Acrysil Ltd: Solving 'How" of the Path to Growth

As a professional finance person I have been involved in a number of debates about the relevancy of finance especially in an objective world. In one such lengthy discussion some of my friends related to science field gave their verdict that Science is relevant as it provides the answers for explaining the life and universe. They were of the view that Science explains “why” this world is like this. However I was of the view (still I am) that science never explains the “Why” but “How” of the life. Science knows “How” electricity works, how hydrocarbons provide energy, how cow gives milk, how gravitation affects the phenomenon. But we don’t know “Why” atom has charged particles, why there is gravitation and electricity, why our bodies die etc.

Only the Supreme creator knows the answer of this why. Only the creator knows the motivation behind his creation. But the most important why is “Why this life”….why we are here although we think (quite ironic) that we know “how” to live life. But there may not be any why over the realization that understanding the purpose of our existence is much bigger than getting the composition of variables of life support system (ecosystem) and Universe. Our life support system mayn’t be the best among other levels of life. I feel there are more levels of life (like of Devtas) and we may be at the lower end of hierarchy. Why I feel this is because at our present level of consciousness we can’t comprehend “Something out of Nothing” but our universe seems the one like this only. So there may be levels who understand this better than us. And thus our science may be of little significance in the context of life.

Various engineering branches describe how things operate and behave under controlled or natural circumstances. But there is also Financial engineering which creates the innovative financial systems. Derivatives, Futures and options, Taxes etc are all the inventions of Financial engineers…most recent one we hear is GST.

But in stock market, how is more important than why. We need to comprehend how industries grow, how economies progress, how brands are born, how products evolve. We understand this and stock market becomes a place of creativity. So many people think that stock picking is about understanding financial ratios like operating margins, inventory turnover ratio, ROE, ROA etc. But in most of the cases (Especially for quantum returns) these ratios are useless as they point towards history and can’t draw a line towards uncertain future.

Future is never linear...especially in stock market...only historical figures are linear. All the great stories of stock market could have provided superlative returns as they beat their historical performance by big margins and so re-rating happened. I am leaving aside the big guns like Pidilite and Page...but would like to mention KRBL (The maker of India Gate rice)...when i picked it at 16/- 3  years back...it was just another company. But then rice demand structure changed to Branded rice and its NP went from 70 cr to 330 cr...i am still holding it at 400 as it is still way undervalued compared to its brand strength. All the troubled metrics like Inventory and working capital improved during the period...same happened with LT foods (Daawat Rice)...i am having it from 5 to 60 now. I think Eveready Industries is an even better example...the way it improved all the ratios in last 3-4 years. It went from 16 to 320.

So stock market is all about understanding the forces responsible for transforming a normal business to something superlative and then selecting the company who is trying to execute the same. So today we’ll try to analyse one such company which I feel is doing something big to change the face of the company forever.

Acrysil Ltd: Selected its Path to Growth

The company is Acrysil Ltd. This was advised at this blog (Click here) in 2013 around 80-90. I bought it at 80 but I had to sell it at 430 in 2014 due to some personal reason. But today I have made another entry in it at 530. It is the maker of Quartz based kitchen sinks under the brand name “Carysil”. It is the only company doing this in Asia and among the four biggest globally. These sinks require high technical expertise and are quite unique in quality and aesthetic touch. These sinks are made up of 75 – 80% natural special color treated natural quartz minerals and gives the look of Granite and feel of Stone. Quartz physical properties are next hardest to Diamond. It makes these sinks so tough that one cannot scratch the surface even with sharpest of tools…virtually making it an indestructible surface and dent-proof. It’s homogeneous, heavy duty material where every inch of the material consists of quartz particles, making it lifelong. The granite sinks are very hygienic, they look smooth too, and are a style statement as well. Normally when we visit a home, we would start appreciating the modular kitchen wardrobe, the chimney or the hob. But we seldom go and see what sink someone uses because we know that there is nothing royal to see. But the products like these are changing this notion and people are opting these in India now. Worldwide there is huge market for this:

