Growth momentum continues; outlook robust
• Revenue grew 36% YoY to INR188cr, which was higher than consensus/our estimate by 7%/8%.
• Revenue from quartz sinks grew 53% YoY on a 52% growth in volume. Revenue in the steel sink segment fell 24% due to a sharp drop in realisation as compared to a high base. Revenue from kitchen appliances grew 62% YoY to INR22cr. Sales of solid surfaces rose 32% YoY to INR52cr. However, this growth also include INR 15cr revenue from the recently acquired United Granite (UGL).
• Gross margin expanded by 356bp YoY on the back of a strong volume recovery in the quartz business.
• EBITDA was 6%/4% higher than consensus/our estimate at INR34cr. As a result of better product mix changes and positive operating leverage, EBITDA margin improved by 58bp to 18.7%. However, reported margin came in lower than our estimate of 19.5% due to higher-than-expected other expenses.
• Net profit grew 27% YoY (flat QoQ) to INR15.3cr. We maintain ‘BUY’ with an upward revised TP of INR1,044 (at an average EPS of 24x for FY25E and FY26E).
Quartz sinks : On a strong growth path
Revenue grew 53% YoY and 12% QoQ to INR97cr in Q3FY24, with a revenue contribution of 52% versus 46% YoY on strong order inflows. Apart from healthy demand from existing customers, it has also seen some new client breakthroughs. It expects higher utilisation (70%/80%) in Q4FY24/Q1FY25 (versus 63% in Q3FY24) and is looking to dispatch one large order in Q4. Due to the turmoil in the Red Sea, sailing time increased by two weeks, resulting in a considerable increase in freight cost. As 90% of its export are on a FOB basis, CARYSIL won’t see much impact on margin. The management is reconsidering its annual capacity expansion plan of 2lk units, with clarity emerging in Q4FY24. We expect 17.3% volume CAGR over FY23– 26, led by demand recovery and potential tie-ups with large retailers. Steel sinks: Adverse product mix hit realisation Revenue fell 24% YoY and 25% QoQ to INR16cr, with a revenue contribution of 8% (15% YoY). Realisation fell 44% YoY in Q3FY24 due to an adverse product mix. The management expects the realisation mix to improve in coming quarters. CARYSIL has signed an agreement with IKEA for stainless steel sinks, with business commencing in Q4FY24. The management maintained its 25–30% growth outlook for the domestic market in FY24 and FY25 and aims to achieve a revenue of INR200cr by FY25. It raised its steel sink capacity to 1.8lk units from 90,000 units in FY23. A lion’s share of its capacity is dedicated towards Quadro sinks. We expect 19.6% revenue CAGR from steel sinks over FY23–26 on favourable demand in the domestic and export market.
Kitchen appliances and others: Capacity addition the key driver
Revenue surged 62% YoY and 38% QoQ to INR22cr. This segment contributes 12% to total revenue. The growing preference for modular kitchens and aspirations of affluent households for creating a smarter home resulted in higher sales in the smart kitchen appliances category. CARYSIL is expanding its kitchen appliances range as the domestic market is relatively under-penetrated. This expansion is planned in two phases: 1lk units commissioned in Q3FY24 and a similar number of units in Q1FY25, with a peak revenue potential of INR100–120cr. CARYSIL has received export enquiries for faucets as well as interest from premium customers (IKEA and Grohe). CARYSIL Surface (UK) saw a marginal decline in revenue at INR37cr. Contributions of INR15cr from the recently acquired UGL’s solid surface business has boosted overall revenue to INR52cr. Since UGL will be contributing for the entire quarter, a large chunk is seen in Q4. It is operating at 60% capacity utilisation which can be ramped up in coming quarters. It has been generating 7–11% margin, which can rise to 15% in coming quarters. UGL can generate USD15-16mn in revenue (INR120–130cr) at peak capacity utilisation.
Valuation and view
As demand strengthens in the US and the UK, CARYSIL is expected to see a significant increase in export earnings. Domestic revenues are set to rise due to growing B2B sales and the in-house manufacturing of appliances. Doubling of quartz/stainless steel sink capacities and ongoing growth in other product adjacencies (kitchen appliances and bathware) complement the positive demand outlook. We introduce our FY26 estimates. Potential tie-ups with large retailers will aid revenue growth in the export market. The benefits from the doubling of its domestic dealer network (to 3,200 in Q2FY24 from 1,500 in FY22) to accrue from Q4 and significantly boost sales. In the medium term, earnings growth to be led by improved offtake in quartz sinks, additional capacity in steel sinks, strategic tie-ups with large retailers, and integration of the solid surface business. We maintain ‘BUY’ as we roll forward our valuation to 24x (the average EPS for FY25E and FY26E), with a revised TP of INR 1,044.