Shankara Building
Products hosted a conference call on May 21, 2024. In the conference call the
company was represented by Mr Alex Varghese –CFO and Mr Dhananjay Mirlay-Vice
Key takeaways of the call
Revenues:
FY 2024 has presented several challenges
for the entire building materials and construction industry along with high
interest rate and persistent inflation. The year further unfolded with adverse
climate conditions with flooding in few pockets and subsequently softened
construction activities and discretionary spending amid on-going elections.
Despite this FY2024 was a successful year for the company. The company achieved
its highest revenue and profits in FY2024.
Revenue for the financial year FY2024 stood
at Rs 4828 crore a growth of 20% YoY.
The company’s profit outpaced revenue
growth due to enhanced contribution from value added steel and non steel
offerings.
Margins:
EBITDA for the financial year FY2024
increased by 25% YoY toRs 156 crore and net profit grew by 29% YoY to Rs 81
crore.
EBITDA margin stood at 3.2% an increase of
12 bps when compared to FY2023. In addition to strong brand in the south and
robust operating model growth has been possible due to strategic initiatives
under taken by the company over the last few years which has made the company’s
business model more resilient and offset industry headwinds successfully.
Strategic initiatives: A) Expansion of steel
offerings and added diverse range of value added products. Traditionally the
company’s revenues were reliant on steel tubes and pipes . The company has
taken a conscious decision to add more products in its steel portfolio which
includes TMT’s, roofs & sheets,flats. The company has also forged few good
partnerships over the few years.
Steel volumes during FY2024 stood at 6.5
lac tons an increase of 27% YoY . A substantial portion of this volume growth
was from value added steel products which witnessed a growth of 43% YoY
compared to pipe and tube volume growth of 20%. Omni channel presence helped
the company to increase its market share in this business. This has helped the
company to increase the EBITDA margin in non retail segment from 1.1% in FY2023
to 1.5% in FY2024.
B) Continued focus on growing the non steel
business which grew by CAGR of 50% in the last 3 years and by 30% YoY in
FY2024. The company has witnessed a healthy growth across all its product
verticals including plumbing, fitting, paints, sanitary ware and electrical.
Along with strong presence, the company is adding marquee suppliers to its
brand portfolio both domestic and international. The company has added 2
exclusive non steel stores and converted 3 stores in Karnataka into hybrid
stores comprising of both steel and non steel products in April 2024.
Gross margin in non-steel has been in the
range of 10-12% and as the company has scaled up its presence its EBITDA margin
has increased to 6% in FY2024.
C: The company’s private label Fotia
Ceramica has demonstrated healthy performance with revenue reaching Rs. 116 crore
(+50% YoY) in its second year of operations. The company has achieved sizeable
growth in Tamil Nadu and Kerala markets and is now focusing on Telengana,
Karnataka and Maharashtra markets.
The company plan to inaugurate tile display
centre in Morbi in Jun-24, aimed at expanding Fotia’s presence pan India and
explore other opportunities in the coming years.
D) The company’s efforts to diversify
beyond South India has yielded fruitful results, with Western and Central India
together contributing 14% to the company’s revenue during the fiscal year
FY2024. Western and Central India has grown by 46% and 39% respectively in
FY2024.
Working
capital, debt and cash balance: Working capital for
the company stood at 30 days with net debt of Rs 49 crore as on March 31,2024
as against Rs 71 crore as on March 31,2023.
Of the total debt of Rs 83 crore as on Mar
31,2024, Rs 75 crore will go to market place and Rs 8 crore to manufacturing.
Cash balance stood at Rs 34 crore as on Mar
31,2024 as against Rs 12 crore as on March 31,2023.
Of the total cash Rs 29 crore will go to
market place and rs 5 crore will go to manufacturing post de-merger.
De-merger: The company has taken steps to de-merge its business into building
materials market place and manufacturing respectively. The company is awaiting
SEBI approval on de-merger and expects the de-merger process to be completed by
Q4FY2025.
Indicative revenue of Market place stood at
Rs 3836 crore while manufacturing revenue stood at Rs 993 crore in FY2024.
Manufacturing
vertical: The company has 3 subsidiaries under
manufacturing vertical. Growth in manufacturing vertical will be driven by
adding more value added products. The company is currently operating at around 50%
capacity utilization and plans to increase the same and also sales will be
direct to the market.
The company EBITDA in manufacturing
division is around Rs 1500/ ton as such has sufficient room for expansion.
There will be no CAPEX in manufacturing
division post de-merger.
Hybrid
stores: The company spends around Rs 2-3 crore
capex for setting up hybrid stores and plans to open 2-3 hybrid stores
annually.
Outlook: The company is focused on sustained and profitable growth with
asset light store expansion and better working capital management.
The company’s believes that the construction
industry will be the focus point post elections. The company is well positioned
to capitalize on the opportunities in the construction industry. The company
will continue to work towards strategic opportunities in the e-commerce space
to boaster the company’s omni channel approach. The growth will be achieved
with the focus on improving margins.
The company expects revenue from steel
business to grow at a CAGR of 20-30% in the next few years and non steel to
grow at a CAGR of 30-35%.
Growth in revenue will driven by increase
in mix of products and addition of value added products, increase in wallet
share of the customers and to grow at a rapid pace and consolidate its position
in Western and Central India along with opening 2-3 stores in strategic
locations.
Margin: The company expects to achieve margin of 3.5-3.75% for market place
business and 3.3%-3.5% at consolidated level for FY2025.
Retail margin stood at 6% in FY2024 and
with increase in contribution from non-steel products and value added products
the company expects the margin to be sustainable and increase it to 6.5%.
Dividend: The board has recommended dividend of Rs 3 per equity share of face
value Rs 10 each.
Management
commentary:
Commenting on
the performance, Mr. Sukumar Srinivas, Managing Director, Shankara Building
Products Ltd said: “FY2024 marks a successful year for Shankara, showcasing the
resilience of our business model. Amidst one of the most challenging periods
for the building materials sector, I’m delighted to announce that we have
achieved our highest-ever annual revenue and profits. Notably, our steel volume
experienced a 27% growth, while the non-steel vertical saw a 30% growth, driven
by market share gains across all sub- segments. Our commitment to profitable
growth has resulted in even stronger profit growth compared to our revenue,
with an enhanced mix towards value-added steel and non-steel offerings. Fotia,
in particular, has demonstrated exceptional progress with a 50% growth. Our
efforts to diversify beyond South India have yielded fruitful results, with
Western India contributing 11% to our revenue during the fiscal year. In line
with our strategic objectives, we are in the process of demerging our building
materials marketplace, a move aimed at streamlining our business structure and
facilitate a focused capital allocation strategy under our new generation
management. With a resilient foundation and strategic initiatives in place, we are
poised for sustained growth in the coming years.
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