Thread by @ValueEducator

Detailed Analysis of #Shankara Building Products

CMP - ₹670

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1. Company Overview
Shankara Building Products is a leading organised retailer of home improvement and building products with presence across retail network of 91 stores in 10 states and 1 union territory under the brand name Shankara Buildpro. The Company also has own processing

facilities and caters to other customers like channel and enterprise.

2. Management
-Sukumar Srinivas (Managing Director) is the key man behind the company. He holds a post graduate diploma in business management from the IIM, Ahmedabad. He has 39+ years of experience industry.

He was the immediate past President of The Karnataka Pipe Dealer’s Association and continues to be an office bearer.
-C Ravikumar (Executive Director) has 35+ years of experience in the steel pipes and building products industry. He is currently a member of the Karnataka Pipe

Dealers Association.

3. Products
-Shankara has 100000+ SKUs across 75+ products. The company gives one stop shop solution for building material products across categories like Construction Materials, Plumbing and Sanitaryware, Flooring, Electricals, Interior Exterior

and Irrigation.

4. Brands
-Company has tie ups with some key brands across various product categories, like Ultratech, ACC, Tata Steel, APL Apollo, Kajaria, Jaguar, etc. It also has own brands such as Taurus, Loha, Prince, Centurywell, and Ganga

5. Key Segments
i. Enterprise: Automobile ancillaries, PEB Fabrication units, Developers, Engineering Industry
ii. Channel: Dealers and Retailers
iii. Retail : Individual home owners, Influencers like Contractors, Plumbers, Architects etc.,

6. Processing Capacity
-The company also developed its own brands for key products such as strips & pipes, MS pipes & welding electrodes, SS pipes, Color coated profile sheets, puff panel sheets and others. The Company has 13 plants with annual capacity of close to

2.5 lakh tonnes. These plants helps company to customize some products to cater to needs of Enterprise customers. For its Backend operations company has 44 owned trucks and 56 warehouses with warehousing space of 5.9 lakhs square feet, majority of which is owned.

7. Enterprise
-Enterprise business was started in 1995 for customers like Automobile ancillaries, PEB Fabrication units, Developers, Engineering Industry. The Enterprise business shows signs of revival on the back of pickup in automobile industry and general engineering.

Management is focusing on margin accretive opportunities in this segment

8. Channel
Channel business was started in 1999. This segment caters to dealers and other retailers. It helps company to build an understanding of the markets and the emerging trends and continues to be a

strategic business for it.

9. Retail
Retail Business was started in 2006 for customers like Individual home owners, Influencers like Contractors, Plumbers, Architects etc. It carries 1,00,000+ SKUs across the entire home construction and renovation lifecycle across 91 Stores.

Retail footprint spans 4,58,412 lakh sq.ft. Average store size is 5037 sq.ft. Company is focusing on its retail segment.

10. Retail Focus

11. Geographical Mix
Shankara has presence across 10 states and 1 UT. Company’s major business is from South India with Karnataka being its key market with 48% Revenue share. Major growth driver for the company is from tier 2 and tier 3 cities where a lot of construction activity

is happening. Across cities, Tier 1 contributes 35%, Tier 2 contributes 25% and Tier 3 contributes 40% to revenue.

12. Product Mix
Construction Materials Contributes to majority of its revenue with 65% contribution followed by New product category and Interior Exterior

Categories with 15% contribution each. New product category includes Plumbing, Sanitary Ware, Floorings, and Electricals. Interior Exterior largely deals with segments like roofing, ACP sheets, plywood, paints, etc. Company is focusing more on New product category which gives

better margins. Company is targeting this share to be around 40% in next 3 years.

13. Total Store Count
The Company has aggresively added new stores based on locational preferences and Store Size. Bigger stores are required to facilitate expanding portfolios. During FY 18

company acquired Vaigai Sanitation and JP Sanitation which has 3 stores each. Company was also upgrading its exixting stores to bigger size. Company did a capex of 0.5 to 2 cr per new store and approximately 0.5 cr for store upgradation. However, from FY 19 Company has started

to reduce number of stores as a part of its consolidation strategy. Stores closures were mainly on two grounds – negative EBITDA for the past two years and low scale up potentials. Company is focusing on growth from the existing stores and making them profitable units.

As per management, consolidation of stores is almost done and there won’t be many closures.

14. Digital Store
Shankara has launched its website under the domain name buildpro.store. This omnichannel will facilitate the product discovery process for customers and also

complement physical store strategy. It is a complete fulfilment engine where customer can buy the products. But a lot of products require customers to physically visit the store. So, a lot of the customers who are visiting the website are also eventually going offline.

And it’s working as a as a customer acquisition tool for the company.

15. Price Competitive
Company has shifted its strategy to become more price competitive in the market in FY 19. This has resulted in margin drop in its retail business from 10-11% to 6-8%.

16. Asset Sale to APL Apollo
Company sold Taurus’s Chegunta Unit in Hyderabad to APL Apollo for 70 crores in Q4 2019. This helped company to focus investments on retail segment. Post this sale company was able to reduce its debt drastically.

17. APL Apollo buying Stakes
This strategic partnership will ensure consistent supplies and direct access to APL’s new launches. Raised fund will help the company to manage its working capital.

18. Financials
Since, 2019 company has focus on consolidation of its business. Shankara is targeting revenue growth of 30% CAGR for the next 3-4 years.

There was a drop in margin from 6.8% to 3.8% in FY 19 Post Company’s change in strategy to be price competitive. Company has given the guidance of 4-4.5% of margin on company level and 6-8% of EBITDA margin for its retail business.

Shankara has drastically reduced its debt from 278 cr to 94 crs. Part of this was from Asset sale to APL Apollo and remaining from internal accruals. This has reduced interest cost and improved profitability.

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