consolidated net profit increased 30% YOY and 300% QOQ because of better capacity utilization in the Quartz segment. Granite segment has a low margin and is flat in terms of revenue QOQ. The growth of the company is primarily dependent on the Quartz segment where the company is doing well. With a great US jobs data this month, home sales in US will continue to be robust in the immediate future which in turn will help pokarna to boost its sales in the high margin Quartz segment. All in all its a very good result.
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For me QoQ results were more important than YoY in Pokarnaâs case to make a reasonable guess about their capacity utilisation.
Its an ordinary set of numbers in the current scheme of things. One doesnât buy a stock only to see YoY growth in results as compared to previous year, but buys and holds on to also see a YoY growth 1 year down the line and this matters more.
QoQ Revenue and PBIT are absolutely flat to marginally negative for the Quartz division. From this a reasonable guess can be made that they are operating at full capacity. And operating at full capacity since last 3 qtrs almost. The March16 B/s did show that some capital expenditure is going on but looks like that hasnât come on steam atleast in Q1 of this FY. Also donât know what would be the capacity addition this year assuming that it is already WIP. They may need new capacity additions in future too again.
The fall in granite PBIT is more steep as compared to the fall in granite revenue. I am not sure what to make of it at this moment.
Hoping that new capacity comes on steam soon. Any growth would come in only by capacity additions now in the quartz segment.
Cheers.
Discl- I hold
Construction being cyclical industry, I would compare yoy nos. The big takeaway is that Quartz segment alone can pull the cart forward. However, we just need Granite to remain stable at least. Whenever construction in Andhra starts, it will be huge kick to earnings.
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I have been adding pokarna at 800-840 levels. the stock price has been steady ffor the last 18 months inspite of EPS going from 50 to about 110-120 this year (even for FY 16 it was 110 before exceptional one off items). I see this to be an asymmetric risk reward ratio
- this is trading at 7x FY 17 - so do not see a big downside here
- any closure of apparel, growth back in granite will help tail winds
- quartz continues to grow at 20-25 % - so this year could be about Rs. 240 Cr. topline with about 35 % EBITDA (conservatively) - say Rs. 80 Cr. -
- my guess is that they are running at 65 -70% cap util and when they go to 8-85 % util EBITDA margins will surprise. Of course the worry post will be addditional capex needed for the next phase of growth. Mgmt needs to clarify about that.
- At say 65 Cr. PAT, this is trading at 7x or so - if tcobwebs like apparel are removed and granite gets back to stability, this can trade at 13-15x PE given ROCE of 20% and a global growing market.
There are governance issues as indicated above in the thread but quartz is a good business for sure and this will get re-rated once quartz becomes 60-70% of their business which is bound to happen in 2-3 years.
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The company seems to have woken up. There is an analyst concall tomorrow at 11.30 am. Letâs see what do have to sayâŚ
Do you have the call-in details ? Could not find it either on BSE/NSE or company website.
It is on NSE
https://www.nse-india.com/companytracker/cmtracker.jsp?symbol=POKARNA&cName=cmtracker_nsedef.css#
I have seen this but could not locate any details of phone numbers to call-in. Do you see these details ?
Ok, check this for PDF link at 2.37pm
https://www.nse-india.com/corporates/corporateHome.html?id=allAnnouncements
Thanks Sumit 
Strange that BSE does not have these details.
Hi Varadha,
Could you please elaborate on the reasoning of your assumption of Pokarna operating at 65-70% capacity at present?
I have assumed on the basis of flat revenue and PBIT from quartz segment (for last 2-3 qtrs) that they are operating at full capacity in the quartz division and therefor any growth can come in only through capacity addition.
And thatâs why quantum of capacity addition becomes important for me.
Cheers.
Hi all, I listened to the con call.
Key Negatives
- Management is expanding Granite and quarrying capacity instead of Quartz Division.
- Management wonât be reducing much debt this year as they will be spending money in the above expansion. (Taken from the interview which Chairman gave on ET Now) but contrary to the interview, in con call they said that they might reduce the debt or put the cash flow for best possible use. I donât understand what best possible use would be.
