Stock Review: Acrysil India

 

 

This is a very small company, which has created a niche for itself in the product which it manufactures. This company manufactures granite and quartz kitchen sinks, which no other company manufactures in India. It has got a virtual monopoly in the granite and quartz kitchen sink. The products of this company has sold under Carysil brand name and that brand is basically become a premium brand for kitchen sinks.

The fact that it is a premium product and enjoys good brand image is reflected in the margins of the company also—the company enjoys operating margins of close to 25%. The company has recently ventured into the manufacture of stainless steel sinks also, which will give volumes to the company. It may be low margin business but volumes are going to come from the stainless steel sink division.

If you look at the financials of the company, FY10 sales were about Rs 46 crore which were down by about 10%. Profit after tax (PAT) was Rs 6 crore. This company has got a very small equity of Rs 3 crore which means an EPS of close to Rs 20. The heartening fact is that this company enjoys not just the high operating margins but high margins at the net profit margin level also. It enjoys net profit margin of close to 14-15%. It has got healthy financial ratios like return on capital employed and return on net worth is close to 45-50%. It is a smallcap company. The dividend declared this year is 40% which means a dividend yield of close to 3% at the current market price.

So you have a company which has created a niche for itself which enjoys good operating profit margins, has good return on capital employed and net worth and available at a price to earning multiple of 6-7 on earnings in a year which was not a very good year for the company. Going forward, when contribution from the stainless steel kitchen division also starts to come in the earnings are going to improve. Company with 25% operating profit margin is available at a PE multiple of about six-seven, it is a reasonable valuation.

I would like to put a word of caution, one is liquidity and second is the company has got since about 85 to 90% of the revenues come from exports. The earnings from this quarter maybe dented because of what happened to Europe. The advice will be to utilize this opportunity to accumulate the stock at lower levels rather than getting in at higher levels Rs 125 to Rs 135 maybe a good range to accumulate this stock for the long time investor.