ACRYSIL – An Undisputed Leader in Quartz Sinks!

Overview

Acrysil is the Pioneer in Composite Quartz sink Technology in India and is one of the Largest Producers of Quartz Kitchen Sinks in the World. It is the only organization in India and amongst the 4 global players manufacturing Quartz Sinks with Schock Technology (A German tech).

Eyeing Acrysil

Acrysil incorporated in 1987 is promoted by the Parekh Family. The company is present in the following categories:

  1. Kitchen Sink
  2. Kitchen appliances
  3. Bath segment

All the products, Acrysil manufactures are not mass but are lifestyle cum need-based products. They cater to a specific segment of society. They are sold at premium prices as they are innovative, niche, and aesthetic, that’s why developing an export market might have been easier for them.

Since the majority of the products (mainly Quartz sinks) are exported shows that the products are of international quality.

Acrysil Business Model

 

Segment Wise Model Analysis

1. Kitchen Sink

Acrysil wants to make its name in the Build in Appliances industry through their brand “Carysil”.

– Quartz Sink

(Also Known As Granite Sinks As They Are Made From Granite)

Industry-Specific

The Quartz Kitchen Sink industry largely falls under the lifestyle category globally. It’s a niche market, not many players are present.

It is anticipated that the worldwide kitchen sinks market will be valued at USD 3,105 million by 2026 with a CAGR of 3.3%.

60-70% Global Quartz Sink market is controlled by 3 players namely Blanco, Franke, and Schock. They have a combined capacity of 5.5 mn units.

Europe is the biggest market for kitchen sinks with North America occupying the second place. These are the regions marked by lavish lifestyles and the population invests in elegant-looking products for their homes.

The other major market for Indian Quartz sinks is the EU region with Germany, UK, France, Sweden, and Italy being the top markets, accounting for almost one-third of the total quartz sinks export from this country.

Major of the Quartz Sinks manufactured is based on Schock technology sinks and the other higher technology as per the best data available to Acrysil. Quartz Sinks produced with this technology is around 4 million to 5 million units. In this category of the Quartz, Acrysil has been growing at a pace of about 15% a year.

Exports account for the major market for Indian granite sink manufacturers and the export market has increased by 23% per annum from 2009 to 2014 and at 16% CAGR from 2012 to 2017.

Company specific

Acrysil is the sole manufacturer of quartz sink with Schock Technology in India and Asia. They are the contract manufacturer for the global importers of the sink and also sell through their in-house brand.

International Market

In the export market, 75-80% of the sales are through contract manufacturing and 20-25% is through Acrysil’s in-house brand “Carysil”. Acrysil is very clear in its strategy to not compete with its clients in the export market. Big brands are well established at the global level, so it is easier to sell to them rather than to compete with them. Acrysil does not do direct retail business in the export, everything is through wholesalers and distributors.

Europe accounts for 30% of international sales. Germany has been one of the fast growth drivers in the export market. They are expecting big growth from the German market in the next two to three years. Grohe is a large fish in the ocean, so that can spin the sales to another level. It could be a game-changer for them.

US business for them is one of the key businesses, which they started about seven to eight years ago. Approximately 30% of their sales are through the American market now. The USA is also a potential game-changer for the company.

The UK would be 20% of international sales.

In the future, they see Germany, UK, and the US will be key growth drivers for them in terms of business because the Quartz Sink is in high demand right now.

Management has a very clear strategy. They know the fact that they cannot fight with large global brands. So their main focus is to be contract manufacturers for global brands.

Managements current focus is on Quartz sink which is growing at 15-20%.

Domestic Market

The Carysil brand is not that visible at the national level but is visible with the architects and with the dealers or at the point of sales where the customers go and buy the products.

Sales in the domestic market are through distributors and building projects. Sales through dealers account for 80% of the domestic topline and sales directly to Real Estate players account for 20% of the topline. Management is very careful in selecting the builders as most of them are cash struck. 60%-70% of the demand comes from new homes and about 30% renovation market in India.

