory levels built up by our sales channels are getting liquidated slowly hence, we expect ordering levels for Quartz Sinks to increase from Q4 FY2023 onwards.”

Expansion

opening

“Further, we have received orders from France and other countries for new PVD sinks and other under mount sinks, which will be a great opportunity in export market.”

Expansion

opening

“New innovations at Carysil Like we mentioned in the last call, we have filed a patent for green sinks technology, which will be manufactured from organic materials with Charcoal, spinach and beetroot.”

Expansion

opening

“This will have a positive effect on the environment and the product’s acceptance will be very high.”

Expansion

opening

“We expect to complete this invention by the end of December, 2022, and the supplies will start in January 2023.”

Future growth Indian market

opening

“Keeping in mind the growth opportunity we have already taken a few steps including: 1) appointment of Vaani Kapoor as the brand ambassador; 2) increase our dealer count to 2200 as on September 30, 2022 with an aim to increase 3,000 by end of 2023.”

Future growth Indian market

opening

“We aim to achieve a turnover of Rs.300 Crores in the domestic market in the next two to three years.”

Chirag Parekh

“We are quite hopeful that the large chunks of business will come to us next year.”

Pranav Mehta

“Sir, we can consider this to be a bottoming out of the EBITDA margin from next quarter onwards, you should see improvement in margins coming in on a standalone level?”

Pranav Mehta

“Sir, my last question was related to, as you said that next year onwards, you believe things should improve quite well because of the shift and EU plus one kind of strategy being adopted by the big box retailers.”

Risks & concerns — 8 flagged

The export market, is witnessing a periodic slowdown phase due to higher inventory levels maintained due to COVID period by our customers.

— Chirag Parekh

While our export sales is down by approximately 21% on a Y-on-Y basis, on account of geopolitical situation, the decline was partly offset by 20% growth in our domestic market on Y-o-Y basis.

— Anand Sharma

The decline was primarily due to lower sales leading to under absorption of the fixed costs.

— Anand Sharma

Post that, I know it might be a bit difficult, but is it possible to achieve the sort of run rate we used to do prior to the slowdown in Europe that you are seeing because we have expanded so much in other geographies as well?

— Nikhil Gada

The supply chain from China is still a challenge.

— Chirag Parekh

On the secondary demand side, is there any place where you are seeing the impact of inflation and interest cost rising?

— Chirag

There is a small about 8% to 10% decline in secondary sales.

— Chirag Parekh

So we are talking right now in the worst situation where there is about 10% decline in the secondary sales and we expect the situation to improve from Q4.

— Chirag Parekh

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Q&A — 16 exchanges

Thanks for the opportunity. Sir, I wanted to understand how the demand as such because of the big box retail is now having a lot of inventory built up in the last 6 months. So obviously, they are facing some difficulties in liquidating them. But as you said that from 4Q onwards, you believe that demand should start picking up for Quartz Sinks. Is that correct?

Chirag Parekh

Yes. Sir, as you said Germany, particularly with the EU facing a lot of problems and you had highlighted this in the last call as well. So that the opportunity size or market share gain for you guys how much can you see a kind of market share gain for Schock Technology Quartz Sinks because of this? Can you throw some light on the same? Like I said in my last paragraph in my speech that there are about 3 million to 4 million sinks manufactured by our competition just in Germany and Italy. Now whatever we have seen from reliable resources and heard from our customers is that our competition is i

Sir, my question is if we are bullish that the demand will start coming back in Q4 onwards, then due to the competitors dying in Europe and India would be the only option available to provide them with low-cost supply then why are not we going ahead with the capex and putting up the capacity upfront, so that once the demand comes, we are ready with the capacity rather than waiting for the demand and then setting up the capacity?

Chirag Parekh

We already have 1 million sink capacity in place right now, which is quite sufficient even with the increase in the order. Now beyond 1 million sinks if it comes, any of the customers will give up in 6 months to expand, it will not be overnight. So we feel that 1 million sinks will be sufficient to cater to all the new enquiries and demand, which will come. Sir secondly, I want to ask how much volume is being supplied by the competitors to in Quartz Sinks market and our volumes are around 600000 sinks further you have like annualized? Total Schock Technology is approximately 4 million units so

Thank you for taking up my question. Sir, firstly, on the capex that we have deferred, what will be the already cost that we must incur for that, which we have already postponed now?

