Acrysil Ltd: Our 3-Bagger Stock - ROI @ 190% in 18 Months

Dear Reader,

Our equity analysts published Hidden Gem - Nov 2012 research report and shared it with all Hidden Gems members.  Research report was published 1.5 years back on 25th Nov 2012. Hidden Gem stock of Nov'12 was Acrysil Ltd (BSE Code: 524091) and our team recommended buy at average price of Rs. 105 for target of Rs. 230 in period of 18-24 months.

We are glad to inform you that Acrysil target price of Rs. 230 was already achieved couple of months back. Today, Acrysil India Ltd has made its all time high of Rs. 304.50 (190% returns) and currently trading at Rs. 292 giving returns of 178% and is now almost a 3-Bagger stock for our members within period of 18 months.

When research report was shared with all our Hidden Gems members, we received few queries on recommendation of this little known company. In fact, many of our members have never heard of this company earlier but they invested in this micro cap company with lot of trust and faith on us and our research work.

We are not suggesting any partial profit booking yet as we believe company is getting re-rated considering strong growth outlook for kitchen utility products in India and company leadership position as manufacturer and exporter of Composite Quartz and Granite Kitchen Sinks. Recently, management have shared their plan to be no. 1 in kitchen segment and set target of becoming a 1000 crore company by 2020. It seems to be an over ambitious target to us considering yearly revenue of Rs. 78 crores in FY 2013, however high growth opportunities in this niche area of kitchen utility products in coming years can not be ruled out. This is one of the industry, which has the potential to grow at CAGR above 25% in coming years considering increase in urbanization and increasing interest of middle class families towards modular kitchen.

There are 10 more Hidden Gems out of 30 published by our equity analysts in last 3.5 years which have given more than than 100% returns to our members within 12 to 18 months time period. We suggested partial profit booking in many of these stocks and our members en-cashed more than 100% returns and now hold remaining quantity for free in their portfolio.

We also like to share that there are Hidden Gems which gave negative returns to our members but downside was limited. We suggested our members to exit some of these non performing companies to ensure that they utilize their capital in the most optimum way. We strongly believe that as an smart investor, we should keep on nurturing the best seeds (companies generating free cash flows and utilizing it effectively and rewarding share holders with regular dividends) and erode off the weeds (non performing companies) from our equity portfolio.  

Below is the summary of Acrysil (India) Ltd shared by our team under Hidden Gem research report - Nov'12.

Company Background

Acrysil Ltd is a leading manufacturer and exporter of Composite Quartz and Granite Kitchen Sinks from India. Acrysil Limited was founded in 1987 as a joint venture with Schock & Co. GmbH (Germany), the inventors and world leaders in composite quartz technology, as well as in thermoplastic xtruded profiles. The company began in a small way with production of about 2800 sinks annually, along with thermoplastic co-extruded profiles for the domestic auto industry.

The company market’s its sinks under the Brand CARYSIL. They are also an OEM (Original Equipment Manufacturer) for major brands worldwide. Besides Quartz and Granite sinks which constitute more than 90% sales of the company, the company also sells Food waste disposers, faucets and stainless steel sinks under it’s own brand.

In the highly competitive market of lifestyle products and home fittings, Carysil stands literally in a class of its own. It is India’s only indigenous brand of kitchen sinks made of quartz bonded with resin, homogeneously moulded by a unique CNC-controlled polymerization process. That results in a product that is scratchresistance, dent-proof, stainresistant and heat-proof, with a glossy and truly lasting granite finish in several varieties. It has truly international looks and styling, and is available in a range of attractive colours. It is highlyfunctional, easy to clean, and safe in contact with food. Best of all, it remains as good as new even afteryears of use.

