Acrysil Ltd Management Discussions.

Global Economy

Almost a year, ago, the world economy was progressing at a constant pace, and it was anticipated that by 2018 the growth rate would be 3.9%. However, the scenario has changed now due to trade tensions between US and China, economic stress in Turkey and Argentina, stricter credit policies in China, problems in the automobile sector in Germany.

Global growth has continued to soften this year.

Subdued investment in emerging market and developing economies (EMDEs) is dampening potential growth prospects. Risks to the outlook remain firmly on the downside, including the possibility of escalating trade tensions. Another concern is rising debt, which may make it difficult for EMDEs to respond to adverse developments and to finance growth-enhancing investments.

In advanced economies, monetary policies were normalized, which also played a role in the weakening of the world economy. This run is expected to continue till the first half of 2019 as the World Economic Outlook (WEO) anticipates a slump in the growth of global economies by 70%. The global growth in 2019 is expected to be around 3.3%, which is a significant fall considering that this figure for 2018 and 2017 was 3.6% and 4% respectively. The expected rate is not dismal, but it will prove a challenge for developing and advanced economies who will be tackling numerous uncertainties in a short span of time.

The year might have kicked off with a slow rate of growth, however, the second half of the year is expected to regain the lost form of the global economy.

The absence of inflationary pressures and major policy accommodations by major economies will prove helpful. As a reaction to the increasing global risks, the US Federal Reserve decided to keep the interest rates the same and it looks like it will not be increased any time soon. A safe stance has also been taken by the European Central Bank, the Bank of England, and the Bank of Japan. For countering the negative effects of trade tariffs, China decided to ramp up its monetary and fiscal stimulus. Also, with officials from US and China coming to an agreement, the world trade seems to be foraying into a better scenario. All these steps have ensured the resurgence of economies worldwide and smoother trade between nations. As a result, there will be improvement in terms of portfolio flows, sovereign borrowing costs, and the strengthening of currencies in comparison to the dollar. There seems to be a rapid expansion in financial market, however the real economies will take time to get back on track.

The expected improvement in the global economy during the second half of 2019 will be carried on to 2020, as the growth rate in the latter year is anticipated and with to be 3.6%. The economic tensions in Turkey and Argentina are said to be eased, while other emerging market will have lesser stress. The contribution of China and India towards the world income will play a significant role in raising the growth rate to 3.5% in 2020. However, advanced markets will experience a slight slump due to the United Statesfiscal stimulus fading, hence impacting the growth rate. If the current trend continues for a longer period of time, the global growth rate can go up to 5%.

The overall scenario looks very promising at the moment. However, there are certain risks looming over various economies which can have worldwide impact.

Tensions can rise again between countries which could have repercussions on other industries and supply chains all over the world. The uncertainty surrounding Brexit is still high, and the growth in China might take a hit. There are vulnerabilities surrounding huge debts in private and public sectors, but they can be solved to a certain extent on particular scenarios, for example, a no-deal Brexit or a risk-off episode.

The current economic scenario could take a major hit, owing to weak expansion plans in important parts of the world, and a realization of numerous downside risks which concern various economies. All this will happen at a time when fiscal space and conventional monetary cannot be used effectively as a contingency plan. Therefore, to avoid such a mishap, it is essential to prevent costly policy mistakes. The policymakers around the world need to cooperate with their respective governments to make sure that policies do not weaken the investments. The public debt needs to be sustainable, and optimal solutions depend on problems specific to certain economies. Macroprudential tools must be deployed for tackling vulnerabilities in the financial sector. To ensure that inflation stays at a certain level, the monetary policies must be based on comprehensive data and must be communicated well between the policymakers.

This financial year is crucial for long-term success of global economy. In case the risks do not materialize and policy supports is put effectively in place, the worldwide growth will be back to 3.6% in the year 2020. However, if major risks emerge, then the anticipated recovery of many economies will not be possible. On the basis of the circumstance, the policymakers may have to adjust policy across nations. Synchronization makes fiscal stimulus more useful as it finds the signs which will improve household confidence, the help of mitigation of leakages through imports. Finally, for retaining an effective global safety net, adequate resources for multilateral institutions must be managed, ultimately stabilizing the global economy.

Indian Economy

The Indian economy began the FY 18-19 on a strong note with 6.8% growth in the first quarter. This was possible thanks to domestic resilience. Due to increasing global volatility due to trade disputes, and normalised monetary policies in major economies, the growth rate slumped to 7.3% in the next quarter. Also, the Indian Rupee performed badly due to crude price shock and the situation worsened in advanced economies as the investments had stopped.