Acrysil is a very small company...it was export based earlier but then 2-3 years back it chose the challenging path to growth and decided to enter Indian market which was a huge potential market. And this is the most vital decision which may transform this small company into a big force. We need to take these tough decisions in our journey towards growth. So it is still early time...and it had to put in some material resources in the form of Fixed assets, Inventory and Working capital. In Branded product business, the biggest success factor is Distribution and marketing and this alone consumes the major resources. Huge investment, time and thought is required for Distribution and marketing function...and this is the most critical function for an FMCG company. High quality Product is only the starting point. But market acceptance is the most difficult part of the game because i am not a special...i am one among so many. We have seen Baba Ramdev turning into Baba Brand-dev!!

Its assets base has grown from 46 cr to 100 cr in last 5 years. It is expanding in small cities so Inventory requirement is getting larger so as is promotional discounts. Also it is importing some of its new products like Kitchen appliances and Bathroom Interiors...being trading activity it has low margins...but Acrysil is doing this to get the market feedback...better than investing front hand in capacity.

So after taking this tough challenge and investing substiantly in building capacities, assets and taking 80 cr loan its turnover has grown from 60 cr in 2012 to 173 cr in 2016. But operating margins are way higher at 15% from 5%...its net profit is at 12 cr from 1 cr!! Although it is a small company but still it hasn't missed dividends since 2006!! Earlier it was getting almost its entire 80 cr turnover from exports. But now its Quartz sink business is earning around 100 cr with around 30 cr is coming from Indian market which is a big positive. It has also ventured into steel sinks for Indian market. Apart from this, it is covering entire kitchen portfolio with products like Kitchen tops, chimneys, built-in Ovens, faucets and kitchen appliances like Ice makers, coffee makers, dish washers etc.

Sani-Q Wash Basin: New product with Awe Inspiring design

But I think apart from quartz sinks, its another block buster product line will be premium quality wash basins. Recently it has launched Sternhagen wash basin brand in India. These premium washbasins offer design innovation and engineering excellence in a bid to redefine the luxury bathroom segment in India. The Sternhagen range has already earned accolades from the industry for its awe inspiring designs and amazing quality and finish. While the designs are set to revolutionise the premium bathroom market, what’s beneath the surface is the real marvel.  Sternhagen wash basins are made from Sanitary Quartz (Sani-Q) discovered and perfected after years of intensive R&D. Born  in  2012,  the  fast  growing Sternhagen  brand  is  designed in  Germany  and  made  in  India at its plant  in  Bhavnagar,  Gujarat. Sani-Q has properties of being harder than ceramic; it is heat,  stain  and scratch resistant. Its mineral stone properties create a silky satin finish and highly durable products. Unique manufacturing technologies result in creating new forms and shapes which are unseen in bathrooms. Here are some samples (www.sternhagen.com):

It has also launched 3-D Tiles which are one of its kind in India:

They have recently launched a store in Ahmedabad. There is no doubt about the uniqueness, premium quality and royal touch of its products. These products are suitable for individuals looking for something unique for their home. So Acrysil will address this niche market. The only issue is Indians aren't aware of Quartz/Granite sinks and unique Sani-Q wash basins. We use only steel sinks. Quartz sink will cost around 5 times but it is just one time cost and in a costly house of 1-2 cr (Even 50-70 lakh also) the incremental cost of 4-5 sinks will be just around 1 lakh...not that big deal when we are building our dream home but it'll add uniqueness and royal touch.

Its market value is just 270 cr so if it can execute well the same will witness a transformation. The most important thing in the picking a stock is to pick it young...around 500 cr valuation especially for a new product category which can grow and create its demand quite fast. Indian sink market is around 2000 cr and will touch 3000 cr in 2-3 years but the share of Acrysil in it is just 30-40 cr!!! So huge scope of scale is possible...but as it is always with a small cap it deserves risky portion of portfolio allocation....but in Stock market ignorance is risk...unknown is risk...beyond control is risk...but taking risk is not risk...it is path to growth.

