@varadharajanr … I guess the attachment did not come through? Can you please reattach it. Thanks!
@varadharajanr - still going thru the slides… good write up …quick note … you are using ROE as 60% and thinking its good.
Please note that they are heavily leveraged ( per screener Debt to equity: 2.81).
You will have to deleverage the debt …
For other people - what leverage does to the ROE metric, check this video
this is by Vishal from Safal niveshak…
Read the whole ppt…great write up @varadharajanr. Thank you for sharing.
I had evaluated the company’s valuation at Current market price and using Accounting for Value ( Stephen Penman’s) recommended process of evaluating a leveraged company, it is decently valued at current prices. ( again a couple of input parameters does change the valuation, so value the company at your own risk)
But the optionality does exist for raking in great returns, if things fall in line.
Whatever may be the numbers. The management doesnt give me the confidence. For such small cap cos I feel the management plays a much bigger role in deciding the fate of the company which is also asset heavy and with signs of diworsification already present. whatever may be the numbers, This scrip is an avoid for me
fair point - even ROCE;s look good. One mental model I use is a mix of a. reducing debt b. reducing wc c. shrinking balance sheet e. sales growth f. margin growth g. improving cash flows leads to a good improvement in business fundamentals. I could be wrong as always.
agree - mgmt is quite naive on capital allocation - was disappointing to see them chase apparel still when incremental returns on the same effort and capital in quartz are so much better. that said, transparency is improving, RPT reducing, debt reducing and mgmt is doing conf calls etc (although they are getting beaten up - which is a positive as this should drill some sense into them). Let’s see - at 6 PE, reversion to mean on granite, all growth in quartz and any improvement in apparel is an optionality.
Thanks for an excellent synopsis. Your writings are eagerly awaited and liked.
One question, under —
What can go wrong ?, "More money into apparel – unlikely"…Why \unlikely?
I have apprehensions due to the below facts:
1- Under the profile summary of Gautam Chand Jain an entire paragraph is dedicated for apparel business.
It was another feather to the cap, when Pokarna Limited, under Mr. Gautam Chand Jain’s able guidance successfully diversified into apparel manufacturing during 2003 – 04 and within a span of few years could establish a brand, STANZA in the domestic market under which Pokarna Limited, commercially distributes and retails premium Men’s shirts and trousers in India.
2- Company is losing a handsome amount QoQ and do not show an intent( AR/Conf Call/Company Presentation) to STOP it.
Your synopsis prompted me to look at the company Website and here are my observations :
- Firstly,Website really needs a toning down as it’s full of attractive images, which have nothing to do with the product. Even these images are visible on the page dedicated to the Leadership Team.
- Secondly, I could not figure out the companies business as these images were quite powerful to be ignored
- Lastly, I opened the website during office hours and couple of passing by colleagues questioned my activity of opening such websites during office hours .
Above vividness bias, suppressed me to do any further reading about this company although your thesis was compelling.
Thanks - on apparel, my read is that the promoters now want to get this to a decent shape and stabilize it - not throw more money into it. this apparel biz with its RPT and losses is quite a drag on the image more than the fundamentals.
agree on the images - they are absurd and look like a “banned” website. The company’s management seems to have no sense of how to project themselves - they come across as naive, all over the place and having a poor sense of capital allocation. they can only improve from here hopefully.
You might have seen this. Just wondering what triggers await us going forward?
Let’s see - key triggers would be 1. apparel biz getting profitable/being shut/sold 2. capacity addition in quarttz - its a pity that in company is not making full use of such a market opp. with such tail winds and high ROCEs, company is not concentrating enough.
Continues to run on one leg with huge ~46% EBIT margin in Quartz segment though apparel losses have come down too.
Mr. Gautam Chand Jain started off with retailing and wholesaling of fabrics along with his family members in 1979-80 and by 1982-83 earned the distinction of being Raymond Ltd’s top distributor in India in terms of both value and volume of Raymond Fabrics before incorporation of Pokarna
I think he is overconfident about to turnaround apparel business (old love) but he didn’t understand that textile is commodity type business and instead of shut down textile division (making losses even after 12 yrs) he still continuing.
Like in investing don’t love with your stock, if facts change, then change your mind.
yes - its a risk sachin. the key is to look at materiality of it in overall scheme of things - that’s why this trades at a discount to its intrinsic value IMHO. This should trade in line with a cera/HSIL but trades at a 60-70% discount because of that. Its a risk but I do not at this point of time see it as something that can affect the core business in a big manner.
These type of issues exist in stocks like orient paper, hsil, prism cement etc. - key is to find out if there is a material msi pricing because of this. with 140 cr. ocf on a 600 cr. mcap, I think its cheap for a high operating leverage business. as always, I could be wrong and I often am.
i think good part is that they don’t expanding apparel division and what i heard in con-call they are also looking at option to sell but i thing right now no taker… they want it become first breakeven and may be then they will sell the apparel business (its my assumption).
Hi @SachinP_7436 and @Varadharajanr Can you help me in computing where the cash generated went in the Half year? I was looking at the Balance sheet and found that Net Net they generated about 48Cr of cash (Pat + Depreciation + decreasing receivables ) in first half of the year. I could see that they have reduced 24cr of debt. Also, their segment assets after depreciation for granite has just gone down by 4cr which means that they must have done capex of 6cr in that division and approx 20cr capex in Quartz. Can you please check if I am doing my maths correctly? Also what is the point in doing Capex in a business where there is de-growth? (granite) and why are we not able to see impact of 20cr capex that management did in the last half year as the revenues and EBIDTA have not increased on Q-o-Q basis from past 4 quarters despite management claiming that we should see 10-15% growth in Quartz division this year.
HDFC Securities’s report on Pokarna