Anand Rathi Share and Stock Brokers Limited has retained its BUY recommendation on Carysil Limited, the building materials behemoth specializing in kitchen and surface solutions. The research house has elevated its 12-month target price to Rs1,265 per share from Rs1,161 previously, signalling amplified conviction in the stock's growth trajectory. With the current share price hovering at Rs1,002, the upside potential stands at approximately 26.3%, presenting an attractive risk-reward proposition for discerning investors seeking exposure to India's premium kitchen fixtures market.

A TRANSFORMATIVE QUARTER SETS THE STAGE

In what can only be described as a stellar performance, Carysil's second quarter of the financial year 2025-26 delivered results that crystallize a compelling investment thesis. Quarterly revenues surged 16.2% year-on-year to Rs2.4 billion, demonstrating the company's ability to capitalize on buoyant demand across both domestic and international markets. More tellingly, earnings before interest, taxes, depreciation and amortization surged 24% year-on-year to Rs461 million, showcasing operational excellence and the powerful leverage embedded within the organization's cost structure. Perhaps most impressively, profit after tax skyrocketed 61.8% year-on-year to Rs272 million, signalling that margin expansion and operational discipline are translating directly into shareholder value creation.

The narrative here extends beyond mere numbers; it reflects a company navigating commodity cost pressures with remarkable finesse. Management demonstrated strategic acumen by optimizing its product mix—a calculated response to an inflationary input cost environment that has challenged lesser competitors.

THE MARGIN PARADOX: NAVIGATING HEADWINDS WITH POISE

Gross margins contracted 374 basis points year-on-year to 51.9%—a development that, at superficial glance, might suggest concerning deterioration. However, this contraction predominantly reflects deliberate strategic shifts rather than operational erosion. The company consciously rebalanced its product portfolio while absorbing elevated raw material costs, a testament to management's willingness to sacrifice near-term margin percentages for long-term market share consolidation.

What truly impresses disciplined analysts is the company's countervailing success in cost management. Employee expenses grew a conservative 6.8% year-on-year despite revenue expansion of 16.2%—a margin-positive dynamic that evidences improving operational leverage. Simultaneously, other operating costs remained essentially flat, declining marginally by 1% despite the inflationary backdrop. This disciplined expense management, coupled with higher other income and reduced finance costs, generated sufficient operational leverage to propel earnings growth substantially ahead of revenue growth.

SEGMENT DYNAMICS: WHERE THE REAL STORY EMERGES

Examining the anatomical breakdown of performance reveals a company firing on virtually every cylinder. The quartz sink division—the company's largest revenue contributor—demonstrated robust momentum with volumes reaching 198,000 units in Q2 FY26, up 23.5% year-on-year. Realization per unit remained anchored at Rs5,931, down marginally by 1% year-on-year, evidencing that price realization remained relatively stable despite the challenging commodity environment. Segment revenues accordingly expanded 22.3% year-on-year to Rs1.2 billion.

The stainless steel sink division exhibited steady momentum, with volumes rising 7.6% year-on-year to 43,400 units, translating to revenue growth of 7.8% to Rs245 million. While growth here proceeded at a more measured pace compared to quartz sinks, the consistency and stability suggest a business that has found its operational rhythm in a more mature product category.

However, the constellation's brightest star emerged in kitchen appliances. Kitchen appliances and other product categories witnessed explosive growth of 37.7% year-on-year, with revenues ascending to Rs339 million—a dynamic that underscores management's successful product diversification initiatives and the emerging premiumization trend within India's domestic market.

The surfaces segment, which contributes significantly to overall topline through the company's United Kingdom operations, grew 2.2% year-on-year to Rs649.8 million, registering as the only segment operating at a noticeably decelerated pace. Management has acknowledged this relative softness and outlined a strategic pivot toward harder surface materials, which collectively represent 90% of the global market opportunity.

PRODUCTION CAPACITY EXPANSION: BETTING ON SUSTAINED MOMENTUM

Management's capital allocation strategy reflects unwavering confidence in sustained demand momentum. The company is expanding quartz sink capacity by 100,000 units annually with an investment of Rs50 million, with commissioning targeted by December 2025. This expansion is proceeding through internal accruals and funds previously raised, underscoring financial discipline and self-sufficiency in funding growth initiatives.