Good buy at CMP of 530 and an add at every fall.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

Music Broadcast Ltd: Creating Space

(I wanted to give a small introduction to Nikola Tesla due to his association with the invention of Radio but then it went out of my control and covered the distance too far. So it is better to make this one a two part series. First is about to understand the Space created by the supreme Creator and the second is about the Space that Music Broadcast Ltd needs to create for Radio in India.)

First Part: Of Space 

Information is precious….sometimes most important thing in our life. Our great Vedas were memorized by our great Rishis for thousands of years. Vedas were never written because they were not to be written. One of their biggest secret was not the syntax but the sound…pronunciation as their rhythm/vibration was meant to interact with the vibration of our DNA to activate certain energy centres essential for spiritual awakening. Vedas were memorized in order to comprehend them deeper, they should become your soul…your part; writing on clothes/leaves was not the best option to preserve the mighty Vedas so the best way was to memorize them for generations. Very strict discipline was required to memorize the Vedas.

But the Great Rishi Vedvyasa, near the end of Dwapara Yuga, realized that human beings in Kaliyuga with short life, poor brain power would be lacking the physical, moral and spiritual strength to memorize and follow the path of Vedas so in order to preserve the most vital he compiled them into four Vedas after some 4000 years of oral transmission. Vedvyasa was the 18^th incarnation of Lord Vishnu after Lord Rama and was born to Rishi Prashar. Not many know that he was the step brother of great Bheesma.

I am writing on Radio but why I am remembering Vedas here is also due to Radio. Radio was meant for information but surprisingly we are misinformed when we are taught that Radio was invented by some Marconi but it was not. Radio, in fact, was invented by one of the greatest genius ever born into Kaliyuga…Nikola Tesla. Six months after the death of Nikola Tesla in 1943, US Supreme Court ruled that all the patents for Radio actually belonged to Tesla. And when I recall Tesla…I recall his meetings with Swami Vivekananda, Quantum Physics and Vedas. Tesla was a genius much ahead of his time and was badly in need of some assurance for his crazy views about the origin and nature of matter which ultimately was provided by Swami Vivekananda. Tesla never studied Sanskrit but after his meeting with Swami Vivekananda he used Sanskrit words like Akasha and Prana everywhere. 

Tesla was a scientist in the field of electricity and he was way ahead of others at that time. He invented many of the most important inventions of our life like AC electricity, created the world’s first x-ray images, and conceived the idea of radar. But he was like a true eastern saint with no regard for material wealth. He just yearned for wisdom and knowledge. He never resorted to profiteering from his inventions unlike Edison (Tesla in his early life worked for Edison but soon they parted ways and Tesla proved his superiority many times) so he was a big obstacle for the corporate investors like JP Morgan. So he was dethroned of all of his inventions and Tesla was lost.

He was a hard-core scientist dealing with electricity which is a subatomic particle and most of the laws of classical physics do not apply on it. So he was not in conformity with others regarding the nature of matter including Einstein. Actually Tesla was the first Quantum physicist.

Quantum physics deals with the nature and behaviour of Sub-atomic particles and energy as at subatomic scale classical physics becomes useless. Classical physics describes the forces responsible for creating our everyday life like nothing can beat the speed of light and all matter is made of countless tiny particles. But when scientists looked deeper into the cosmos classical physics turned into last bencher. They found that the most basic particle Atom is not composed of something solid but of vibrating energy and breaking of speed of the light barrier was a routine in sub-atomic world. Scientists in early nineteenth century found that Subatomic particles such as electrons were able to instantaneously communicate with each other regardless of the distance separating them. It doesn't matter whether they are 10 feet or 10 billion miles apart. Somehow each particle always seems to know what the other is doing. The problem with this feat is that it violates Einstein that no communication can travel faster than the speed of light since travelling faster than the speed of light is tantamount to breaking the time barrier. In the 1920’s Nobel Prize winner Werner Heisenberg formulated his famous uncertainty principal which stated that Sub-atomic particle would change its position when it was observed. The reason; we use photon to observe (light) some phenomenon but as Photon itself is a sub-atomic particle so it will interact with the other sub-atomic particle being observed and will change its position.