Even though the growth has not been flamboyant, the nation still remains as one of the fastest growing economies in the world, and one of the least affected from the worldwide economic slump. The policy changes by the government and strong macroeconomic fundamentals had prevented any major damage to the Indian economy.

Economic Survey projected GDP growth of 7% for FY 2019-20. To become 5 trillion economy by 2025, India need a sustained GDP growth of 8%. It is expected that the Indian economy will regain their growth rate based on higher private investment, robust consumptions and enhanced focus on infrastructure development.

The implementation of reform measures has boosted the macroeconomic fundamentals, as a result of which investments have been high and banking sector concerns are not an issue. Recapitalisation of banks will provide much needed liquidity and creating investment atmosphere. All these factors combined will ensure a sustained growth of Indian economy. The nation is already ahead of major economies like France, and is presently the sixth-largest economy. If current trends continue, then by the end of 2019, the nation will become fifth-largest, and might be the third-largest in 25 years.

The scenario looks positive as of now, however, there are risks lurking which can impact the growth of the economy. Both geopolitical and domestic risks are present, which can hurt the fiscal and account deficit

The government is focussing on quicker implementation of policies, with many of them key to the economy. Since the main focus is infrastructure development, the government is looking to motivate private investors to be active, which will ultimately improve investments and nurture the private sector expenditure. However, on the other hand, increasing the debt will shorten the pool of private investment to use, and eventually halt expansion plans. Despite the challenges, a healthy economic growth is on the cards provided the private sector investment is revived, as it has remained very low since many quarters.

Growth and investments walk hand-in-hand, as the latter makes a significant Historical evidence suggests that higher investments have always led to a consistent growth trajectory, which underlines the importance of the nurturing of this sector. During the mid-2000s, the capital formation increased from 5.1% to 17.1%, which also overlapped with a period of substantial growth. However, the growth rate in capital formation slumped later on to 4.3% during the years 2012-16. Improvements have been seen recently as the rate rose to 7.6% in FY 17-18.

In the recent budget efforts are made to balance growth and fiscal prudence. However, the countrys investment position needs to be improved, especially with risks looming large. The demand to remain consistent of fiscal numbers has been majorly due to the need to improve growth rate amid pressure to reduce taxes, increased allocations from the budget to social sectors, and improved infrastructure which could put pressure on public finance. Hence, reaching the goals of revenue disinvestment targets and revenue collection will prove to be key for ensuring the budgeted reduction in the ratio of fiscal deficit-to-GDP. The government should take initiatives for managing its public finances, and shifting focus to the projects which can attract private investment. However, the ultimate challenge will arise from making the right choices in policy decision making regarding fiscal expenditure mix and providing incentives to private players for avoiding any long-term expenditures.

Industry overview

Kitchen sinks industry

The kitchen sink industry in India is valued at around Rs 8,000 Crores, with the anticipation of market growth at a CAGR of 13-15% over FY 2017-20. According to industry estimates, nearly half of the Indian faucets market is catered by unorganized firms. Over the years, the outlook of sinks has grown from being an ordinary and functional product to a style statement. The industry benefitted largely with improvement in the real estate scenario, growth in the disposable income, and changes in the preferences of consumers regarding lifestyle. The exposure to international brands also brought interest within customers to give domestic brands a chance, who offer top-of-the-line products at reasonable prices.

While stainless steel kitchen sinks dominate the market share, quartz kitchen sinks are experiencing a rise in sales due to customers preference of giving standard products a try. The world supply of quarts kitchen sinks is dominated by three established firms, account for almost three-fourths of the market. Acrysil is one of the manufacturers who has a global presence and an expansive market share. The kitchen sinks from Acrysil made of various materials appeal to the consumer thanks to their design, durability, and easy maintenance.

In the recent years, it has been noticed that the share of organized players in the industry is increasing, and while that of unorganized ones is decreasing. The reason behind this is the growing brand awareness in the market and a rising demand of premium products manufactured by organised players. The consistent demand of such products from hospitality and commercial sector has also increased, leading to the growth of the sector. With the present rate of growth, the global market of kitchen sinks will increase from USD 2,719 Million to USD 3,429 Million.

Kitchen appliances industry

The rise of the Indian economy has been consistent, as the average GDP has been 7% over the past few years.