Beyond quartz sinks, the expansion agenda encompasses multiple vectors. Stainless steel sink capacity will potentially increase by 70,000 units to meet burgeoning export and OEM demand. More ambitiously, faucet assembly capacity is being augmented by 50,000 units annually, taking total capacity to 150,000 units, with completion anticipated by Q2 FY27. These initiatives, collectively representing a multi-year capex cycle, position the company to capture the significant international opportunity emerging from China-plus-one sourcing dynamics and the accelerating global transition toward India as an alternative manufacturing hub.

Current capacity utilization rates underscore the urgency of this expansion agenda. Quartz sink utilization stands at 88% in Q2 and 82% in H1, stainless steel sinks operate at approximately 95% utilization, while faucets achieved 75% utilization—metrics that collectively signal bottlenecked supply relative to demand, validating management's strategic emphasis on capacity accretion.

THE INTERNATIONAL DIMENSION: GLOBAL TAILWINDS GATHERING STRENGTH

Carysil's international business increasingly represents a material growth vector. The company has secured supply agreements with marquee global brands, and non-US business has commenced IKEA supply operations, with shipment volumes already doubling since inception. This represents not merely incremental revenue, but a strategic validation from one of the world's most demanding OEM partners—a credential that substantially elevates the company's competitive positioning.

Management articulated a persuasive overarching narrative regarding global market dynamics. Europe's housing and urbanization trajectories continue generating robust demand for premium kitchen and surface solutions. Simultaneously, China-plus-one supply chain strategies represent a major growth enabler, particularly for stainless steel sinks, as multinational corporations systematically diversify sourcing beyond China. The company has successfully positioned itself as a beneficiary of this geopolitical-driven supply chain reorientation.

Notably, the US subsidiary achieved a remarkable turnaround, with profit after tax swinging decisively positive. This represents a significant inflection point for a market that previously represented a drag on consolidated profitability. The company's joint supplier award from Lowe's, a major home improvement retailer, further validates its competitive positioning and capacity to scale within this crucial market.

FINANCIAL PERFORMANCE MATRIX: ANALYZING INVESTMENT METRICS

THE VALUATION THESIS: STRUCTURAL EXPANSION MEETS REASONABLE PRICING

Anand Rathi's revised target price of Rs1,265 anchors valuation at 30 times FY27-28 average earnings per share—a multiple that warrants contextual analysis. The company is projected to deliver a 17% revenue CAGR over the FY25-FY28 period, accompanied by an impressive 25% profit after tax CAGR. This dual trajectory of revenue expansion coupled with superior profit growth reflects operating leverage and margin expansion embedded within management's strategic roadmap.

Valuation multiples demonstrate systematic re-rating potential as the company matures. The P/E multiple is projected to compress from 44.6x in FY25 to 21.1x by FY28, notwithstanding substantial earnings growth. This implies multiple compression acceleration as the company scales and establishes itself as a more predictable, lower-risk entity. Similarly, the EV/EBITDA multiple is expected to decline from 22.2x to 12.0x over the same trajectory, suggesting that even investors acquiring today face downside protection as valuations normalize relative to earnings growth.

Return on equity is projected to recover from a depressed 14.5% in FY25 to 17.6% by FY28, while return on capital employed after tax is anticipated to accelerate from 11.0% to 15.5%—metrics that validate quality of capital deployment and management's capacity to generate above-cost-of-capital returns.

MANAGEMENT GUIDANCE AND STRATEGIC IMPERATIVES

The company's articulated guidance for FY26 provides specific directional indicators for investors. Management expects revenue to grow by 15% in FY26 with EBITDA margins sustaining in the 18-20% band. This guidance encompasses the ongoing capacity expansion cycle and reflects a measured approach to organic growth, suggesting that the company is prioritizing sustainable expansion over aggressive volume chasing at substandard economics.

Management outlined an ambitious roadmap to achieve domestic revenue of Rs5 billion, underpinned by capacity expansion, product diversification, and market penetration initiatives. This implies domestic business could potentially triple from current levels over a multi-year horizon, a trajectory that would necessitate successful capacity commissioning and market acceptance of the company's expanding appliance portfolio.

12-Month Target Price: Rs1,265
Current Share Price: Rs1,002
Upside Potential: 26.3%
Rating: BUY
Market Capitalization: Rs29 billion
52-Week High/Low: Rs1,072 / Rs482