Anand Sharma

We have kept the infrastructure ready. We have invested in the buildings and infra and land. So that is all we have invested, around Rs 20 Crores. Now this infrastructure, what we have built in that we will use for our built in appliances till we get the further boost in the Quartz Sink. So infra is available, we can use that for the built in appliances as well as for the Quartz Sink manufacturing. What will be the further capex that we will incur for setting up this built-in appliance plant, and what will be the phase wise capex for 1 lakh for each unit and the top revenue that we expect from

First, could you provide the financials for STL please, the revenue, EBITDA, PAT?

Anand Sharma

Okay. You move to next question, Nikhil, I am just taking that out. Sir, now we have seen a fall of close to 25% - 30% in volumes in quartz, and that is somewhat is also reflective in Q3 as well. Post that, I know it might be a bit difficult, but is it possible to achieve the sort of run rate we used to do prior to the slowdown in Europe that you are seeing because we have expanded so much in other geographies as well? Yes. 100% is going to come back. I mean there is no reason why it should not come back. See we all know that the fundamental of the business is very strong, where the ground lev

My question is on the gross margin side. The half yearly gross margin is completely different from what we had last year. So there is about 500 to 600 basis point difference, is it to do with the resin and raw material prices in quartz or is it to do with anything else?

Anand Sharma

I think the margin is one the factor of the prices of these pigments and MMA has gone up, but that has affected a very small, most is because of the freight and the cost of imports, and the corresponding costs associated. Once the volume is down, I think gross margin per unit has not gone down. But, overall, it has affected the operating margin. Sir, the gross margin is down 500 basis points. So I can understand, your EBITDA margin assessment between Q2 and Q1 because of the volume itself is down? Yes. Consolidated when you are talking about a merger of Sylmar from this quarter, I mean, from l

My question was regarding the cost difference between you guys and suppliers in Europe you said you are getting more competitive because of the energy cost rise in Europe. So what is the difference now?

Chirag Parekh

We were already around 20% to 25% cheaper before this crisis hit, and now we should be more competitive by 35% to 40%. You mention 4 million units that are getting manufactured in Europe? What kind of shift do you see in the coming year, maybe two years? If the situation continues to be the way it is right now? Yes. It could be anybody’s guess, is not it? Now whether that is a million sinks coming to us or 2 million sinks that all depends upon the customers over there, what they would like to do, but the signs are showing that it will come towards us because we are one of the only 4 licensees

Sir, you were talking about Sylmar Technology. The company is performing well as the financial shared by our CFO so manufacturing plant is also in UK. So is it not facing any crisis?

Chirag Parekh

Exactly my point. It is a good question because Sylmar Technology does not carry on inventory. After all, it is on made to order business. So even with this crisis in UK, our order book situation is still very strong. So we clearly said that the home improvement sector despite all the challenges is still doing well. Demand is there, you are saying? Yes. That is the point because that is why STL is reporting good numbers? Exactly. Sir, the second thing is we are entering into this building appliance side. So Sir, this is being what our competitive advantage? Do you think it will be an opportuni

, Sir, I wanted to ask about the goodwill increase, which we can see in Rs 80 Crores so what is our plan for amortization going forward?

Anand Sharma

Goodwill is on account of the acquisition of Sylmar Technology Limited, and in the UK, they amortized in 10-year time. But in India, there is no requirement for amortization because it is a purchase goodwill. It is not a revaluation done. So in our books, goodwill stands in consolidation, whereas in UK books, it will get amortized in the next 10 years. Sir, what will be the peak debt after all the expansion going forward? Currently, it is close to Rs 130 Crores. It will grow by another Rs 20 Crores, Rs 25 Crores in the next financial year. Sir considering that our appliances and faucets busine

Just a quick clarification question on the destocking that some of our customers are seeing could you broadly share what kind of inventory days they carry and currently, what those numbers would be? I understand they might not be exact numbers, but what is your best estimate of the inventory that they, on average, carry and what it is today?

Chirag Parekh

We are not in a position to tell you what numbers would be, but we see at least a 4 month's inventory. 4 months inventory? Yes. On the secondary demand side, is there any place where you are seeing the impact of inflation and interest cost rising? Is there any case where the secondary demand is also seeing some weakness? Is there any sector or segment or geography that you have seen? Like I said, the business's fundamentals are still very strong. The quartz sinks continue to grow. But yes, there has been the secondary demand is still very good. There is a small about 8% to 10% decline in secon

Thanks for the opportunity. My question is what is long-term split of revenue share that you see between India and the Rest of the World from the present 29:71 ratio?