But this made Einstein quite unhappy, although he agreed it worked perfectly, because it denied the reality of things when they were not being observed. So this led to famous Einstein quote “I like to think the moon is there even if I am not looking at it."

So there was utter confusion. But then Swami Vivekananda happened to the west and he introduced them to Vedas and Gita and Information was travelled to West. West was astonished to find out that wisdom of Vedas was quantum in nature. There was quantum physics everywhere in Vedas. So it is of no surprise that almost all of Nobel Prize winner Quantum scientists like Bohr, Heisenberg and Schrodinger regularly read Vedic texts. Another giant of quantum physics Robert Oppenheimer even learned Sanskrit and read the Gita in original. Heisenberg even stated, “Quantum theory will not look ridiculous to people who have read Vedanta.”

Qunatum physics in Vedas

Indian Rishis understood and experienced the quantum nature of the universe; although by following the other path…not by Analysis (Breaking into Parts) but by Synthesis (Wholeness). Indian Vedas are filled with Quantum proclamations. They are everywhere.

Like Aham Brahmasmi (अहं ब्रह्मास्मि) in Brihadaranyaka Upanishad of the Yajur Veda. This depicts the oneness and interconnection of all beings and the supreme creator. Separateness is an illusion. Our Great Rishi is not getting arrogant here but this is what he felt in deep meditations (Meditation is nothing but a state when consciousness resonates with the cosmos by raising the cell vibrations levels… Universe is nothing but a vibration). Now Quantum physics also knows this as electrons at billions of miles apart seem connected…In fact there is a growing belief that our Universe is a hologram where every part is containing the whole albeit the smaller whole. Science has so far put great effort in trying to understand the phenomenon by breaking into parts and thinking that by studying (Analyzing) parts they will comprehend the whole.

But a hologram (try Google for better understanding) is a different thing altogether as here every part contains the Whole albeit the smaller wholes. Similarly our Universe is a hologram….a consciousness…we are nothing but smaller wholes. That’s why our Rishis did Synthesis of the cosmos not Analysis. They knew that breaking wouldn't change anything.

Another Rishi announced “I am in the east and the west, I am above and below, I am this entire world.” These are from Mundaka Upanishad.

There are so many; Pragnanam Brahman – "Consciousness is Brahman" (Aitareya Upanishad Rig Veda). Ayam Atma Brahman – "This Self (Atman) is Brahman" (Mandukya Upanishad Atharva Veda).Tat Tvam Asi – "That Thou art " (Chandogya Upanishad Sama Veda).

Like Concept of time in Vedas which says that time scale is relative to the level of consciousness; different for different lokas. As per Vadas, 8.64 billion years mark a full day-and-night cycle in Brahma’s life. Just as Einstein said in his theory of Relativity that the measurement of time depends on observer’s motion and also the strength of gravitational field he is in. In Gita, Arjun looked at the past, present and future in the mouth of Lord Krishna in Vishwaroop Darshan (Ch.11 of Bhagvatgeeta).Just like the collapse of the space time coordinate system near singularities of general theory of relativity.

Quantum physics realized that no matter is solid…it is just empty space and energy. Just as vedic Rishi warns us to not to be distracted by MAYA as visible world is an illusion.

So finally some early Quantum physics scientists found a great companion in the form of Vedas. They were motivated to continue their journey further towards the unknown.

One important thing, four Vedas are called Shruti which means “that which is heard”. Vedic Rishis were not the creators of the Vedas. In fact they heard the “Vedic Gyan” in their deep meditations. They were the seers not the authors. Gita also belongs to this section…in fact it happened at earth without any medium…it is directly from the Brahaman, the Lord.

Akasha or Zero Point Energy field

Here I want to introduce something about Zero Point field or Akasha or Ether which I feel is the greatest gift to mankind by the Vedas. Nikola Tesla was the only one who understood this and dreamt of a world with limitless source of energy all free to all. His conviction got strength when Swami Vivekananda introduced him the concept of Akasha. Vedas described Akasha as the most subtle basic element from which other four elements were created. Other four element of creation are Air, Fire, water and earth. These are called Panch Bhootas in Vedas. So Akasha (Space) was never described as vacuum (absence) in Vedas…in fact they described Akasha as the basic element of which all other elements were born and hence Akasha is present in every particle of the Universe.

