Thread by @FinanceDecoded1

Sirca Paints: Painting the Path to Success!

Sirca Paints has emerged as a standout performer up 41% over 1 year, outshining its peers.

A 🧵 on the business of Sirca Paints, factors contributing to its success and and its future outlook:

#SircaPaints

Lets look at 1 year stock performance of Paints sector:

Sirca Paints: +41.29%
Akzo Nobel: +42.8%
Kansai Nerolac: +18.2%
Asian Paints: +14.18%
Berger Paints: +17.2%
Indigo Paints: +3%
Shalimar Paints: -6.63%

You might wonder why did Sirca Paints outperform most of its peers?

First, Lets first understand the paint industry in India:

- The paint industry in India is a 55,000 crore market
- 30% of the market is unorganized and 70% of the market is organized

The industry industry is broadly divided into

1. Industrial (75% of the industry): Automotive paints, marine coatings, powder coatings, Protective coatings and others

2. Decorative (25% of the industry): exterior & interior emulsion, enamels, primer & thinner, wood coatings etc

Industry growth

- The decorative paint segment has grown at 11.4% CAGR

- The industrial segment which has grown at a CAGR of 7.9%

What does Sirca Paints do?

Sirca Paints is among the top wood coatings manufacturer in India and gets majority of its sales thru wood coatings

They are used on windows, doors, cabinets, furniture, flooring and decks, in order to increase durability and improve aesthetics.

Sirca Paints India Limited holds the exclusive licensee rights for the globally 'Sirca' brand in India, Nepal, Bangladesh, and Sri Lanka.

This partnership with Sirca S.p.A (Italy) grants the company the distribution and manufacturing rights for Sirca products in these countries

Sirca Italy has stringent quality standards, and for every litre of Sirca product sold, they receive a royalty fee. This collaboration ensures that customers in these regions have access to the trusted and high-quality Sirca brand.

Sirca is a Market Leader in North India and gets majority of its sales thru that region

They sell majorly thru retail and here is the channel mix
Retail: 70%
OEMs: 30%

Clients-
The Co works with 587 OEM clientele like Godrej, Space Wood, Jindal Stainless, Indoline etc.

So, How has the company performed over the years?

5 year CAGR:
Sales : 25%
Profit : 19%
Avg ROE: 15%
Current ROE: 18.8%
Debt free

Sirca Paints undergone a transformation - It has evolved from a trading company that primarily imported products from Italy and focused on selling in North India to a company that now holds a manufacturing license in India and has expanded its presence across the country.

This allows the company to cut down its imports bills, reduce inventory days, increase its manufacturing in India and strengthen its operations in India

With the initiation of manufacturing in India, the company has witnessed a shift. Currently, 70% of its revenue comes from imported products and 30% of its revenue comes from manufacturing

This is further expected to rise with manufacturing scale up!

📊FY23 Financial Performance:

• FY'23 Revenue: INR268 crores (📈up 34% YoY)
• FY'23 Profit: INR46.11 crores (📈up 66% YoY)

This performance is despite able to realize the full potential of quarter 4 of FY23 due to external issues such as construction and spray painting bans

🔎Future Outlook:

• Sirca Paints Targeting Rs 400 crore revenue in the next 2 years, that's about 50% growth from FY23 revenues (268 crore)
• EBIDTA Margin is expected to remain stable will remain for the next 2 to 3 years in a range of 21% to 25%.

🟩New product launches:

• Launch of luxury product OIKOS a luxury category product
• Introduction of D'Aqua PU, a new water-based days coating range a safer and odorless water-based days coating range for children's furniture

🟩On Manufacturing

• Acquisition of rights to manufacture 10 polyurethane wood coating products in India previously imported from Sirca S.P.A Italy
• Shifting majority of production from NC, Melamine to PU
• Local manufacturing and sourcing to reduce inventory days

🟩On Marketing

• Planned investment in advertising and dealer trade margin side
• Allocation of 5.5% of projected revenue for advertising and marketing efforts
• Expansion of dealer network in Northern India by 15-20% and over 100% in the rest of India

• Collaboration with Japanese marketing companies for advertising campaigns
• The company has recently launched a TV commercial and plans to spend aggressively on ad campaigns to penetrate deep across other markets

financialexpress.com/business/brand…

• Channel financing model for big distributors and retailers to manage debtor days

• Plan to launch a number of innovative products, including texture paints and solid paints with 200% more coverage.

Sirca Paints is planning to expand its international operations in the coming years and planning to enter new markets in the future. The company is targeting countries in Southeast Asia, the Middle East, and Africa.

🏭Capex:

• Planned capex of INR15 crores for wood coatings plant, manufacturing plant, and new wall paint expansion
• Expectation to utilize at least 75% of capacity within a year
• At peak capacity the company can achieve a revenue of 400 cr

🟥Risks

- Intense competition from players like Asian Paints and Pidilite.
- Sensitivity to crude prices (raw material) and exchange rates
- Paint consumption is positively co-related to GDP growth and a slowdown in GDP can affect them
- Constant capital infusion by promoters

🔎Valuation
Sirca Paints is trading at a trailing P/E of 43x and EV/EBIDTA of 27x. This is expensive

🔎Conclusion
Sirca Paints has established a strong brand and niche market presence. With its changed business model and growth momentum, it is an interesting player to watch out

❗️Disclaimer: This is for educational purposes only and not an investment recommendation. Please consult your own Investment Advisor before making any investment decisions.

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