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.”
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