- No major Capex in Quartz division is expected. To keep investors happy, they said that they are evaluating the expansion plans.
- Inconclusive answer to why they are not closing Stanza or their apparel division. Their answer was really dubious when somebody asked that you are losing 2 cr on 2cr sales. He said that they are losing because of depreciation but who invests 26 cr capital to generate 2 cr sales?
- They donât have exclusive agreement with Bretton Stone but generally Bretton Stone doesnât give multiple licenses in one country. So it is safe to assume that they will be exclusively making Quartz in India.
- They donât have any plans to sell it in India because they are in SEZ and taxation will be more if they sell it in India. (Will have to check if I heard it correctly)
- Total Debt is 206 cr down from 244 cr. Out of 38 cr, 18 cr was from exceptional item showed in March quarter and Pokarna Engineered Stone issued Debentures to Pokarna Ltd and Pokarna Ltd converted those debentures.
- He said that they will be issuing debentures for those 18 crores mentioned above. I donât have a banking background but how issuing NCD will reduce debt?
- New Quartz setup will take minimum of 2 years after initiating the expansion plan.
- They are planning to convert all the loans to ECB loans at a lower rate and announcement in regards to this can come anytime soon.
On the whole, the management looks very dubious. I am heavily invested here and will completely exit in some time.
The management doesnât know how to use cash or they are cooking up the accounts. Next quarter can throw better picture when half year Balance sheet will come out.
@varadharajanr Can you please listen to the concall and give your inputs?
Regards
Kanv
5 Likes
Thanks, anything on growth prospects from existing assets or capacity utlisation of Quartz division?
They are going to buy some balancing equipment which will improve the efficiency of quartz division by 10-15% but that will happen only in the 3rd quarter and the results will be visible in 4th quarter. Also management said that they are expecting Granite and Quarry division to maintain same revenue as corresponding previous year quarters. This year is going to be flat for Pokarna and looks like next 3 years are going to be flat as they have not yet ordered the machine for Quartz division.
I am surprised that Ashish Kacholia being a 6% stake holder is not doing anything.
Kanv
Did they mention capacity utilization of quartz. One can explain the delay in adding capacity their if there is some headroom thereâŚ
The bluntly refused to tell that when someone asked them. But during the complete concall they said that they working at the maximum capacity utilization which will improve by 10-15 % in q3 and will be visible in q4.
This investment has been a huge disappointment for me. Great learning. I was betting on a great consumption, lifestyle story and housing improvement in US, had I just bet on Loweâs/Home Depot or a special housing related company, would have been wiser. I have planned to unwind everything in this as and when I can.
Well, I think it is available cheap since there are concerns and red marks. Price performance has been a big disappointment but donât think earnings are as bad. This was their first concall hope they come prepared the next time.
My understanding of the situation.
- Slow sales in Granite division was also because they were creating access/infra for their quarries along with Brazilian competition
- Quartz division was not running full since they were upgrading line to produce larger sized blocks having higher margin. With new product line and hence mix I guess it is difficult to give utilisation figures
- Have said before, textile is their emotional biz. They started with textile and built a company of this size so I did not expect a disposal so soon. They did not do it even when they were in CDR. With new generation taking over, it could be expedited at some point of time. You donât expect them to give a date.
- They canât announce a new quartz line which involves 200cr investment when debt is still high. They would most likely build some cash balance before announcing anything big. You canât expect both a debt reduction and a new line at this stage.
It is available at 700 cr EV with annual cash flows of 70cr+. The stock is in consolidation and might remain so
Disc: Invested
I agree with Sumit. Though clearly disaapointing and frustrating, this should be in the price @8x FY17 P/E with >20% ROEâs and strong growth. At the current multiple ZERO growth and ROE= cost of equity is built in. Hope marquee investors can help mgmt understand our viewpoint and cause a re-rating quicker.
If they continue to expand in granite and textiles all the PE valuations will go on a toss. Seems to me like good quartz business marred by value traps from other businesses.
Discl. Not invested