After a 42 percent decline in the last 1 year, brokerage house Edelweiss, now, expects industrial stock Carysil to surge 57 percent in the next one year.
Carysil (formerly Acrysil) is a leading manufacturer of quartz sinks in the world using German (Schock) technology. The company also operates in the steel sink and kitchen appliance segments.
"Over the last three years, Carysil doubled its quartz and steel sink capacity to meet increasing demand. We believe strategic partnerships with large-scale retailers would sustain the revenue growth momentum in exports. Furthermore, strong industry tailwinds, high home-improvement spending and demand for aesthetically appealing products globally would continue to drive growth," explained the brokerage.
It expects Carysil’s earnings per share (EPS) to record a 20 percent CAGR over FY22–25E, led by capacity addition, improved utilisation in quartz/steel sinks and increased penetration in domestic and international markets.
Edelweiss initiates coverage on Carysil with a BUY rating and target price of ₹784.
Stock price trend
The stock has fallen 42 percent in the last 1 year and 38 percent in 2022 YTD. While it is up 2.5 percent in December, the stock has given negative returns between September-November, down over 28 percent in this time.
Well placed to capitalise on consumer shift towards premium sinks: Carysil is the sole manufacturer of quartz sinks (using Schock’s technology) in Asia. The technology and know-how serve as a strong moat for the company and remain an entry barrier in the quartz sink market domestically and internationally, noted the brokerage. Apart from Carysil, Schock has shared its technology with only two other players in the world (Blanco [US] and Franke [Switzerland]), which is another positive, said the brokerage. Edelweiss pointed out that the global market for kitchen sinks was 80–90 million units in CY21, of which quartz sinks constituted 10 percent which was only 3 percent, a decade ago. However, the management believes this would increase to 20 percent by CY26, it added.
Cost Advantage: As per the brokerage, Carysil is one of the world’s lowest-cost manufacturers of quartz kitchen sink (using Schock’s technology). Given the substantial increase in energy and other costs in Europe, the pricing gap between Carysil and other players has widened further (from 20 percent to 40 percent). Edelweiss believes this cost advantage will help Carysil gain market share in the global quartz sink market.
Strategic tie-ups: According to the brokerage, Carysil’s robust revenue growth is underpinned by collaboration with global retailers to supply composite quartz sinks. The company undertakes contract manufacturing for brands such as GROHE, Homebase and B&Q as well as retailers such as IKEA and Menards (indirect channels), it added. It believes these partnerships would be a game changer for the company, as it is well-positioned to capture a large pie of the home-improvement market. Orders from IKEA for supplying quartz kitchen sink has doubled, with supplies commencing from July 2022, noted the brokerage. The second agreement with the German brand GROHE for supplying stainless-steel sinks is another example of its successful business collaborations. Carysil sees potential in kitchen appliances and bathroom suites for successful collaboration with large retailers. This can accelerate the company’s revenue growth by leveraging its robust product offerings to diverse geographies, explained Edelweiss.
Doubled production capacity: Carysil has enhanced production capacities consistently to tap growing demand in domestic and international markets. Over the past three years, the company doubled quartz sink manufacturing capacity at its Bhavnagar plant to 10 lakh units annually, stated the brokerage. It expects Carysil’s revenue to record a CAGR of 22 percent over FY22–25E, with the greater benefit flowing in FY25.
Financial performance: Edelweiss expects the EBITDA margin to contract 107 bps over FY22–25E. The management is also confident that the margin profile would improve in the future. Absolute EBITDA is expected to rise by a CAGR of 20 percent during this period, led by solid revenue growth and operational efficiency. The increase in net profit would be in line with EBITDA growth, mainly because of strong operational performance and a stable margin profile, it added. Over FY13–22, its revenue recorded a CAGR of 22 percent and profitability a CAGR of 33 percent. It forecasts the firm's revenue and earnings to record CAGRs of 22 percent and 20 percent, respectively, over FY22–25E, led by strong capacity expansion, market share gains on cost advantage and potential collaborations with large retailers. Although we saw earnings moderation in FY23 on high quartz sink inventories in the channel, it expects revenue growth to recover sharply in FY24E.
Outlook and valuations
The brokerage believes that at the current market price, which is down around 47 percent from the 52-week high, most negatives are already factored in the stock price, offering an attractive opportunity for investors to time an entry. Considering the expected robust growth in profitability, healthy balance sheet, and improving return ratios, it is optimistic about the company’s long-term growth prospects. At the CMP, the stock trades at 11.8x FY25E EPS and 7.3x EV/EBITDA. The brokerage initiates coverage on the stock and recommends a BUY rating with a target price of ₹784 per share, valuing the company at 22x of the average EPS for FY24E and FY25E.
Key risks to this target include delay in capacity commissioning/ramp-up and rising inflation and worsening geopolitical tensions, added the brokerage.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.