With domestic response being somewhat slow to take off, Acrysil began its focus on exports of quartz sinks in 1993. Sales jumped threefold, from Rs 359.19 lakhs in 1993 to Rs 1,036.68 lakhs in 1999. So encouraging was this response that in 1999, the company sold off its extrusion operation, choosing to focus all its efforts on the more promising quartz sinks division. 2001-02, the year that Acrysil first looked at India as a potential growth market for quartz sinks, ready for the introduction of carefully chosen models.

In just a decade, domestic sales multiplied from Rs 1.83 crores in 2001-02 to Rs 12.4 crores in 2011-12.The brand is available in more than 2000 outlets, and is a preferred choice of builders and Modular Kitchen Studios.

Carysil’s world-class quality is demonstrated in its export performance. Today, Carysil sinks are shipped to 30 countries, including U.S.A., France, U.K., Greece, many European markets, Far-East and Gulf Countries. In fact, at Rs 47 crores of Sales in FY 2011-12, exports today account for 80% of the company’s turnover. As a truly international product, Carysil also carries ISO9000-14000 certification.

Recent Developments (25th Nov 2012)

1. Addition of new Institutional Customers & Entry into new Geographies

Company has added some of the major institutional customers in the US and Germany, many of them are the result of acquisition of Acrysil GmbH as a subsidiary last year. These new buyers themselves have extensive networks for distribution and marketing, so there is considerable potential there. At the same time, Acrysil has made an entry into some entirely new geographies, most importantly Columbia, Hungary, Iran and Israel.

2. New Products offering for Global Clientele

Company has customized several new models – that is, new styling and designs – for the tastes of clientele in Europe, Russia, USA and the Far East. This represents a substantial investment and management is confident to get multifold sales through exports. Company has plans to show new range of products in many overseas trade fairs and exhibitions. Moreover, stainless steel sinks are finding excellent acceptance in Singapore as well as European markets, so much so that management of the company is now focusing on new technologies for even better quality and lower cost in their manufacture.

3. Targeting no. 1 position in Premium Kitchen Segment in India

Company is also giving a serious push in the domestic arena. Company management has set an objective to be No. 1 in the premium kitchen segment in not more than five years. Accordingly, company is expanding its product portfolio with a complete package of new products that includes various Appliances, Chimneys, Cooking Hobs and Ovens, slated to be launched in October-November 2012.

4. Optimizing Process to Improve Operating Margins

Company has taken corrective measures to improve existing systems and processes especially in R&D, HR skill acquisition, standards compliance and other quality drivers. Company is constantly upgrading its technologies with an eye on better productivity, more reliable high quality and economical operation as margins are under more pressure now compared to earlier years.

5. Rewarded Share holders by Issuing Bonus Share

Company management has recently rewarded its share holders by issuing bonus share in the proportion of 1 (one) Equity Share for every 2 (two) Equity Shares held by the Shareholders on 28^th Sept’12.

Financial Performance (25th Nov 2012)

Acrysil net profit rises 149.38% in the September 2012 quarter 

Net profit of Acrysil rose 149.38% to Rs 20.2 million in the quarter ended September 2012 as against Rs 8.1 million during the previous quarter ended September 2011. Sales rose 43.26% to Rs 21.89 crore in the quarter ended September 2012 as against Rs 15.28 crore during the previous quarter ended September 2011.

Acrysil net profit declines 39.76% in the June 2012 quarter

Net profit of Acrysil declined 39.76% to Rs 10 million in the quarter ended June 2012 as against Rs 16.6 million during the previous quarter ended June 2011. Sales declined 6.77% to Rs 167.8 million in the quarter ended June 2012 as against Rs 180 million during the previous quarter ended June 2011

Future Outlook (25th Nov 2012)

Rising Incomes to Fuel Demand for Branded / Premium Quality Lifestyle Products

The Indian consumer market, which is primarily dominated by young generation, is becoming increasingly sophisticated and brand conscious. A typical upper middle class young consumer is beginning to look beyond the utility aspect of a product to seek intangibles like brand and lifestyle statement associated with the product.

According to a McKinsey study, there are 1.2 million affluent households, expected to reach 2.5 million households by 2015.