Many experts predict that the nation will be the fastest growing economy in the coming years. Its population of more than a Billion, and nearly 300 Million people belonging in the middle-class section, the country is a good opportunity for the sales of kitchen appliances. Most of the working-class segment does not find time for traditional cooking because of packed schedules, therefore kitchen appliances with the latest amenities will be dominating for a long time. Other trends like westernization of the way of living, urbanization, and increasing female workforce have been crucial factors for making the sub-continent nation a favourable market.

Appliances like Hobs, Microwaves, Chimneys, etc., have performed significantly well as they recorded double digit growth value over the course of five years.

Technological innovation and new designs coupled with market strategy triggered this increment. New customizations and features like Child Lock and Digital Display have made the landscape quite competitive.

With established companies leveraging the power of e-commerce to boost sales and productivity, the market is estimated to be valued around 7 Billion by the year 2022.

Acrysil has made all the right moves in the market, by offering kitchen appliances with the required features.

By integrating innovation after proper research and development, the company looks to become a crucial player in the sphere. The team has been paying attention and has constantly evolved to suit the needs of the Indian consumers, which presents a terrific opportunity to leapfrog the contemporaries and establish itself for long-term success.

Operational review

Quartz sinks

Acrysil has been consistently improving its production capacity of Quartz sinks to meet the increasing requirement and to profit

The manufacturing capacity of the company has increased to 4,00,000 per annum in FY18. The company is working hard each year to keep up with the demands of the consumers by growing the manufacturing numbers. New facilities in the Company include new building, plant and machinery, molds, utilities, and other preparatory and ancillary equipment. To keep up with the demands of export customers, the company continues to develop sinks in new colours.

The Companys quartz sinks with steel moulding has been successful as it is present in various markets in the world. Growth due to exports continue as major foreign countries are raking up the sales, which signifies how successful Acrysil has become. The sale of these sinks increased by 15.10% from 3,00,187 numbers in FY18 to 3,45,510 numbers in FY19. The export of these sinks stood at Rs 129.88 Crores, and on the other hand the domestic sales were Rs 36.53 Crores. During the year, the company entered into an agreement for Supply of Quartz Kitchen Sinks with Leading German Brand “Grohe” which has a potential to bring in revenues.

Stainless steel sinks

What sets Acrysil apart from its contemporaries, is its willingness to look after the needs of the higher segment who are ready to pay premium price for better design, quality, and longevity.

With innovative products and new technologies, the Company looks to leave a mark in this market. The acquisition of a UK-based distribution company, which sells stainless steel sinks to the top customers in the nation, has proven to be a major impetus to the export of stainless-steel sinks. This year, the domestic sales figures of stainless-steel sinks has accounted for a revenue of Rs 16.42 Crores in comparison to Rs 14.47 Crores in FY 18.

Kitchen appliances

The aim of Acrysil, while venturing into the kitchen appliances industry, has always been to be the preferred kitchen lifestyle brand. Therefore, it released a diverse line of products for kitchen needs, like faucets, chimneys, hoods, cook tops, hobs, microwave ovens, ovens, wine chillers, and food waste disposers. Cooking ranges were also added to the portfolio, with customer satisfaction in mind. With such a long list of products, Acrysil looks to dominate the market with its top-of-the-line design and quality. Capturing a large share of the market as the domestic earnings are Rs 15.26 Crores in FY19 in comparison to Rs 12.85 Crores in FY18.

Quartz Wash Basins and 3D Tiles

Acrysil has been receiving rousing reception for its line of Quartz Wash Basins and 3D Tiles, since they entered the market. These products have been successful in capturing the attention of the customers, resulting in increased demands. During the year, the number of wash basins sold were 841 in comparison to 747 in FY18. The aggregate value is Rs 1.21 Crores, while that of last year was Rs 0.98 Crores in FY18. When it comes to 3D tiles, the number sold is 22,163 in comparison to 19,321 in FY18. In FY18, the aggregate value was Rs 0.41 Crores, while this year it was Rs 0.57 Crores.

sternhagen Bathroom suites

The range of Sternhagen Bathroom Suites was launched way back in FY17. The aim was to produce luxury bathroom interiors, sanitaryware, highlighter tiles, and fittings, which would cater to both domestic and international markets. Sternhagen is a well-known top-of-the-line brand from Germany. The company is owned by Acrysil GmbH, which is the Companys completely owned subsidiary. This brand had won the prestigious Red Dot Award, apart from 52 other international awards.

In the last financial year, the company introduced a new line of Opal washbasins and WC to increase the number of products offered for bathroom needs. The future looks bright for these products as they have garnered praise from all fronts.

