Acrysil – Kitchen sinks

Carysil Limited: Ratings reaffirmed by ICRA; rated amount enhanced.
Key highlights from the latest credit rating report by ICRA.

• Carysil was incorporated in 1987 and is the leading manufacturer of granite-based kitchen sinks in India, also known as ‘Composite Quartz Sink’. Its promoters have over three decades of experience in the kitchen sink industry (both granite and steel sinks). The promoters’ long experience in the industry, apart from their established relationships with suppliers and customers, is expected to support the business profile.

• It also trades in kitchen appliances and has plans to start in manufacturing/assembling of the same in the near term. Product/segmental diversification is expected to result in operational synergies to support Carysil’s future revenue growth.

• Carysil derives major part of its revenue from export sales, with the same contributing around 80% to the total revenue in FY2022 (at the standalone level). The company has an overall presence in 50 countries with the US being the company’s biggest market, which contributes around 35% to total exports, followed by Europe (20%) and UK (10%).

• The company is exposed to the demand pressure in key export markets, as reflected by a decline in exports by ~21% in Q2FY2023 on a YoY basis at the consolidated level.

• The inventory levels also remained high as of September 2022 and are expected to reach the normal level by Q4FY2023.

• Carysil faces major competition in the European market where at present, the players are facing issues related to high energy costs, hence, Carysil is expected to benefit in near term in respect to manufacturing costs as its operations are based out of India.

• The ratings are constrained by the near-term demand pressure in the key export markets, coupled with stiff competition from other established players, though it is favourably placed in terms of cost efficiency as the manufacturing operations are based in India.

• Its operations are working capital-intensive due to the high inventory holding period and the relatively longer collection cycle.

• Its profitability is vulnerable to raw material prices and adverse forex movements, although the risk is partially mitigated by the natural hedge in terms of imports.

• The company has undertaken capex of around Rs. 73 crore in FY2022 and has planned capex of around Rs. 20 crore in FY2023 to increase the manufacturing capacity of sinks. The company has already deferred its capex related to expansion of the sink capacity by 2 lakh units to FY2023 due to weakening export demand.

• the utilisation of the working capital limit stood high at around 87% during the 12-month period from November 2021 to October 2022.

• The company has enhanced the capacity to 8,40,000 units in FY2022 from 5,00,000 units and further to 10,00,000 units in H1FY2023. However, it has postponed the expansion to FY2024 for the additional 200,000 capacity of quartz sinks.

• The company is going ahead with expansion in kitchen appliances, where the domestic market remains relatively under penetrated. This expansion will take place in two phases i.e., 100,000 units in Q1FY2024 (primarily fast-moving models of chimney/hoods) and the **balance 100,000 units (**additional model of chimney/hood and other appliances) in Q3FY2024. The fund requirement will only be in the range of Rs.5-10 crore which will be funded through internal accruals only.

• The company primarily uses natural quartz and resins in its manufacturing process, which does not pollute the air and water. However, the major environmental impact of granite sink manufacturing is caused by carbon dioxide emissions. The company complies with the Gujarat Pollution Control norms and it has not received any show cause/legal notices from it. The company has also started using natural gas, PNG that has less carbon dioxide emissions. Also, it has installed solar panels at the factory for shifting to environment friendly fuels.