They don’t want to mass advertise as their P&L will not be able to handle the cost. 5 years ago the realization was 5-7% lower than the current realizations.

Major Client Acquisition

1.GROHE

Acrysil tied up as a contract manufacturer of Quartz sink with GROHE, Germany in 2019. This tie-up has the potential to bring in about additional revenue of approximately $7 million to $8 million in the next three years (60 Cr).

GROHE has a global presence in 130+ countries and is a dominant player in Bathroom Solutions and Kitchen Fittings. The supply agreement with Acrysil will mark Grohe’s foray into the Quartz Kitchen Sinks segment.

In the first year of the contract, Acrysil completed GROHE’s supply commitment in 7 months.

2. IKEA

In FY-21 they entered into a strategic partnership for the supply of Quartz sink. Supply will start by end of this current year. This is a completely new line of Sinks for Acrysil. This model was earlier supplied by other suppliers, IKEA is just switching supplier with this order.

Acrysil will be supplying to retail stores in the EU, Russian, and Eastern markets. Acrysil has been Identified as a key supplier and expecting a large demand from Ikea.

There are chances that these 45 Cr (100k sinks) might continue y.o.y. because the products in this order are already proven and have a ready market. Margins are in line with the current margins. Tie-ups are at better realizations.

Manufacturing Process

The Quartz is molded with High-Grade Acrylic Resin using a special computer-controlled Polymerization Casting Process in Special High Grade Nickel Molds, to produce hardened composite material which is resistant to scratch, dent, stain, heat, and cracks.

The Composite sinks plant works 24 hours on three shifts basis. Maximum Effective utilization can be 90% or 95% with around 90% customized production. Around 75-80% of mineral Quartz is used in sink manufacturing.

The Company is located in Bhavnagar, Gujarat and currently has two plants.

Mould is a major part of the capital expenditure required to expand the capacity and the same is imported. A mould can be utilized for more than 15 years. The Company needs mould as per customer needs and specifications. And the same needs to be approved by customers. Sales from the new mould investment take one-year time.

Mould Cycle

It takes 2 years for the cycle to get matured from the time the sink is launched to the time the sink reaches the stores and the time when they get repeat orders for the same model. This is called a Mould cycle. Acrysil had earlier invested a substantial amount in developing new moulds for export customers. In 2019 they started seeing the momentum picking up as the cycle got matured.

Asset turnover is 2.5 to 3X.

Stainless Steel Sinks

Industry Specific

The domestic stainless steel sink industry is characterized by a proliferation of players including large, small, multinational, local as well as the unorganized sector.

The price differential between Quartz Sink and a Plain Stainless-Steel Sink is approximately 30%.

Presently, 90% of the industry makes use of stainless-steel sinks, approximately 10% makes use of quartz sink. The adoption of granite sinks (Quartz Sink) in the domestic market has been slow primarily on account of premium pricing and lack of product awareness.

In light of recent developments, it was noticed that the quartz sinks are now more preferred over their stainless-steel counterparts. This trend has been observed in America, Germany, UK, and France. Shortly this trend will reach other parts of the world. As the lockdown is being lifted systematically, the demand for these sinks is expected to rise.

Overall in the global market share of non-stainless-steel sink is about 10%. Industry expecting that in the next 3 to 5 years this could add another 10%. So, that is a very good and a positive sign for Acrysil.

While the Sink market may not be growing in terms of overall growth, but the Quartz Sinks are taking a share of the stainless-steel sinks.

Company Specific

Acrysil sells 2 types of stainless steel sinks namely:

1.Quadro Sinks:

Quadro sinks are the Designer sink which caters to the high-end segment who are willing to pay a premium for superior quality, design, and finish and are inclined towards the steel sink.

They doubled capacity from 12,000 units to 24,000 units in Q4 FY-18 due to a demand increase. The current capacity is 30,000 units. And capacity utilization is 100%. Quadro is a high growth segment for the company.