Chirag Parekh

On the long-term, I think we see the India versus export revenue will be about 50%:50%. Just a continuation to that question. What is the game plan in terms of ramping up the India penetration, say, 2200 dealers as of today, where do you see this heading in the next 2 to 3 years, and also we see that distributor network seems to be stagnant at 82 so any thoughts over there? We have a lot of work to do in India. We just had a sales conference 2 days back, in which we are appointing new team. We are expanding our sales team organization across the board. We are planning to double our sales force

Thank you for the opportunity. Sir, I just wanted to know, if there is any progress on the partnerships which we were looking at. So we were planning to sign a partnership with IKEA for steel sinks, and secondly, there were other discussions going on with other retailers, so any update on the side?

Chirag Parekh

Sorry, one was IKEA and the other was what? Any other major partnerships in pipeline. Anything which is fructifying? There are many partnerships in the pipeline. That is all I can say right now. Periodically, you will get the announcements we will share with you. We would be happy to share with you. As far as IKEA is concerned, yes, we have tied up with them for the stainless sink and we will be starting there from Q4. We also have an opportunity for stainless steel sink for the UK market. We have tied up and also we will be starting in Q4. For the other products, the steel sinks, PVD and quar

Thanks for the opportunity. I think most of my questions are answered. Thanks for that Sir. One question, which is more of a strategic one, like you had a near-term vision and mid- term vision of targets, right, in terms of turnover so do you see any revision due to the stuff that is going on around the globe, and what type of turnover that you are looking for maybe in next 3 years? Do you have any sense on that Sir?

Chirag Parekh

So we are still very confident, and we still want to believe that we will touch Rs 1000 Crores sales as what you expected to be delayed by a year, but I think it is going to come. It is going to come back very soon. We have a Plan B in place. So even if there are some uncertainties which we are seeing right now, global survey, we do have a plan B. We will take the appropriate decision at the appropriate time, but we are very confident that plan B will take care of us achieving Rs 1000 Crores in sales within the next 2 to 3 years. That is great Sir. Thanks for that. That is it from my side. Tha

Good evening management. Thanks for the opportunity. Sir, two quick questions; one, I needed a clarity on that when we mentioned that we are investing Rs 10 Crores. So the Rs 10 Crores is for 1 lakh appliances or the Rs 10 Crores is for 2 lakh appliances?

Chirag Parekh

Rs 10 Crores is for 100000 appliances. That is Rs 20 Crores, right? Yes, correct. Sir, so now basically we are coming up with different basically quality of sinks so when you said that the SuperX tech, which is an unbreakable sink. So if I put the strong sink on our normal quartz sink the steel sink and the faucets and appliances. So basically, in the order of margins or in the order of pricing, will all these in the same range or the super strong sink and the green sink will be higher value-added products compared to our current products? The SuperX will have the best margins, followed by our

Sir, what is the margin we currently enjoy on appliances and what is the margin we expect after the expansion?

Chirag Parekh

I think our current margins are 40%, which we expect to go to 50%. Understand, and these appliances business will be developed under the same brand in Carysil correct? Yes. Sir, if you can throw some light on this 4-month inventory, it is on our side that we have a 4-month inventory? No, the 4-month inventory is on the customer side. Sir, how this contract decided, does this large retailer commit any volume number or how many orders did they maintain in general? We have contracts on an annual basis with a large customer, and they give you quarterly revolving orders for 3 months. That is it fro

The STL is not having the inventory, as we mentioned, because the result is good. Our distribution channels have the inventory base because by they are not able to liquidate the inventory in the same period, where the STL can do the same?

