What Lies Ahead For This IKEA Supplier 

Hi guys, this is Aditya Vora here.

So, over the weekend I visited IKEA to do some home shopping.

You know the best thing about IKEA is that you go there with an intention to buy 1 thing but come out with much more than you had decided you are going to buy.

No wonder they have a cafeteria inside.

What a success story IKEA has been. Its sad that IKEA is not listed in any of the global markets.

But anyways, while coming back home I thought why not analyse companies which are suppliers to IKEA.

And bingo!

I stumbled upon a home improvement company which over the past 5 years has embarked on a journey to create a global brand.

A premium player in the global quartz sink market along with increasing focus to become a complete kitchen and bath solutions provider.

It is the only player from Asia and one of the four globally top have access to manufacture quartz sinks with Shock technology (Germany).

I am talking about Carysil Limited.

Before I dwell into Carysil Ltd, let me give you a brief about the global kitchen sink market.

The global kitchen sink market was valued at US $ 3.2 bn (approx. Rs 260 bn) with an estimated volume of 8-9 crore units in 2021.

The global kitchen sink segment can be categorized based on the type of material used to make the sink.

Now the First is the Stainless-steel sinks which account for about 88-90% of the total global kitchen sink market.

Second is the quartz sink and it is estimated to account for 9-10% of the global kitchen sink market.

It is estimated that 55-60% of quartz sinks are manufactured using Schock technology. That accounts for 50 lac units of quartz sinks using Schock technology out of the total 90 lac quartz sinks manufactured globally.

There are only 4 players worldwide which make quartz sink using Shcok technology, and Carysil is one of them.

Let us briefly talk about Carysil before I tell you why this company could be big.

Carysil is engaged in manufacturing and trading of Quartz Kitchen Sinks, Stainless Steel Kitchen Sinks, Bath Products, Kitchen Appliances and Accessories.

The company derives ~ 80% of its revenues from the export market while domestic sales account for the remaining 20% (Domestic revenue was 5% in FY12).

Carysil is reducing its dependence from its core business of Quartz Sinks by increasing its presence in stainless steel sinks, kitchen appliances and solid surface sinks.

If we look at the product profile of the company,

Quartz sink accounts for 53% of revenues while solid surface sinks which is a new product category the company recently entered via acquisition has started to account for 24% of revenues while steel sink accounts for 13% and other appliances which is bath fittings and kitchen appliances account for 10% of revenues.

While this was the basic brief about the company, let me tell you why the prospects of this company look good.

Now the first trigger is growth in the domestic market.

Carysil's domestic business which accounted for 22% of total revenues bucked the global decline and grew by a strong 35% for the 9-month ended FY23.

Historically, Carysil's core product i.e., quartz sink being a premium product had miniscule demand in the domestic market due to its high cost. As a result, the company's focus was on the export markets (export sales accounted for 95% of revenues in FY12).

However, over the past 3-5 years, led by factors such as rise in affordability, reduction in cost differential between quartz sink and mass market products like stainless steel sinks, India has seen a strong growth in the quartz sink market.

It is estimated that the domestic quartz sink market is 5 m units annually, while 30% of it is the premium category which is Carysil quartz sink market amounting to 1.5 m premium kitchen s inks.

Carysil is expected to close FY23 with a run rate of 130,000-150,000 domestic quartz sink sales which gives it a market share of barely 8-10% in the domestic market.

With the price differential narrowing between the stainless-steel sinks and quartz sink, especially in the premium segment, the tailwinds for the domestic quartz sink industry are ripe for a pickup.

The second driver for growth is likely to be the stainless-steel sink segment.

Carysil increased its stainless-steel sink capacity by 20% from 75,000 sinks in FY19 to 90,000 sinks in FY21. However, on seeing the domestic market potential, the company doubled its capacity to 180,000 stainless steel sinks as on March-23.

The strong market potential is evident in domestic stainless steel sink sales of Carysil, which are likely to double from 65,000 units in FY22 to 130,000 units by the end of FY23.

While the domestic stainless steel sink market is price sensitive and is dominated by many unorganised players, Carysil enjoys a strong position in the premium stainless steel kitchen sinks.

The third driver for growth for Carysil is the recent acquisition which the company has done... UK based Carysil Surface Limited which makes solid surfaces. Now solid surface is the adjoining area next to the sink which completes your open kitchen.

This UK based company has a 35% market share in the UK for solid surfaces.

On a consolidated level, Carysil Surface already accounted for 24% of revenues of Carysil for the nine-month ended FY23.

Also, this acts as a perfect backward integration play for Carysil.

A solid surface is an integral part of the sink. Carysil's sinks are integrated into the solid surface externally post the sale of sinks.

With the acquisition of the solid surface business, Carysil in the future, plans to integrate the solid surface business with the sink business in the UK market. Through this, it can control the channels more strongly and backward integrate by offering sink as well as solid surfaces.

Also from a fundamental perspective, the company's financial position is very strong.

Over the past three and five years, Carysil has grown its sales by 24% and 22% CAGR led by increased sales from the quartz sink segment by entering new markets and products. Despite the global slowdown over the past one year, Carysil's revenues for the 9MFY23 period grew by 28%. At a time when cost pressures were at peak in FY22, the company managed to have a flat EBITDA for the 9MFY23 period.

Let us look at the valuations,

For FY23, the company did an EPS of Rs 19.6, and if you look at the current price of Rs 570, it is available at roughly 29 times historical. And mind you, the last year for the export market especially the European market wasn't good.

So, friends, that was Carysil and the prospects of the company.

Do let me know if you have any comments or suggestions. Thank you.