2.Press Line:

In India, they are not competent enough with Chinese prices. Management is doing some niche in terms of designing and technology.

The stainless steel plant is planning to start a 2nd shift for the stainless steel sink plant.

Revenue Bifurcation Of Kitchen Sink

International Market

Export revenue is driven by the export of Quartz sink. US is the largest market contributing 30% followed by the UK and EU. Sales in the export market are through OEM customers and distributors.

Domestic Market

Domestic growth is driven by Quartz Sink, Stainless steel sinks, and appliances.

On the domestic front, the Company will continue to open new showrooms and galleries for showcasing its products. The focus of the company is to increase volumes in the domestic and export market.

2.Kitchen Appliances

Acrysil wants to make its name in the Build in Appliances industry through their brand “Carysil”.

Industry Specific

Overall, the kitchen appliances market in India is estimated at INR 21,500 Cr in 2018 of which 45-50% is contributed by large kitchen appliances.

The market is expected to grow at a CAGR of 12% largely driven by the high growth in the large kitchen appliances segment. The market for these products is shared amongst organized national branded players, regional players, and unorganized players.

The bulk of the demand is from urban markets and the competition is highly fragmented with no brand enjoying clear dominance.

Company Specific

They mainly deal in built-in appliances such as kitchen hood, cooktops, the oven, microwave, dishwashers, built-in refrigerator, and wine chillers.

Assembly and trading sales account for 95% of this segment and Manufacturing sales accounts for 5%. Management’s target in the next three years’ time is to have at least 30% of sales of appliances which would be manufactured in-house. The gross margins of this division are approx. 40% to 45%.

Chimneys are approximately 60 to 70% of their appliances business. They have also started in-house manufacturing of a few chimney models.

The plan is to position it as more of a premium brand rather than a mass selling brand, mass selling requires high advertising. Commercial advertising is very expensive and looking at the sales revenue what the company is getting they will not be able to absorb this kind of large expense. So they are focusing more on having their franchises. It’s more of an architect driven product than a customer-driven product.

From a kitchen sink company for the past decades and then suddenly when you come into appliances, there is a perception issue in the minds of the customers. Management believes that this perception will truly change and the company is making all its efforts to change it and will also be recognized as a leader in the built-in appliances company.

3.Bath Segment

They ventured into the bathroom segment to take advantage of Synergies in the usage of quartz sink technology and another reason is that approximately 95% of kitchen sink dealers in India also deal in the bath segment and hence it would be wiser to take advantage of the ready distribution channel.

Products sold in this category are through the brand “Sternhagen” which was launched via its wholly-owned subsidiary Acrysil GmbH. Acrysil has signed an agreement with Farah Ali Khan a well-known Jewellery Designer and Indian Gemologist for their brand Sternhagen.

Products include 3D products, which are three times the price of a normal WC and are launched for the first time in the world. The company has developed a full bathroom concept and has a whole range of bathroom products including fittings WC, highlighter wall tiles.

Product contribution is 50% ceramics and 50% Acrysil manufacture products.

In-house manufacturing of Quartz washbasins, Quartz tiles, and Concrete tiles which have a gross margin of 70%. They are still underutilized at 20% as far as manufacturing is concerned. And Outsourced Ceramic products are sold at 40% gross margins.

The concrete tile is in technological collaboration with one of the leading Hungarian company which is the only company in the world that does it. The pricing of concrete tile is half of Quartz tile.

The strategy is to be a very niche player and not a mass player. When you have other larger brands it is very hard to compete with them if you do not have any uniqueness in the product. They have changed the whole sales team in H1 FY-20 to market the product in a better way.

Focus

  • The initial focus of the company was only on exports. Later they forayed into the domestic market. The domestic business which was 1Cr business in 2001 is now a 73 Cr business, a growth of 25% CAGR.
  • The focus is to expand the distribution network, do brand building activities, and introduce new products to grow in the domestic market. And do more tie-ups with OEMs in the export market and cater to more and more countries.
  • To take advantage of the distribution network the company forayed into Stainless Sinks in 2011, Bath segments, and Appliances in 2013.
  • Currently catering to 50+ countries and striving to spread the wings to 70 countries in the next three years by exploring the uncatered geographies.