Chirag Parekh

STL is a different business model. It is customized. They make kitchen and the bathroom platforms, fabricated, based on orders at the site. Due to the new business model. So that is what I was saying if they have the demand that does not mean our distribution channels will have the demand. No, it is the other way around. See where there is an inventory to be built up, there may be a lag between demand and supply. When there is a customized demand comes first and then supply starts. So there is a difference between the 2 business models. Earlier on the inventory side, also the reason is that we

I would like to once again reiterate that the challenges posed by current geopolitical and recessionary trends shall be short-term in nature on a medium and long-term and on a sustainable basis, we see great opportunities for us, the Europe plus 1 and opportunities to increase our penetration in Indian market to grow our business substantially. We have great product line and fundamental business remains strong as ever. Thank you, everyone. I hope we have been able to answer all your questions satisfactorily; however, if you need further clarifications or want to know more about the company, pl

Management

Speaking time

Chirag Parekh

Moderator

Anand Sharma

Anika Mittal

Udit Gajiwala

Pritesh Chheda

Pranav Mehta

Harshil Shethia

Nikhil Gada

Chirag

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Opening remarks

Chirag Parekh

Thank you. Good evening to all. I wish you and your loved ones health and safety. I hope you have had the opportunity to review our presentation and financial results, which are available on the stock exchanges and our company’s website. I am accompanied by our CFO, Mr. Anand Sharma, and SGA, our Investor Relations adviser on this call today. To begin with, we are happy to announce that the company name has changed from Acrysil Limited to Carysil Limited. The company's name changed to increase brand recall value, introduce Carysil as a global brand and strengthen its global presence. Now let me begin by giving an update on the global scenario. US, and European economies continue to grapple with an inflationary environment. However, the pace of it is slowing down. The export market, is witnessing a periodic slowdown phase due to higher inventory levels maintained due to COVID period by our customers. Based on the feedback received from customers, we understand that the secondary sales o

Indian economy

Indian economy has shown tremendous resilience to global cues and has a high demand for Quartz Sinks. We now have sufficient capacity to fulfill demands in the domestic market, which is continuously growing.

Recent update

Our relationship with Grohe and IKEA is getting stronger day by day. We have doubled our supply to IKEA and sales to Grohe is increasing year-on-year basis. In addition, we are trying to establish new partnership alliances with global businesses for their global requirements. In our steel sink category, demand for Quadro sinks is on the rise, and we have witnessed a healthy growth in revenues in H1 FY2023 on Y-o-Y basis.

Expansion

We had mentioned in our last call that high-tech faucets are in demand in global markets. We have started working on the faucet assembling line for 10,000 units and supply will start from Q4 FY2023 onwards. We have witnessed good enquiries for procurement of faucets by export customers as well as premium customers like IKEA and Grohe. Further, we have received orders from France and other countries for new PVD sinks and other under mount sinks, which will be a great opportunity in export market. Given the current global operating environment, the Board has decided to postpone the expansion of an additional 200,000 capacity of Quartz Sinks. Further, looking at the growing demand in built-in kitchen appliances, we have decided to utilize the resources for the manufacturing /assembling of approximately 200,000 built-in kitchen appliances, to become Atmanirbhar in this segment. This expansion will take place in 2 phases i.e. 100,000 units in Q1 FY2024 and balance 100,000 units in Q3 FY2024

Future growth global market

The current ongoing geo-political tensions and energy crisis in Europe are presenting a very strong opportunity for Carysil on a medium to long-term basis. The Economies of Germany, Italy and the rest of Europe, excluding France, continue to suffer from the energy crisis. As a result, their production costs have grown up to a very large level. Currently, 3 million to 4 million sinks are being manufactured in that area around Germany and Italy. The rise in cost and the inability to manufacture as compared to levels and to sustain escalating cost inflation levels will ultimately work to our advantage. The ongoing crisis has presented us Europe plus 1 opportunity therefore, Carysil has tremendous potential to enter into the market and bridge this supply gap, ultimately leading to an expansion of our customer base across the globe. We are already in discussion with a few of the customers for their future requirements.

Future growth Indian market

Further, inspite of the global recessionary trends, Indian economy has shown strong resistance. We are strategizing to increase our penetration in Indian markets over mid to long-term. We are witnessing a strong traction in the domestic markets. Over the last few years owing to capacity constraints, we were not able to ramp up our supplies to the Indian market. However, we are currently well equipped to seed the domestic markets as well. Keeping in mind the growth opportunity we have already taken a few steps including: 1) appointment of Vaani Kapoor as the brand ambassador; 2) increase our dealer count to 2200 as on September 30, 2022 with an aim to increase 3,000 by end of 2023. For H1 FY2023, our domestic revenues have increased by 58% Y-o-Y to Rs.71 Crores. We aim to achieve a turnover of Rs.300 Crores in the domestic market in the next two to three years. I would like to hand over the line to Mr. Anand Sharma, our CFO, to update you on the company’s financial performance. Over to

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