Shankara Building Products hosted a conference call on February 14, 2024. In the conference call the company was represented by Mr Ravi Kumar-Executive Director, Mr Alex Varghese –CFO, Mr Dhananjay Mirlay-Vice President and Mr Giridhar Parthasarathy-Manager Finance.

Key takeaways of the call

Revenues:

Revenues for the quarter stood at Rs 1177 crore and for 9MFY2024 stood at Rs 3422 crore up 22% YoY.

With the company’s strategic measures towards growing value added products, the company non steel business share improved to 11% in Q3FY2024 as against 9% in Q2FY2024.

Tiles segment revenue grew by 40% in 9MFY2024 primarily led by growth in private label-Fotia Ceramica while sanitary ware revenue grew by 40%+ in 9MFY2024.

In the steel segment the company has sold volumes of around 5.58 Million Tonnes in FY2023 and in 9MFY2024 it has done volumes of around 4.5 MT. Growth in revenue has primarily come from improved realization in steel segment in last few years.

Margins:

EBITDA for Q3 stood at Rs 40 crore up 23% YoY and for 9MFY2024 stood at Rs 111 crore up 25% YoY.

EBITDA margin stood at 3.4% for Q3FY2024 and for 9MFY2024 stood at 3.2%.

Net profit for Q3FY2024 stood at Rs 21 crore up31% YoY and for 9MFY2024 stood at Rs 57 crore up 30% YoY.

Margins in non retail has improved from 1.1% to 1.8% in the last nine months. Improved margins are on account of the company focus on improving efficiency.

Retail segment margin stood at 5.4%. Impact in margins was primarily due to floods in Tamil Nadu and Andhra Pradesh.

Gross margins of company’s private label-Fotia Ceramica ranges from 10-15%. The company is focussing on improving the realization of its own brand.

Healthy supply chain management and inventory management led to comfortable working capital cycle of 30 days for the company.

Manufacturing: The manufacturing plants of the company are operating at 40% capacity utilization and the company plans to take it to 100% capacity utilization in next 3-4 years. The company does not have any plans to add new capacities in the near future.

Demerger:

The company is in the process of demerging its building materials marketplace, which has consistently delivered significant value.

This move will streamline the company’s business structure, enabling a more focused capital allocation strategy and heightened emphasis on value-adding avenues under our new generation management. It will create two separate focused listed entities in building materials marketplace and manufacturing. Buildings material business had revenue of Rs 2775 crore and manufacturing had revenues of Rs 677 crore for 9MFY2024.

The ultimate aim of the company is to unlock substantial value for all stakeholders in the months and years ahead.

Demerger has been approved by the Board of directors and the company has filed with Stock exchanges. The company expects 10-12 months to complete the process and expects it to complete by end of CY2024 or early CY2025.

Share Holding: Decline in share holding of promoters is primarily due to issue of warrents to APL Apollo and not for any other reason.

Outlook:

The company expects revenue growth of 20-25% CAGR. The growth can be achieved as there is sufficient head room to grow in the existing stores. The company plans to double its revenue from existing stores in next couple of years. Further, the company plans to open 2-3 stores every year.

The company has established position in South and has enough headroom to grow in Kerala and Tamil Nadu.

The company also plans to add products in non steel vertical namely paints, modular kitchen and wardrobes and also through adding more brands.

The company’s revenue contribution from western India  stood at 10% and expects the same to grow by 50% YoY. Also, the revenue contribution from central India stood at 3% and plans to increase it as well. The company plans to open one each fulfilment centre in Maharashtra and Madya Pradesh by February end or March beginning-2024.

The company targets EBITDA margin of 3.5%- 4% in FY2025 and is confident of achieving the same. The company targets EBITDA growth of 25-30% CAGR.

Management commentary:

Commenting on the performance, Mr. Sukumar Srinivas, Managing Director, Shankara Building Products Ltd said: “Despite the challenges faced by the building materials industry in recent times, we''re delighted to announce a 22% year-on-year revenue growth during the first nine months of fiscal year 2024. Particularly encouraging is the impressive growth of our non-steel revenues, which have grown by nearly 35% year- on-year. We attribute this success to our proactive strategy of strengthening our value- added product portfolio, including the successful introduction and expansion of our private label in tiles, Fotia Ceramica.

Furthermore, our profitability for this quarter has shown a noticeable improvement compared to previous periods, reflecting our focused efforts in bolstering both our value-added steel segment and non-steel business. We remain committed to leveraging our digital presence and are actively exploring opportunities for strategic collaborations in the digital realm to augment our existing omni-channel strategy. Through these initiatives, we aim to revolutionize our ecosystem with technology and innovation.

In line with our strategic objectives, we are in the process of demerging our building materials marketplace, which has consistently delivered significant value. This move will streamline our business structure, enabling a more focused capital allocation strategy and heightened emphasis on value-adding avenues under our new generation management. Ultimately, our goal is to unlock substantial value for all stakeholders in the months and years ahead.”