Thousands of years later, Vedas proved right.

All atoms are made up of protons, electrons and neutrons and we have some 100 types of atoms. So all the atoms are made of same things but they are different because of numbers of Protons, electrons. Hydrogen, Oxygen, Helium…they are all have same Protons, electrons and neutrons but these are different due to different numbers of these three. The reason Nitrogen and Oxygen are such different gases isn't that Nitrogen has 7 protons and 7 electrons and that Oxygen has 8 of each. But, it is the different amount of electromagnetic energy that that one extra proton and one extra electron in Oxygen make which changes the substance.

But still protons, electrons and neutrons are way too small at the scale of an atom…almost invisible. If an Atom is an earth then nucleus is just a football stadium. So our Atom is nothing but space. So space is the realty; space is the Atom. In other words Space is the substance of which all atoms are made. If we remove all the space from human body then the billions of these charged particles will form a heap which not even a microscope can see.

So we can say the structure of the atom is energy in a confined space between revolving charged particles. The space in this case is filled with electromagnetic energy. Atoms and Sub-atomic particles are bound together by Akasha or space that’s why atoms create substances as space acts as the binding force. Akasha is not emptiness, but it is an element which is spread over space capable of containing other elements. I even have a feeling that charged particles like protons and electrons just act as forces for creating different types of Atoms. The prime source of energy is not these charged particles but the Space.

Vedas even defined the property of Akasha which is Sound. Vedas say “Shabdaikagunamakasham” which means that Shabd (Sound) is the guna (Property) of Akasha. This is indeed very subtle. Quite contrary to the earlier popular belief Air is not the cause of Sound. Air is not the originator of Sound but Air is the carrier of sound. In a Vaccum (Famous bell-jar experiment) bell is ringed and it vibrates (Sound) but as there is no Air so listener doesn’t hear anything as there is nothing to carry the sound. But sound does originate. So Air is the carrier but not the substance of the sound. This sound property of the space is the reason that so much emphasis has been given by the Vedic Rishis on the mantras and sound pattern to awaken the Chakras in the human body.

So Tesla understood the power of Akasha and had grand plans to generate unlimited energy from space. He even built one tower for the purpose. This tower was proposed to be a model for more of these towers located around the world to provide free wireless energy to everyone. Upon J.P. Morgan finding out it was not equipped with any type of meter to monitor who was using how much of the energy it provided and was thus not for profit he ripped Tesla’s funding out from under him and the tower was torn down.

And so the Information on Akasha energy stopped there with Tesla.


Second Part: Commercial Space

Radio: Needs to focus on Information differentiation

So finally I am coming to Radio and Music Broadcast. Radio survived the onslaught of Television, Cinema and internet against all odds. Still almost 90% people in USA and UK listen to Radio, 80% listens daily. So more Americans use Radio than Facebook. Before the advent of Facebooks of the world,  Radio was the original social media platform. For majority of population in USA/UK radio is still the prime source for discovering the new music. Average listening time is 2 hours per week. So Radio is very much alive and growing fast. Radio still accounts for around 8% of total advertisement pie in western world.

But in India we have just surpassed the teething stage which was of playing filmy music all day long and creating awareness about the radio. That’s why I feel that there is no need to look at the financials of Radio players like Music Broadcast as if they can act wisely than huge growth will come. This is Quantum theory of stock market wherein we should focus on the comprehensive rather than particles :). But as now we have passed the initial stage and numbers of participants are also rising so Radio industry is now finding itself at a stage where every product in its lifetime finds itself; which is product differentiation, quality and creating a space for itself. So I feel Radio industry in India needs to move towards more product innovation; they need to be relevant for people by getting more informative. Information is not about the news or something else; it is being aware and creative in creating the content which will bring more people to the Radio. Just for a case, Green revolution in India owes its success to Radio when as part of one UNESCO project farmers took part in Radio forums. In Tamilnadu in Thanjavur paddy belt, farmers listened and learnt about a new paddy variety over Radio. It was a grand success and they even named the variety as “Transister paddy”. UNESCO applied the Radio forums all over the world seeing the success in India however AIR failed miserably after that and by 1970 all Radio Forums were defunct.