Sternhagen is attributed with creating the concept of the first full bathroom suite. By blending art and engineering, the willingness to constantly reinvent themselves has set this brand apart. It distinguishes its products by including elemental shapes, intricately crafted designs, unique details, and luxurious solutions for classic suites. Since the luxury of the consumer is central here, the bathroom suites are provided the latest technologies to give the experience of a lifetime.

The goal of Sternhagen is not to cater to a specific audience, rather to provide the best-in-class design and lifestyle to its clients. The end result is high-quality bathing experience which is fulfilling every time. For this purpose, the brand has developed and patented a high-tech quartz material known as Sani-Q. This material provides silk finish to the highlighter tiles and sanitary ware. The manufacturing process ensures that the Sani-Q achieves the desired level of finesse to meet the standards.

Brand building and marketing

Acrysil prioritises the building and marketing of the brand, and invests continuously on this endeavour.

This is done via aggressive advertisement on various formats, meeting with franchisees, distributors, interior decorators, architects, consultants, and by sponsoring event in numerous cities in India and other parts of the world. The Carysil brand is designed to impress the consumers and deliver on its promise of reasonably priced sinks with great features. In the same way, Sternhagen products are a class apart and are considered unique in multiple ways. These products are durable and incorporate technology in their features which enhances their designs and utility.

Financial review

We have continued in pursuing our business objectives and have reported our highest annual turnover ever. Our sustained efforts on operational efficiencies have enabled us to deliver consistent growth.

Our Standalone Revenue increased by 29.23% to Rs 198.76 Crores in FY19 as against Rs 153.80 Crores in FY18. Export Sales registered a growth of 30.06% and increased to Rs 139.98 Crores in FY19 as compared to Rs 107.63 Crores in FY18. We enhanced our effort in domestic market and as a result domestic sales grew by 27.31% to Rs 58.78 Crores in FY19 as against Rs 46.17 Crores in FY18.

The overall Export Sales at Rs 139.98 Crores contributed 70.43% while Domestic Sales at Rs 58.78 Crores contributed 29.57% of the total Sales Turnover during the year. Profit After Tax increased by 83.78% to 11.78 Crores in FY19 from Rs 6.41 Crores in FY18.

On a consolidated basis the Revenue of the company increased by 28.06% to Rs 251.60 Crores in FY19 from 196.47 Crores in FY18. Profit After Tax increased 42.81% to Rs 17.48 Crores in FY19 from Rs 12.24 Crores in FY18.

Human resources Development

The Company considers it a duty to maintain a healthy and professional working environment and strives to have cordial relationships within its employees. Human resources are the most essential and treasured asset of Acrysil. Upgrading the skills of the employees is our commitment towards this endeavour. It has been our focus to nurture and reward hard-working employees and provide equal opportunities for everybody to grow. Diversity in the workforce is motivated, as it leads to the capitalizing the potential of the employees and elevate their standard of living.

Retention of human talents has been a continuous effort in the company. We lay emphasis on upgrading the skills of our employees by providing them job training, workshops related to functional/technical, general/ behavioural, in-house and external training programs.

On a timely basis we provide competitive remuneration and we maintain amicable industrial relations in the workplace. The total workforce of Acrysil, as of March 31st, 2019, stands at 286 employees.

Research & Development

Innovation is the focal point at Acrysil, as we tend to outdo our previous performances and keep setting new standards. The joy of customers is our asset and we aim to retain it each and every year. Our breakthrough in mould making technology will impact the sink making cycle, its quality, and will improve the life cycle of the mould. As a result, the sinks will be manufactured on time and the customer delivery dates will be met without any breakdowns.

The type and kind of packaging also dictates the success of a particular product. Because we are dedicated to serving a wide geography and their habits, our sinks must reach them safely and in pristine condition.

Our ambition is to become the most popular sink manufacturer by taking care of safe and economical packaging. For this purpose, Acrysil developed ISTA (International Safe Transit Association, USA) complain packaging which serves the customers with ISTA 1, ISTA2A, ISTA 3A, ISTA 6 complaint packaging. switch-free chimneys. Our innovation has been towards meeting customer requirements and ensuring their satisfaction. As a result, we keep working hard towards manufacturing and designing new products. ISTA6 is developed for Quellmalz & Naber for model D100S, D100L, D150, Waltz 560FE, Salsa 2118 & Big B. the ISTA 3 packaging, on the other hand, is developed for all US models. During the year, the company has introduced several new moulds and designs to keep up the expectations of our increasing demand from our customers around the world.

