Acrysil Limited

Market Capitalization: 386 Cr	Current Price:  145 (5 Nov 2020)
Stock P/E: 18	Debt to equity: 0.65
Sales Growth (3Yrs): 15%	Profit Growth (3Yrs): 42%
ROCE: 16.5%	ROE: 15.7%
Promoter holding: 44%	Cash Cycle: 103 days
Asset Turnover: 0.81	Net Profit Margin: 8%

Overview of the Company

Acrysil Limited (Acrysil) was incorporated in 1987 and is primarily engaged in the business of manufacturing Quartz Kitchen Sinks, Stainless Steel Sinks, Food Waste Disposer, and Faucets. The Company offers appliances under various categories, including hobs, premium line chimney, oven, wine chillers, dish washers, microwave oven and ice makers. The company started operations with a technical collaboration with “Schock & Co.”, A German company and established world leader in decorative mouldings. The company has also diversified into the manufacture of stainless-steel sinks and boasts a complete range of Kitchen appliances such as chimneys, cook-tops, wine cellars etc. The company has entered the market in the United Kingdom through its step-down subsidiary Home Style Products Limited. All the products are sold under the brand name “Carysil”. The company currently has 3 manufacturing facilities, 82 distributors, 80+ galleries, 400+ SKU’s with export to 55 countries and 1500+ dealers.

Business Analysis

Long-Term Agreement with Industry Majors

Acrysil is a major player in the quartz sinks market as it is the sole manufacturer of quartz sinks in India and Asia. Globally, the quartz sinks manufacturers is limited to four players namely Blanco, Franke, Acrysil, and Schock.  Acrysil initially started its quartz sinks manufacturing with technical collaboration from Schock. Till recently, Schock had a stake in Acrysil which they have now sold out. This in no way will impact the operations of the company as they have the technology and know-how to excel without the support of Schock. The renewed optimism brims from the supply agreements Acrysil has signed with Industry majors like GROHE and IKEA. In Nov 2018, Acrysil signed an agreement with German leading brand GROHE for supply of quartz kitchen sinks.  GROHE collaboration can bring in additional revenues to the tune of INR ₹50-60 crore in the next 3 years. In Aug 2020, Acrysil entered strategic partnership with Swedish Furnishing major IKEA for manufacturing and supply of composite quartz sinks. Acrysil did not furnish details about the size of the order due to non-disclosure clause. This partnership could be game changer for the company as IKEA has 400+ stores in 52 countries. Management is hopeful of more such tie-ups in future as it looks to expand its international presence in core business of quartz sinks. Acrysil has capacity to manufacture 5,00,000 quartz sinks p.a which they have expanded by 20% to 6,00,000 p.a in Aug 2020.

Premium Product Portfolio in Building Materials Space

Acrysil prides itself in being the custodian of renowned brands – Carysil, TekCarysil and Sternhagen. Presently, 90- 95% of sinks industry is dominated by stainless-steel sinks and approximately 5-10 % uses quartz sinks. Due to lower penetration of Quartz sinks, it could be a growing and emerging market for a long-time as consumer spends on luxury products increases and other factors like working women population, increased construction of premium apartments can lead to improved quartz sinks adoption. However, stainless steel sinks are still a dominant market and hence Acrysil has extended its product range to include stainless steel sinks as well. Acrysil envisages to be a premium category player in Stainless steel sink, kitchen appliances, bathroom fittings etc. The company manufactures two kinds of steel stinks called Press Sinks and Quadro sinks which are designer sinks catering to the high-end segment. During the last year, the company introduced Quartz Antibacterial Sinks and Stainless-Steel integrated worktops. It has setup Special Purpose Machines (SPM) to ensure seamless installation of countertops which will boost the market overseas. Further, the newly commissioned Physical Vapour Deposition (PVD) plant provides a metallic finish to Stainless Steel Kitchen Sinks enhancing the styling of these sinks. In the Bathroom suites segment, the Company offers quartz wash basins and 3D tiles under the brand Sternhagen. The Company has launched a range of Sternhagen luxury brand for bathroom interiors, for both domestic as well as international market. Apart from these, Acrysil offers kitchen appliances like chimneys, hobs, microwave ovens, cook tops, wine chillers, barbeque grillers etc. These products are mainly traded goods sold under the brand name ‘Carysil’ except for certain models of chimneys that the company manufactures.

Business Dynamics Improving

Acrysil has not been impacted much by Covid-19 as work from home has led to increased demand for home improvement products like sinks, chimneys etc. Further, there is an interesting transition in customer behavior towards e-commerce sales leading to surge in online sales. In this backdrop, Acrysil is targeting to make ‘Carysil’ a prominent brand by increasing their presence in major markets like US, UK, and Europe as it forms majority of their export sales. To increase its penetration in USA which forms 30% of its exports share, Acrysil has incorporated a wholly owned subsidiary called “Acrysil USA Inc” to deal in kitchen, bathroom, and tile products. It would look to leverage its existing customers, develop new customers, and extend the market penetration in US. Over the last few years, the company’s cash generation took a backseat as it ventured into new products and geographies. The company is hopeful cash generation will improve in future on account of stock liquidations and improving operating margins. Further, reduction in SKU’s and inventory levels will lead to lower working capital requirements and improved cash flows. On the raw materials front, Acrysil is dependent on Quartz and Acrylics. The price profile in Quartz has been stable and expected to remain benign. Acrylics prices have dropped by approximately 10-15% recently due to lower market demand which should help its margins going forward.

Key Risks

• Slowdown in real-estate market can impact Acrysil as it is primarily a Building materials provider.
• Primarily remains a B2B business as it has not been able to scale-up its B2C business due to small size.
• Vulnerable to fluctuation in raw material prices as Acrysil may not be able to pass on any increase in prices for ongoing orders.
• Exposed to adverse forex movements as it caters to the export market.

Key Positives

• Premium Product Portfolio that has tremendous opportunity to scale up in key global markets across the world.
• Promoters have over three-decade experience in the kitchen sink industry apart from established relationship with suppliers and customers.
• Partnership with global majors like IKEA can catapult the company into big league if successful.

Conclusion and Valuation

Acrysil looks fairly valued at 18 PE and around one and half times market cap to sales. The high capex phase of the business is over for the company and the recent IKEA partnership can prove to be a game changer for the company as it is well positioned to capture a larger pie of the home improvement market. The company has recently expanded its quartz sinks and stainless-steel sinks capacity and revamped its product portfolio in the bathroom segment through its brand Sternhagen. Overall, a decent bet to play the home improvement sector as revenues and profits can show a steady growth of around 15-20% for the next few years.

Disclaimer: Have personal investments in Acrysil Ltd at the time of writing this note. Information in this blog is for educational purposes only. The articles  may contain external links , references and compilation of various publicly available articles. All copyrights and trademarks of images belong to their respective owners and are used for Fair Educational Purpose only.