Subsidiaries

1.Acrysil UK Ltd

The Acrysil UK limited earlier known as Homestyle Products Limited is dedicated to the UK market only. It is a distribution company distributing kitchen products. Acrysil itself manufactures quartz sinks which it sells via this subsidiary in the UK market. Homestyle also procures products from 3rd party to sell in the UK market.

Acrysil bought Homestyle to supplement their quartz sink into the UK channel as they had no exports to the UK market. It invested 27 Cr in FY-14. Acrysil currently holds 100% of this subsidiary.

Acquisition of this division has been extremely fruitful and helped them to spread footprints in the UK market. This is a very profitable subsidiary for Acrysil and they have turned it around quite successfully.

Products include Quartz Sinks, Steel Sinks, taps & Accessories, four-floor tap, and other traded products.

2.Acrysil USA INC

The company has incorporated a wholly-owned subsidiary “Acrysil USA INC” to deal in kitchen, bathroom, and tile products. It was incorporated on April 30, 2020.

The quartz market in the US is growing at 15-20% a year. The market size is in millions. Whereas UK & Europe are matured markets in which more of quartz sinks are sold than stainless.

The US is one of the key markets for the company. This subsidiary is set up to keep a close connection with customers in the US and to expand in the US. They want to increase their market share by tapping large home stores in the US. After the election things would start falling into place.

The Subsidiary will help them penetrate deeper into the markets by building a network across America and increase their market share. The Company will be dealing in Kitchen, Bath Products and Tiles.

Competition

China and other countries also manufacture Quartz Sinks. Acrysil faces competition not only from India based companies but increasingly from multinational companies.

One needs decades of experience to reach the quality level which Acrysil manufactures. Acrysil has decades of experience with Schock technology and has further improved on it. This technology can’t be simply bought from the market. Globally only 4 Schock players can give out licenses of Schock technology. Acrysil has better quality compared to its German peers.

Current Scenario

The testing times of the pandemic were transformed into opportunities, as the Company is experiencing record online sales of its products.

Presence in the home improvement sector ensures that they will not be much impacted by this transition in consumer behavior. As people continue to stay at home, they will be looking for home improvement products, leading to growth opportunities for us.

The lockdown had stopped operations temporarily, but they were able to start productions in less than 30 days. The demand for the products was satisfactory and encouraging in the overseas markets. With UK and EU countries emerging from the pandemic, they expect orders to be smooth from those places. Depending on the perspective of the customers, the market for their home improvements goods is likely to see an uptrend.

2nd lockdown is coming in EU markets and winter might aggravate the situation. Winter may lead to prolonged lockdown. Management is Hoping to sail through the lockdown as online sales have picked up. And there are no delays or postponements of orders due to lockdown.

Digitization On Roll

They recently appointed a new COO, Mr. Rakesh Pardeshi who is an American citizen. He has about 15 years of expertise in IT services and online sales. So, he would be supporting the company’s vision for digital and he would be one of the greatest anchors for the company to drive digital growth.

They oversaw an increase of 30-40% of the total orders catalyzed by online sales. This has been possible due to their fruitful partnerships with recognized retailers and the marketing initiatives carried during the year. The growth from online sales is expected to last for an extended period, stretching to a major part of the next fiscal year. The North American market, in particular, has seen staggering success in this regard.

Online is getting very popular not just in the US, but across the world, so online is going to be a big focus in the coming years. The company has identified online as one of the key growth drivers in the future.

Expansion

They are expanding capacity from 500k to 600k of Quartz sink till Q4 FY-21. 100k sink capacity usually takes 6-8 months to set up while Acrysil is setting it up in 4 months. This shows a high level of commitment. Supply from an additional 100k capacity will start in Q4-FY-21. They are expecting better productivity and margins from this capacity with an asset turnover of 2.5-3x. They even have enough land bank to reach 800-900k sinks.

