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Carysil – One of the largest producers of Quartz kitchen sinks in the world


Company Name – Carysil Limited (Carysil)


Current Share Price – INR 598 (April 13, 2023)


Market Cap – INR 1,600 cr


 

1. What is interesting about the stock?


Incorporated in 1987, Carysil Limited is engaged in the manufacturing of quartz sinks having more than 35 years of experience in the field of stainless steel sinks, and trading kitchen appliances like chimneys, cook-tops, wine-chillers, etc. The product portfolio also includes bath segment products like wash basins, quartz tiles, and bath fittings sold under the brand name Sternhagen.

The Company sells products in the domestic market under the brand name ‘Carysil’ and changed its name in October 2022 from Acrysil Limited to Carysil Limited to have a brand recall.


Carysil is the only company in Asia, and among the four companies worldwide to manufacture quartz kitchen sinks with Schock Technology (Germany), and is one of the lowest-cost producers. The other 3 manufacturers are Schock, the technology provider itself, Blanco, and Franke. Schock technology dominates the quartz kitchen sink market with a 75-80% share. Some of the defining qualities of quartz sinks are heat-resistant, stain-resistant, and bacteria-free, which offers a unique, easy-to-maintain, classy-to-look proposition to the end user.


European countries are facing major headwinds in terms of energy costs which are inflating the Company’s competitors’ cost of manufacturing leading to the Europe +1 strategy which is expected to be beneficial to the Company.


The revenue mix of the Company is:

In March 2023, the Company renewed its contract with Karran Inc (USA) for the supply of quartz kitchen sinks for a value of ~ USD 68 million (equivalent to ~ INR 550 cr) over the period of 5 years commencing from FY24. Carysil also has agreed to supply quartz sinks (white labeling) to Grohe (a German brand) and Ikea.


However, Company has entered into segments like kitchen appliances and bathroom fittings which are highly competitive, and segments where they lack competitive advantages.


The Company has a plant in Bhavnagar (Gujarat). In February 2023, Company announced the acquisition of 60,000 square meters in Bhavnagar, Gujarat, close to the existing factory, at the cost of INR 8 cr for future expansion and new projects.


The Company has aggressively expanded its dealer network from 1,500 in FY22 to 2,800 in 9MFY23 and is further expanding it to 3,000 by the FY23 end. Carysil is also planning to double its sales team by FY24 end.


Company has acquired 100% of Tickford Orange Limited, UK along with its wholly owned operating subsidiary Sylmar Technologies Limited (STL) in an all-cash deal for a total consideration of GBP 11 mn (deal valuation: 1x sales and 6x P/E). STL manufactures, distributes, and customizes solid-surface products for kitchens and bathrooms. STL has marquee clients such as Selco, Homebase, Hafele, Magnet, Moores, Fairline, etc. It is a leading player in the UK solid surface market with an estimated 35 % market share.


Industry Overview


The drive to make houses more attractive and comfortable has fueled the creation of novel sinks in recent years. The demand for quartz sinks is buoyant in the USA and the European markets. The pace of growth for quartz sinks is higher than that of steel sinks.


The global kitchen sink market is valued at USD 3.4 billion in 2022 and is anticipated to register CAGR of 4.5% over 2023-2033. The stainless sinks dominate the market with 80-85% market share. The market size of non-stainless sinks is 9 million units of which quartz sinks with Schock technology has a market size of 5 million units.


A decade ago, the quartz sink segment held only a 3% share of the global sink market. However, the management believes this would increase to 20% by CY26.


Why invest in Carysil?

  • Expertise and experience of over 35 years – one of the lowest-cost producers of quartz sinks in the world

  • Company has a strong brand and a good clientele with long-term relationships

  • Quartz sink expected to gain market share in the next few years

2. Key Historical Financials

  • Company revenue growth in the last five years was a CAGR of 22% whereas net profit growth was 55%

  • Revenue growth was 56% in FY22 and 8% in Q3FY23 on a YoY basis

  • EBITDA margin improved from 17% in FY20 to 22% in FY22 but has fallen back in the last few quarters

  • Lower EBITDA margins are leading to lower net profit in Q2 and Q3FY23

  • Cash flow conversion (CFO/EBITDA) has been poor

  • ROCE/ROE is healthy but could come down in the next couple of years

3. What is my view on company valuation?


The share price has jumped 9x over the last 3 years driven by an increase in profitability (3.3x) and remaining due to multiple expansions.


Carysil trades at a P/E (TTM) multiple of 28x vs a 5-year median multiple of 21x. Competitors like Cera Sanitaryware, Kajaria Ceramics, and Somany Ceramics trade at P/E (TTM) multiple of 42x, 53x, and 35x.


The profitability of the Company is falling so using TTM multiple may be misleading. Carysil trades at P/E multiple of ~38x using the annualized net profit of Q2 and Q3FY23.


Valuation looks expensive in the context of the slowdown in the US and Europe as Company derives ~80% of its revenue from exports and very poor cash flow conversion.


4. What are the risks to the investment analysis?


Risks to the analysis are:

  • Export business could get impacted by recession fears in the US and Europe

  • Increase in the price of raw material as all the molds are imported and currency fluctuations might impact cost and profitability

  • Key-man risk with Chirag Parekh (Chairman and Managing Director). He has been leading the Company for the last 30 years

  • Industry landscape is highly fragmented, and the easy entry of new players keeps the market highly competitive in terms of pricing

 

About the Author


I am a student of the Indian Stock Market.


Disclosure


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.


I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.


I have used publicly available information while writing this article.

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