Dear Sir,

We would like to share with you a report on Acrysil (BSE Code – 524091). We believe it’s a good company that can grow at decent pace over the longer term and has the potential to make it big.

It’s one of the 4 companies in the world that makes use of Schock Gmbh’s technology for the manufacturing of quartz sinks.

Globally, SS Sinks dominate the kitchen sinks market; however, the demand for quartz sinks is growing rapidly in double digits. 10 years back quartz sinks used to account for less than 3% share of the kitchen sinks market and now around 10%.

Recently, the company tied up with IKEA AG (Switzerland) for manufacturing and supply of composite quartz sinks for their global requirement and also expanding capacity for the same.

For us the stock has proved to be good as we initiated the coverage on the same for our Premium Members around 16 odd levels (adjusted for split and bonus) in 2011 and currently the stock is trading around 170-180 odd levels (10-11x in 9 years).

We continue to like the company even around current levels. In fact, in our 12th Nov’20 update, we assigned a Positive rating to the stock. Our Positive rating is akin to Buy rating given by others.

 

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Reports on Acrysil

  1. You can read the initiation report (Free access) on Acrysil at the following LINK
  2. The latest 12th Nov’20 update on the stock has been produced below:

 

Acrysil (BSE – 524091) – Sep’11 Alpha stock
(12th Nov’20 – Sep’20 earnings update)

CMP – 157.05 (BSE)

Rating – Positive – 5% weightage; this is not an investment advice (refer rating interpretation)

Source: bseindia.com

Acrysil has reported very good set of results for the quarter ending Sep’20.

On consolidated and on YOY basis the company has reported 7.01% growth in sales in the Sep’20 quarter, 10.88% growth in gross profits, 27.41% growth in EBITDA and 71.79% growth in PBT.

The company could achieve the above performance on the back of good demand from the export markets. In the domestic market the demand was initially slow; however, it started picking up towards the end of the Sep’20 quarter and is expected to make a good comeback in H2.

As far as international markets are concerned, there was a good traction July month onwards. In the international markets, the company primarily sells Quartz sinks and the situation is such that it is almost running at 100% capacity utilization at its 500,000 quartz sinks facility.

Looking at the overall demand scenario and the tie up with IKEA, the company is expanding Quartz sinks capacity by 20% to 600,000 sinks per annum and the same will be commercialized in Q4 FY 21.

In the domestic market, besides the quartz sinks the company also sells SS Sinks and appliances. In the SS Sinks facility, the company has set up Physical Vapor Deposition (PVD) plant for manufacture and coating of Designer Steel Sinks and has commenced production from the same from 1st Nov’20.

The PVD plant has an installed capacity for manufacturing and coating of 50,000 SS Sinks per annum.

On the front of raw materials, the gross margins of the company have expanded by 180 bps to 51.66% against 49.86% in Sep’20. It’s probably on account of both stable raw material prices and higher contribution from quartz sinks.

The EBITDA margins have also expanded to 20.55% against 17.26% in the Sep’19 quarter. Here again, higher contribution from exports have proved to be helpful as in the domestic markets the ASP expenses are much higher.

On the back of higher other income and lower finance cost the company has reported 71.79% growth in PBT.

On the front of balance sheet, there are some improvements with net borrowings being lower by around Rs 11 crore at the end of Sep’20 against Mar’20. Similarly, the company has generated good cash flows from operations for the half year ending Sep’20.

Other Important points:

  • The company has signed up a strategic partnership with IKEA AG (Switzerland) for manufacturing and supply of composite quartz sinks for their global requirement
  • The supply to IKEA retail stores will begin by the end of this Calendar year after the completion of the expansion of the Quartz sinks facility
  • Acrysil has been identified by IKEA as one of the key suppliers and could therefore offer a good long-term opportunity to the company
  • Besides IKEA, the company has also done tie ups through its subsidiaries in US and UK
  • As per the management the new tie ups are being done with similar margin profile and lower credit periods
  • Even after the expansion of Quartz facility to 600,000 sinks per annum, the company will still have enough land bank for further expansion to 900,000 sinks per annum
  • The management is noticing strong demand for the quartz sinks in the developed markets. 10 years back Quartz sinks share was only around 3% in the overall sinks market and the same is now around 10%
  • On the back of both good demand and Acrysil being the most cost-efficient player, the management is hopeful of capturing higher market share and sustaining good growth rate

Our assessment:

With the people spending more time at home, the home improvement space is witnessing good traction. Domestically as well, the demand is likely to pick up.

On the back of tie up with IKEA and other tie ups in countries like US, UK, the demand for company’s products is expected to be robust for the next few years.

The company is also showing signs of improvement in working capital management and cash flow generation. With the same, it should be able to fund capacity expansions through internal accruals or limited add-on debt.

While the EBITDA margins of the company have expanded to 20-21% in H1, even if the company is able to sustain around 18% in H2, the company should be able to close FY 21 with PAT of around Rs 28 crore.

The stock is currently quoting at a market cap of Rs 420 crore which is around 15 times FY 21 (E) earnings. We believe, if the company is able to sustain good performance, there’s scope for re-rating in valuations from the current levels.

 

Disclosure: I have personal investment in Acrysil.

 

Best Regards,

Ekansh Mittal
Research Analyst
http://www.katalystwealth.com/
Ph.: +91-727-5050062, Mob: +91-9818866676
Email: info@katalystwealth.com

 

Rating Interpretation

Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock

% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years

 

Research Analyst Details

Name: Ekansh Mittal     Email Id: ekansh@katalystwealth.com    Ph: +91 727 5050062

Analyst ownership of the stock: Yes, In Acrysil

Details of Associates: Not Applicable

Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.

Disclaimer: www.katalystwealth.com (here in referred to as Katalyst Wealth) is the domain owned by Ekansh Mittal. Mr. Ekansh Mittal is the sole proprietor of Mittal Consulting and offers independent equity research services to investors on subscription basis. SEBI (Research Analyst) Regulations 2014, Registration No. INH100001690

The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision

A graph of daily closing prices of securities is available at www.bseindia.com (Choose a company from the list on the browser and select the “three years” period in the price chart

This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.

The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.

We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.

Disclosure (SEBI RA Regulations)

Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – Yes, Investment in Acrysil.

Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No

Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No

Whether it or its associates have received any compensation from the subject company in the past twelve months – No

Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No

Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No

Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No

Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No

Whether the research analyst has served as an officer, director or employee of the subject company – No

Whether the research analyst or research entity has been engaged in market making activity for the subject company – No