Accordingly, India is fast becoming a large market even for luxury goods and services, based on:

 
i) Ten-fold rise in India’s middle class: from 50 million to 580 million; with comfortable living standards 
ii) The upper middle class expected to swell from 25 million people to over 130 million by 2025
iii) 24 million upper crest Indians (income > Rs 1mn per year, or $ 117,000 PPP) with global lifestyles.

India is rapidly changing from a deprived and aspirer’s economy to seekers country and with that, people’s preference for lifestyle products is growing. The young generation of consumers is driving the demand for lifestyle products.

The Indian affluent class has shown lot of attraction towards premium branded goods and this fetish will continue. A recent luxury brands survey conducted by The Nielsen Company (a global information and media research company), has ranked India third after Greece and Hong Kong in the list of most brand conscious countries in the world.

Modularization of Kitchens – Market with Huge Growth Potential

According to Industry experts, the modular kitchens segment stands at around 1500Cr. In India the readymade kitchens are currently sold at the rate of 10,000 units per month.

The increasing number of nuclear families, rising disposable incomes, affordability, and easy budget, will drive awareness levels and demand for modular kitchen, which is already growing at the rate of 45-50% per annum.

Modular kitchen accounts for 40% of the furniture and fittings industry and the products in this market are largely focused towards establishments in urban India. Modular kitchen segment in India is expected to grow 8-10 times in the next three to five years.

Saral Gyan Recommendation (25th Nov 2012)

1. Sales turnover of the company has doubled in last 5 years, where as net profits have declined in last 4 years due to high raw material prices and slowdown in US and Europe. Company has made an entry into some entirely new geographies like Columbia, Hungary, Iran and Israel. Company has also customized several new models in terms of new styling and design for their existing clientele in Europe, Russia, USA and the Far East to drive growth.

2. Management is now looking aggressive to grab domestic market share for its premium quality products. Company is also increasing its product portfolio to offer complete package of new products to their clientele. Currently, company generates 80% of revenue from exports and now aims to increase their domestic sales from existing 20% to 30% in next couple of years.

3. Domestic sales of the company have increased from 1.1 crores in 2001-02 to 12.4 crores in 2011-12. In fact, in FY 2011-12, domestic sales of the company have grown by nearly 43%. Company is also opening galleries to show case their products in metro cities like Mumbai, Delhi and Ahmedabad to boost sales in domestic markets.

 
4. As per our estimates, Acrysil can deliver bottom line of 80 million for full financial year 2012 – 13, annualized EPS of Rs. 21.3 with forward P/E ratio of 5.4 X for FY 2012-13, which makes stock an attractive bet at CMP.

5. Management has rewarded share holders by paying consistent dividends since 2006. Dividend yield at current market price is above 3. Recently, company also issued bonus share to share holders at the ratio of 1:2

6. On equity of Rs. 44.58 million, the estimated annualized EPS for FY 12-13 works out to Rs. 21.3 and the Book Value per share is Rs. 73. At current market price of Rs. 113.95, stock price to book value is 1.56, which makes stock valuations reasonable with a long term view of 18-24 months.

Considering reasonable valuations and opportunities in domestic markets of using premium quality products for luxury homes, we find Acrysil Ltd an attractive pick. Saral Gyan Team recommends “BUY” on Acrysil Ltd. for a target of Rs. 230 over a period of 18-24 months.

Buying Strategy:

• 50% at current market price of Rs. 113.95
• 50% at price range of Rs. 95 - 100

To Read / Download Saral Gyan Hidden Gem - Nov'12 Research Report - Click Here

Acrysil (India) Ltd is 1 of those 11 Hidden Gems which gave more than 100% returns to our subscribers in last 3 years. Team of equity analysts at Saral Gyan put lot of efforts & smart work to identify Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) which not only grow your capital at a healthy rate but also ensures protection of your capital during market downturn.

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Team - Saral Gyan.