Hope you are doing well.
You might be aware of Granite counter tops, but not sure if you are aware of Quartz surfaces. Well, Quartz surfaces are an engineered product and can be made to have any kind of design, including Natural Granite designs.
Recently, we were looking at Pokarna as the stock is down around 40% from its peak price of 800 in Jan'22. While the stock may/may not have bottomed out, we are intensifying our research so as to make the most of the market correction opportunity and create wealth in the next up cycle.
Pokarna deals in both Granite and Quartz surfaces; however Quartz is now the major driver of sales and profits of the company. The company is the largest exporter of Quartz from India.
Below, we have shared our notes (unedited) from the Q1 FY 23 concall transcript of the company to understand management's views on demand, inflation, expansion, growth potential, etc.
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Pokarna - Q1 FY 23 concall notes
- Demand scenario - I think with the pandemic-related demand getting relatively behind and with the talks of recession and other challenges coming, so we don't see a bleak quarter, but at the same time, we are very cautious about the future. I think it will take at least a couple of quarters to see how the demand is panning out. It's too early to comment now.
- US demand product mix - I think if you look at the overall portfolio, about 20% is where the premium lies and about 80% is where you have the basic to mid-level products coming in.
- Domestic demand - domestic business is growing for us. But of course, as a part of our entire portfolio, it is still a very small number. But the year-on-year growth is promising, and we've been able to add about 100-plus dealers across India now.
- Product mix - Basically the product mix in this quarter was relatively better than what we had in the fourth quarter but it is still not at the level where we want it to be. So, it's going to take some time for the product mix to stabilize. And that's again correlated with the demand scenario.
The products with higher capabilities have still not been commercialized in Hyderabad plant (new quartz unit) because it takes certain time for products to be developed, people to be trained and products to be marketed. So, we are still not seeing the products from the investments, which we have made in Unit 2. I think another couple of quarters by the time we start developing those products in Unit 2.
- Raw material prices - the resin prices seems to be tapering down. So, we think that the entire benefit of that would probably come in the third quarter when we see that the prices could stabilize. I think we'll have to wait till the third quarter for us to see the benefit of the resin prices getting stabilized.
- EBITDA margin - our target at the moment is to come to an EBITDA level of 30%. And once we have a little stabilization at the resin cost, we believe that number is possible to achieve.
- Capacity utilization - Capacity utilization in Q1 has been better than the Q4 of last financial year. We believe that as we progress and once we have more clarity on the demand outlook arising out of the economic indicators or from the DOC, we'll be able to ramp up the capacity. We have a little cushion in the capacity to go up further
We always believe that optimum capacity utilization is about 85%. So, if the demand scenario continues to be positive, I think 85% is achievable.
- Greenfield vs brownfield expansion cost and time - if you look at our infrastructure the way we have designed our Unit 2, we can actually accommodate additional production line in it without having to do expenditure or investment to the scale of greenfield, which we had to set up a plant. So, I think typically, at least 20% to 25% savings may come between a greenfield and a brownfield.
Yes, relatively the time will be lower than the greenfield because, one is that our team is already available, trained on the product. Secondly, a large infrastructure is already in place. And all our adjustments which we wanted to do in the machines are already told to the supplier well in advance.
- Debt - the consolidated debt is Rs 516 crore, which includes Granite and also the Quartz divisions
debt will start falling more from next year. But this year, maybe we'll pay about Rs 10 crore to Rs 15 crore what is due to pay during this financial year.
- Anti-dumping duty - The Department of Commerce preliminary announced the anti-dumping duty for Pokarna to be 0%. And this is subject to the final outcome, which is expected to happen anytime between end of October and December.
So, the duties are still not final and subject to the final outcome by the DOC. So currently, our products are subject to 2.67% as the cash deposits in which 0.33% is the anti-dumping and 2.34% is the countervailing duty
There are about 51 companies which may be impacted because of this. That does not include Pokarna. So, for them, there is a group of company which will be subject to 323%, and then the rest would be subjected to about 161.5%. So, if that becomes the final norm, then the 51 companies typically will get impacted to that extent. So, any product getting out of those companies into the U.S. will be subject to the duty to what I mentioned. And there are companies who are not impacted because of this, and they will continue to be on the previous rate, which is about 3%
Disclaimer: This is not a recommendation to buy/sell Pokarna. These notes are as announced by the companies on exchanges and only for the purpose of information and education.
SEBI Research Analyst Registration No. INH100001690
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
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