Carysil Ltd-Q1FY24 Results update

Result Highlights
In Q1FY24, Carysil Ltd. reported a revenue decline of 2.7% QoQ / 17.3% YoY to Rs.171.3 crores in Q1FY24 owing to lower production and sales due to SAP implementation in April 2023, thus missing market expectations of Rs. 160.2 crores. On a sequential basis, the GP and EBITDA margins improved 176 bps / 38 bps to 49.9% and 18.4%, respectively, with the normalization in freight and other input costs of the business which outweighed an uptick in employee expenses. The PAT stood at Rs. 11.7 crores in Q1FY24 (down 6.8% QoQ / down 38.0% YoY), lower than street estimates of Rs. 15.2 crores. The PAT margin stood at 8.2% in Q1FY24 compared to 11.0% in Q1FY23. The company announced the acquisition of 43,379 square meters of land in Bhavnagar, Gujarat, opposite its existing factory, at the cost of Rs. 9.07 crore for future expansion and new projects

Key Concall Highlights

• Lower production and scaling capabilities due to SAP implementation led to a revenue shortfall of Rs. 15 crores in the quarter. Along with this, erratic weather conditions in Gujarat also impacted the revenue trajectory of the business.

• The US and UK markets are showing demand recovery whereas the European market is still lagging on that front. The company expects strong recovery from Q2FY23 onwards and aims for a run rate of Rs. 720 -750 crores in FY24. This is in line with the business’s aim to scale its revenue to Rs. 1,000 crores by FY25.

• The company expanded its dealer network to 3,200+ in Q1FY24 compared to 3,100+ in FY23.
• In Q1FY24, the quartz business capacity utilization stood at 60% which the business aims to grow to 80% by FY24 end.

• In the steel sink segment, the business installed additional 90,000 sinks per annum in July 2023, taking its total annual production capacity to 180,000 units. The business expects to generateincremental revenue from Q3FY24 onwards.

• In FY24, the business expects to make Rs. 300-350 crores in exports of quartz sinks.
• The company announced the acquisition of 43,379 square meters of land in Bhavnagar, Gujarat,opposite its existing factory, at the cost of Rs. 9.07 crore for future expansion and new projects.

• The business commenced the assembly line of its Faucet division in the quarter with the full implementation to begin in H2FY24 onwards.

• On the international front, the company has established a subsidiary in Turkey and is opening a new store in Dubai in October 2023.

• Post Q3FY24, the business will relook at its pending capacity expansion of 20,000 quartz sinks.
• Sales volume in Q1FY24: Quartz Sinks stood at 104,000 units, Stainless Steel Sinks stood at 21,000 units and Kitchen Appliances and Faucets stood at 11,000 units

Valuation and Outlook

Carysil Ltd. reported subdued revenue growth in Q1FY24 owing to lower production and sales due to the implementation of SAP in April 2023. However, the business remains optimistic about its growth trajectory of generating a turnover of Rs. 720-725 crores in FY24 and Rs. 1,000 crores in FY25 with its robust order book in place and potential tieups with retailers in its export business. The company also added that it will start accruing the benefits of expanding its dealer network from 1,500+ in FY22 to 3,100+ in FY23 from the next quarter onwards. Additionally, the company remains optimistic about its margins shifting upwards to 20% compared to the 18-19% range on the back of a favorable change in the product mix, lower freight costs, and stability in foreign exchange rates along with healthy volume growth. Going ahead, we continue to focus on signs of recovery in the company’s quartz sinks business and expanded steel sinks capacity to drive the business forward.