Sirca Paints India Limited (SPIL) is among the country’s leading manufacturers of wood coating products. With its history dating back to more than 2 decades, the company fulfils emerging aesthetic wood finishes needs in India’s growing furnishing market. The company is engaged in the manufacturing, sales and exports of wood coatings and other decorative paints under the brands ‘Sirca’, ‘Unico, and others. With its newly commissioned manufacturing facility, SPIL is progressing on its journey to become a leading brand in the Indian wood coatings & paints market. With a vision to have a global footprint, the company is working towards exporting its products to neighbouring countries i.e. Nepal, Bangladesh and Sri Lanka catered by its state-of-the-art manufacturing facility at Sonipat.
Financial Results & Highlights
- The company’s revenue grew 26% YoY to Rs. 68 Cr while PAT rose up 53% YoY to Rs. 9 Cr.
- The company has 1,823 dealers and distributors, 12 branches and depots, 27 sirca studios an d2 manufacturing facilities as on 31st March, 2023.
- The company’s customer split as of Q4 was 70% into Retail and 30% into OEMs.
- The company’s revenue for FY23 was at Rs. 267.75 crores with an EBITDA of Rs. 61.71 crores, having an EBITDA margin of 23% in FY23 vs 18.9% in FY22.
- The company’s EBITDA margin for Q4 was at 19.2% vs 17.4% the previous year.
- The company faced some external challenges in Delhi NCR and Haryana region during January & February on account of ban in construction activities & spray painting to curb pollution related issues during the period. Sales momentum was regained in March.
Investor Conference Call Highlights
- The company has launched one of the most globally renowned brands OIKOS in India. OIKOS specializes in decorative solid color finishes and texture paints which has been an area of interest for the company.
- OIKOS is positioned as a luxury category product which will be a perfect fit for the existing business. OIKOS will be launched across the country through the existing distribution network while also creating a specific touch point exclusively for OIKOS.
- The experience center for OIKOS will be aimed at enhancing the brand emission in India. And at present, such stores are already in pipeline in Delhi, Hyderabad, Bangalore and Raipur.
- The management states that OIKOS will strengthen its wall paint portfolio and has the potential to be a very good category in itself. Thus, they have also decided to ultimately get into manufacturing of this range in India at the existing wall paint facility in a few quarters.
- The company has signed a landmark manufacturing license and technical know-how agreement with Sirca S.P.A Italy.
- The agreement is an extension of existing relations with the Sirca group, Italy, where the company has now acquired the rights to manufacture 10 different polyurethane wood coating products in India, which were earlier imported from Sirca S.P.A Italy.
- Sirca S.P.A Italy will be providing the technical know-how in order to manufacture the products as per Italian quality standards. The products roughly make up 50% to 55% of the company’s total revenue of Italian polyurethane proteins.
- The management states that the agreement with Sirca S.P.A. Italy will allow to cut down the import bill, optimize greatly the inventory days of finished goods, increase manufacturing in India and strengthen operations on pan-India basis.
- The company also has recently launched a new water based coating range, D’Aqua PU. This is a key launch in the luxury PU product kitty, in keeping with the global trends of transition from solvent-based coatings towards water-based coatings.
- Net profit for the year stood at INR46.11 crores, a substantial increase of 66% over the previous year.
- The company been carrying higher inventories, which is essentially large purchases from the Italian company for the products planned to be manufactured in India. The stock will run down in coming two quarters. Going forward, our inventory days are expected to be reduced.
- The management states that they see the market moving from wallpapers to special texture paints, which are different from solid paints that is sold by most of the key decorative players in the country.
- The management states that towards the decorative side, they have done a strategic tie up with OIKOS and they’re going to start with the sale of special texture paints that is becoming popular globally and also in India.
- The management states that the capacity peak can be at around INR 400 crores as the company moves forward and majority of the production switches from NC, Melamine to PU.
- The management states that 70% of the company’s revenue still comes from imported products.
- Currently for manufactured UNICO PU, the company is maintaining a capital cycle of 35 days, which is expected to be the same for the new products that will be manufactured domestically.
- Once production of the products starts in India, the management expects cost saving at about 40 to 50 rupees per litre, with inventory days to be cut down by 50%.
- The management maintains a guidance of 21% to 25% for EBITDA margins for the next two years.
- The management states that cost savings earned from domestic manufacturing will be used for marketing and dealer expenses, maintaining EBITDA margins at the same level.
- The margins for the retail and OEM sales are similar, and for decorative and industrial also it stands the same.
- The management states that the margins for the polyurethane are much higher than for decorative.
- The management states that in last 1 year, PU is becoming a commodity and no more a technology. Therefore recently, they have finally decided to manufacture the majority of the imported products also in India, which contributes to majority of the sales.
- The management states that 70% of the total sales are coming from Northern India. Regions like Delhi, NCR, Punjab, Haryana, U.P., Rajasthan and M.P., and other 30% is coming combined from East, West and South.
- The management states that almost 3% to 3.5% will be spent towards the distribution side on the total revenue and 5.5% on the advertisement side over the next few quarters.
- The management plans a capex of INR5.5 crores for a wood coatings plant in Coimbatore, another INR5.5 crores of for a manufacturing plant in Shirwal and INR3.5 crores to INR4 crores on the capex of new wall paint expansion with OIKOS.
- Altogether, approximately a INR15-odd crores capex is planned considering the growth in the manufacturing side of polyurethane and the OIKOS based water-based products in this year.
- The management states that the challenges on the constructions bands are now all normal.
Sirca Paints India Ltd has made significant strides in expanding its product portfolio and manufacturing capabilities. The company’s had good numbers with revenue growth at 26% YoY while PAT rose up 53% YoY. The launch of the globally renowned brand OIKOS in India, specializing in decorative solid color finishes and texture paints, showcases the company’s strategic focus. The luxury positioning of OIKOS aligns well with the existing business, and the establishment of experience centers will further enhance the brand’s presence. Additionally, the manufacturing license and technical know-how agreement with Sirca S.P.A Italy not only strengthens the company’s operations but also reduces import bills and optimizes inventory days. The introduction of the water-based coating range, D’Aqua PU, reflects the company’s commitment to global trends in environmentally friendly coatings. With upcoming domestic manufacturing facilities, cost savings and improved distribution expected which will drive further growth, Sirca Paints remains a key potential multi-bagger to look-out for.