https://www.alphainvesco.com/blog/category/stocktalk/ by our very own @varadharajanr
Ikea has a target of opening 25 stores in India by 2025. Being IKEA’s exclusive partner in engineered quartz, Pokarna should stand to benefit greatly from this.
Wonder if it will benefit from lower taxes on granite and quartz under GST:
The possible splitting may increase share base of pokarna http://www.moneycontrol.com/news/business/stocks-business/pokarna-gains-5-to-consider-sub-division-of-shares-on-may-8-2264851.html
There you go. HDFC prudence fund holds the 3% stake as reflected in the attached file. Its from HDFc AMC wesbite
Monthly Portfolios for March17.xls (1.3 MB)
Bullishness knows no limits! IKEA first needs to be able to adapt to India and if at all they succeed, it is going to have numerous variables.
GST for pokarna’s exports?
I think Ikea’s current partnership with Pokarna is India centric (which is in nascent stage), but at the same time Ikea is trying to expand its supplier base from India (for Ikea’s global needs). This can in turn help Pokarna sell quartz globally via Ikea.
Caserstone is IKEA supplier in US. Its in trouble due to quality. I am sure IKEA will look for quality and value alternate. No better match than Pokarna since both Caserstone and Pokarana use same vendor technology for Qurtz. I am sure Breston can provide better reference for Pokarana.
Check Caserstone stock performance to understand the impact on the company due to quality issuees.
Management said in conf call that “Whenever IKEA would throw oppertunity, they would like to”
I believe, both Margin improvement and 10-15% YoY growth for long time (7-8+ yrs) should be easy here.
@varadharajanr - great writeup!
Though, I have some concerns on the leverage position and would be great if i could hear your thoughts on the same.
- Q3FY17 debt stood at roughly 218 cr and they plan to raise another 250 cr for quartz expansion which will result in a cumulative debt of ~450 Cr.
- In case of a downturn in the US market (possible considering the current bullishness) - Pokarna’s revenue would be hit significantly, already granite has been de-growing and quartz would also face a tough time in such a situation.
- in such a scenario, servicing a 45 Cr interest payment (assuming an optimistic 10% interest rate owing to conversion of some debt into dollar term loan) will become a tough ask considering the fact that most of its other costs are fixed in nature and hence a dip in revenues will cause a large impact on bottomline as was seen in the period before CDR.
Disc: Already invested, looking to clear debt concerns before increasing position
i believe 100 crore loan is interest free taken from promoters. so interest payment should be around 35 cr.
250cr (new) + 70cr (old) @ 7.5%= 24cr
130cr (old) @ 13.9%= 18cr
Total = 42cr…
Basis… 70cr of the old debt will be converted to 7.5%. 250cr will be taken @7.5% for capex. Remaining 130cr old debt will still have to be paid @13.9%. promoters gave interest free lian earlier but have started charging interest at 13.9%. so total interest going forward will be close to 42cr.
Back of the hand calculation for next 3-4 qtrs till capex comes into play…topline shud be flattish. Bottomline shud decrease due to increased interest and depreciation.
Assuming 30% ebidta margin @ 400 cr revenue…120cr ebidta…
- 42cr interest
- 20cr depreciation (might be more)
- 5cr other income…
tax at 25%… (They are paying close to 20% atm)
Good approach Mridul!
Though I would like to correct one thing here. If you see TTM interest paid is Rs 35 Cr. so this divided by 200 Cr implies 17.5% IR. So if we revise the calculations on that basis, the bottom line will be hit by another 5 Cr. So that mean about 40 Cr + PAT. . Which is still good despite leverage jumping. Hence we can expect muted results until new caped kicks in.
Disclosure invested at lower levels and will hold for long term
Am assuming 13.9% based on what mgmt said in last concal. If you see, debt in march 2016 was 272cr…@14% is 38cr…which is exactly what they paid last year. Since then debt has been gradually repaid and currently (dec 16) stands at 218cr…assuming gradual repayment of 18cr per qtr in last 3qtrs…interest comes out to 34cr @ 13.9%…so it wont be 17.5%…it is 13.9%.
No. Within India. I think IKEA is planning on sourcing from Pokarna for sales in India.
Too much hope instead of waiting realities. Market price is on hope running high…no margin of safety…
Pokarna is on a ramp up phase now. Capacity expansion planned is 1.3x, which is at least an 75% increment to EPS. At steady state, the company was trading at 10x PE, which is fair and offers a moderate MOS too. So once IKEA stabilises, at 10x PE, fair price should around Rs 1700. Which is a good 15% higher than CMP. IKEA is happening if not by Q4 18 a bit later. And when a major player like IKEA chooses Pokarna as a vendor it talks a lot about the company. Hence this is not market hype, but driven by pure fundamentals.
It is going to take long time for Ikea to establish itself in India. So pokarna’s India encounter through Ikea India is far dream and pricing for it must be adequately discounted.
Detailed write up on Pokarna & Granite industry on these links.
Quartz / Pokarna :
Granite Industry / Aro Granites :
Clearly, Pokarna is a company whose Quartz business has an economic moat around it, first in the form of being the sole user of Breton technology in the country and secondly by having an exclusive supplying contract with Ikea. The only hitch in this might be the risk of any other player in India also tying up with Breton.
Additionally, the company’s growth is reflected in the increasing Quartz slab imports by U.S. from India, a large part of which is supplied by Pokarna (my guesstimate). India also remains an unexplored market for premium Quartz. If quartz penetration goes up and a brand can be established, the company can trade at valuations of the likes of Cera and Kajaria, but let’s not bank on this for now. The question in my mind now is, how big is the risk of Breton partnering with any other company in India?