Financials

Acrysil derives 73% of its topline from the sale of Quartz sink. Steel sink and Kitchen appliances are also making a good contribution to the topline and have grown at a CAGR of 22% and 18% respectively. Quartz sinks are majorly exported. Steel sink and Kitchen appliances are primarily sold in the domestic market.

Gross margins are the highest for the Bath segment, Medium for appliances, and low for sinks.

The fiscal year 2011-12 was the most challenging as markets around the world continued to grapple with economic recovery. Even in the domestic markets, the recovery was painfully slow. European markets were particularly difficult with the crisis in various countries like Greece, Spain, and Italy, which resulted in unprecedented uncertainty in these markets. Not surprisingly, there was a marked slowdown in the construction and renovation markets across the world.

In 2017 the margins were lower due to capacity expansion and lower utilization. But since 2018 the volumes and capacity utilization have improved year on year. And currently, they are facing capacity constraints which will get sorted by the end of 2021 as they are expanding by 20%.

The company has consistently paid dividends over the years.

Networth and Fixed asset growth at a faster pace than growth in borrowings with reducing D/E ratio is a positive sign for the company.

NWC/Sales has spiked up as the company is paying its creditors at a faster pace. And it takes about 45 to 50 days for the containers to reach the port anywhere in the world. The credit period in the domestic market is 21 days. They keep a stock of 3 months. Recently built up in Inventory is due to more of appliances.

They have good cash generation despite high working capital requirements. FCF is negative due to continuous capacity expansion.

Opportunity Size

The granite sink is less than 10% of the global sink market and was less than 3% a decade ago. Next year the granite market will account for more than 10% of the global sink market.

The world has always preferred natural products. And in the case of sink also the world will move from Steel sinks to Marble/Stone sinks. Natural marble gives a more aesthetic appeal. Stain steel sink has always dominated but Natural sink (Stone based) will take some market share from steel. Management claims that they have a lot to achieve as granite sink is just 10% of the market.

Acrysil accounts for 10% of global quartz player. It is more cost-efficient and has better quality in comparison to its other global peers so the plan is to increase market share in the growing Quartz sink market.

Guidance

HOME is the focal point across the world. People are spending more time at home and feel the need to make their home decor more aesthetic. Acrysil stands to gain out of this scenario.

H2 will be better than H1. Management is bullish due to the following reasons:

  • They have done some very important tie-ups through German and US subsidiaries.
  • Indian demand is showing a spike in the last 2 months. They are expecting good domestic revenue next year.
  • The company is struggling to supply due to high order book.

Management is very cautious and keeping very close contact with customers so that nothing falls out of line. Management is currently concerned about the 2nd wave of COVID and US elections. Revenue guidance is 500 Cr in less than 5 years. And in 10 to 12 years they plan to reach 1000 Cr. 40-50 Cr of value might be added by next year with the commencement of Ikea’s order.

Conclusion

Run by very competent management, who doesn’t leave any stone unturned and will try and do whatever they can to get new clients and introduce innovative products.

They will be able to steadily compound their earnings with a few sudden spurts in growth.

Sudden spurts will be due to big tie-ups like GROHA and IKEA which will take them to a higher trajectory. Post a sudden spurt, growth will go back to its normal pace.

A dividend-paying stock available at an earnings multiple of 19x has compounded its Revenue and PBT at a CAGR of 19% since 2011. It has recently also tied up with GROHE and IKEA which will lead them to their next wave of growth in an industry that is itself growing in the mid-teen digits. It has certainly sufficient land to at least double its capacity to cater to future growth seems a very attractive opportunity.

Disclaimer: We are not SEBI registered neither this is a stock recommendation. Views may be biased as we are invested and plan to hold it. Kindly do your own research or consult your financial advisor.

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