The development of Apron Sinks made of composite Quartz for the USA market has started gaining traction due to its unique features. We have introduced two new variants of this product, called Apron two bowl 60/40 and Apron Single bowl for Karran USA. We also launched eleven new models, two for Caressi, and nine for two series of Grohe (G2 D100S, G2 D100, G2 D100L, G2 D150, G2 D200, G1 D100, G1 D100L, G1 D150, and G1 D200).

To meet the increased requirements of composite quartz basin in the US market, our introduction of a new wash basin “YORK” was a welcome move. The product is highly popular in the US and constant efforts are being made to achieve similar success in the Indian market. When it comes to appliances, the company has been marketing innovative products like feather touch and switch-free chimneys. Our innovation has been towards meeting customer requirements and ensuring their satisfaction. As a result, we keep working hard towards manufacturing and designing new products.

Outlook

Sticking to companys ethics and working hard to uphold its values is what has kept Acrysil as one of the most respected brands in the industry. Once a single product company, Acrysil is now having a wide range of products for kitchen and bathroom in its portfolio. All our products are appreciated globally and this underlines the companys philosophy to provide innovative and useful products which become a signature of the lifestyle of the consumer. Having a CAGR of 19% over the last five years is a testament to our growth-oriented business plan. This plan includes expanding influence in multiple markets and constantly revolutionizing the kitchen and bathroom lifestyle of the markets in which we have a foothold. To stay ahead of the competition, we introduce new products, and this also helps us in exploring countries where we are not yet established. The factors which will impact the growth of our company will be urbanization, growing population, increasing purchasing power, and higher expectations of our consumers.

Risks and Concerns

Technological Obsolenscence

The company constantly upgrades its technology and ensures that the dynamic work environment is up to the modern standards. To avoid technological obsolescence, we constantly review our resources and processes.

competition

Acrysil is a global brand, therefore the competition is not just from Indian companies, but international also. In this rapidly growing industry, we have set ourselves apart on the basis of the differentiation strategy and incorporating the distinct business approach depending on particular markets. With constant upgrades to its products and the underlying technology, Acrysil has been able to stay ahead of its contemporaries. On the basis of the customers needs, Acrysil provides a number of options with a wide variety of features which makes establishes us as a customer-centric company.

Exchange rate fluctuations

The ups and downs in various currencies makes the present situation of the global economy volatile. This is expected in the future too, however, the company has taken the right precautionary steps to ensure that currency fluctuation does not impact our growth. Since the finished goods are exposed to the market ups and downs, it is important to safeguard all the products and see to it that the customers are not disappointed.

Rising Input Cost

The prices of essential raw materials, packing materials and plumbing kits have a direct effect on the profit margin. It is challenging task to deal with rising prices and keeping cost under control. By using the economies of scale and purchasing power, Acrysil is able to put a check on the rising input costs.

Adequacy of internal control systems

Acrysil makes sure that its internal control systems commensurate with size of the company and nature of its business align with the industrys demands of effective resource utilization, financial reporting, and operational efficiency. Compliance with all the laws and regulations is also a duty which the company adheres to. To ensure the optimum use of resources, maximising output and control over transactions, Acrysil makes sure that the internal control systems are well-maintained and efficient enough to meet the requirements. Adherence to all the guidelines, rules, processes, and policies with respect to effectiveness and efficiency is also paramount.

The internal audit system of the company looks after the implementation of internal controls, adequate processing, transactions which respect the policies and approval of the firm, controls according to the size and functions of the company. Acrysil has a business planning system in place which sets targets and parameters for specific operations. Performance are reviewed regularly and real time corrective and preventive actions are taken, wherever required..

Disclaimer

All the statements in the Management Discussion and Analysis Report, which label the Companys objectives, estimates, expectations, and projections may be considered “forward-looking statements”, the meaning of which falls within applicable securities laws and regulations. The real-world results might alter on a materialistic basis from those stated or expressed. Numerous factors which include, but are not limited to variables which affect demand and supply, input prices fluctuation of exchange rate, etc. over which the company does not have direct influence, can make substantial difference to the operations of the company.

The company is not obligated to update or revise any statement which is forward looking, on a public basis, whether due to future events, new information, or otherwise. The MD&A must be read in unification with the financial statements of the company included herein. The facts and figures relate to Acrysil Limited, unless stated otherwise.