Also as per recently completed Phase 3 auction, multiple frequencies in a single city are allowed. Now Radio players can run more than one Radio station a single city so now they can focus on creating niche radio channels dedicated to something like business, regional music, education etc. Also radio players are now allowed to create network of radio stations by combining small cities and then use the same content in the network. This will work for their advantage as they can get more business with lower costs.

Here are some points due to which I feel that Radio will remain relevant and can achieve high growth in the future:

1)     Local and national advertising: India is the least advertised country. Our advertisement investments to GDP are very low. The reason is the low level of competition and logistics problems in having a nation wide footprint. But now time has changed fast in last 10-15 years. Competition is severe and brand awareness is the most important strategic decision. So we will see high growth in advertising. Local producers can’t afford television or digital advertising so Radio is the best fit for them. For national level producers Radio is another mean to reach people especially small cities/villages where mainstream TV penetration is low. So business is going to be strong for radio players. All they need is to focus on the content.

2)    Print ads are also expensive especially main page ads. But with Radio they are always on the front  page.

3)     For more effective impact of ads, we need to listen/see the ads alteast 3-4 times. For small local and  other small producers Radio is the cheapest way to do the same.

4)      People are required to be in front of television if producers want them seeing their ads. But with radio  they can reach the customer anywhere; in car, offices, colleges.

5)     Radio can reach everywhere. So while I can’t watch TV/News while driving, in the office, college but radio can reach there.

6)     Listeners feel attached to their local radio station. They feel them like their own. So loyalty is very strong here.

7)   In big metro cities like Mumbai, Bangalore driving time is the main time to listen to the Radio. Driving time is around 1 hour in big cities. Radio is the best entertainment source here.

8)    In today’s era of shrinking time, radio is the one thing that allows us to do the multi-tasking. I can work in my office while listening music, news etc.

9)   In India royalty is paid on the licensing rights for music but shared revenues are the norm in the international market.

10)  Local music is the big area of growth. Even now south market is big due to expanding regional film industry as compared to rest of India.

So Radio is not aggressive like TV but it has soft appeal. But there is one big issue which can have big positive impact on the fortunes of the radio industry and that is broadcasting of NEWS. Radio channels are currently allowed to air current affairs like sports, cultural events and weather information. But govt has not allowed them to air news citing security reasons as Govt says that they can’t keep a watch on the content being aired on radio which they are doing for television. A PIL has been filed and supreme court has asked the Govt to submit the valid reasons for not allowing private players to air the news. Govt is taking hefty annual license fees apart from initial bids but still not allowing to air the news. Also another shocking fact is that big media houses are the owners of radio channels who are already have the permission to publish or broadcast the news in Newspaper or at television. By doing so Govt is ignoring all the positive impacts that radio can bring in community development and creating awareness about local issues. Also all type of negative propaganda is already running unchecked on internet which is watched by crores of people in India. So censoring the content over radio is a big mistake as Govt is not aware of the real threats from internet terror. It is still targeting the poor people of the villages who can’t afford a TV but they can benefit and raise their participation in the growth of the country.

Govt has allowed radio channels to air the news from AIR unchanged by paying a fee which is not liked and used by any radio station.

But if this issue is solved then we’ll see much higher growth.

At present Radio advertising is at 4% of total advertising in India. Analysts are comparing it with 8% of the developed world. But things are never linearly comparable especially over civilizations. Due to limited reach of the other expensive media like TV and internet in the rural and small cities in India, Radio may acquire the bigger pie. Music broadcast is at Rs. 355 now…little higher than the issue price of 333. It is a good investment opportunity keeping in view the possible scale of operations in the future but still deserves the allocation from the risky part of your portfolio.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)