maybe longer! I went through the conference call. Once the land gets allotted add 18 months for the plant to get operational. If you want to play a life long game then hop on or move out.
Disc. I moved out again.
Kanv
A while back everyone was crazy about Pokarna- IKEA deal, HDFC MF investing into it, G. C Jain’s management and his business acumen etc…now suddenly just because a land is lost (that too coz government took it back)… everyone turned negative about this company. What about their growth which everyone was vouching for a while ago?.. suddenly the granite market is hyper competitive, quartz business isn’t doing any good, IKEA deal…who cares about it anymore, the company is not producing good financials even when they confirmed in concall about quartz plant shutdown for almost half of the previous quarter! What we all care about is that one BIG lost opportunity of loosing a land. (I wonder in any case even if they would have had that land, it would have taken typical 18 months for that facility to be operational. So, why to crib about it nw…let’s just be optimistic that the company will figure out some other land deal in a matter of time.
Disclaimer: How does this even matter!
7 Likes
So as per you a company flourishes only when there is a bull run in the market…so going by this logic my family business would also come to a halt in q2 2019! Am I right my friend?
This was in any case a 3-5 year idea if one was willing to invest at 1000+ levels. New quartz capacity was supposed to come online in q3 next year.
By the way, I have not gone through the agm/concall notes yet, but assuming land has been taken back, did mgmt comment on the steps they are taking to resolve this issue. I remember they said in the last concall they will import the Quartz machine this September for the new plant. So, what is going on on that front?
i didn’t mean that my dear friend
what i meant was the opportunity cost
As in bull run money should be put in growth stocks not a slow growth stock
Q1FY18 Conference Call Highlights
Financial Highlights (Consolidated):
Topline at 68 Cr vs 89 Cr YoY, decreased by 23%
Breakup
o Quartz 33 Cr Vs 53 Cr YoY, decreased by 38%
o Granite 34 Cr Vs 36 Cr YoY, decreased by 6%
EBITDA 18 Cr Vs 34 Cr, decreased by 47%
Margins 26% Vs 38% YoY
PAT 4 Cr Vs 17 Cr YoY, decreased by 76%
Shutdown details:
The shutdown was planned for 15-20 days however we underestimated the efforts required. The shutdown lasted for 45 days. It was a first major shutdown after 8 years. The cleanup of processing facilities was carried out including Polishing lines and Pre-press area. There are more than 100 components in Polishing line. We should be able to make up for this loss in the remaining FY. Shutdown dates May 10 – June 23. The quality standards are high and need to be maintained.
Capex:
Land was earlier allotted by the State govt. however the deal is no more valid now as State govt. want to build a new collector office in that area. We are still scouting for the land. It will take 15-18 months to start commercial production post land acquisition.
Total 325 Cr for new Quartz expansion. To be done from Internal accruals and Bank loans. Plan to do a modernization of the current Quartz plant – no significant capex at this moment. Plan to revamp the whole line, working 365 days 24/7 – polishing line. Plan to add polishing line to mitigate impact of shutdown in the future. Land requirement 50 Acres
Events:
We did a unique CREDAI sponsorship event in London. More than 800 plus builders from India participated. We did a Quartz awareness to them as majority of them were unaware of Quartz product. We plan to penetrate domestic Kitchen market by marketing to Builders and Architects.
Quartz business:
Focus on Product mix, Distribution reach for Quartz Business. Modernizing existing plant – high margin exotic products.
Granite business:
Sustained competitive challenge from Brazil and Indian players. Focus more on modifying the product mix. Focusing more on customized Cut to size as a value added category. Over capacity in Brazil, lot of quarries processing facilities dumping in US market. Each area has its own colours.
Cut to size breakup 30-40% of overall Granite revenue. Few products converted into value added products.
- Kitchen Counter top slabs
- Flooring
Each component has different realizations. Separate division for Cut to size, depends on customer orders.
Stanza business:
Status quo is maintained.
Comparison of Breton Stone technology and Chinese Technology:
Capex requirement 20-30 Cr upto 100 Cr for Chinese Technology. 300 Cr for Breton Technology (and plus Building and Equipments). The price difference in realization can go as much as 200%. It depends on the products and the yield.
Breton originally invented this technology. Globally 25+ companies with Breton Stone technology (65 lines). Better pricing for an exotic looking product (colours). Breton by principle don’t want to sell to Chinese companies as they are afraid Chinese will copy the technology. Certification is a differentiator. Breton Stone has all required certifications. Most of the Chinese products sold in US market are private label products.
General:
Average realizations 6-8$ per Sq. Ft. Go through Distributor -> Fabricators -> Consumers. There could be 100s of Fabricators against one large Distributor.
Resins is a major cost – foreign companies have their production facilities in India – locally sourced.
Demand:
Growth of Quartz in US market is much better than any other product. Also looking at Australia as one of the other mature market for Quartz
Future guidance: EBITDA margins 35%+
Disc: Invested
14 Likes
Seems good oppertunity to buy @current levels, land is tempraroy solvable probelm, its very high margin business, and Quartz is a product where value migration is happening, so tailwind is there… hence if you are putting with 3+ years horizon… its a high probablitiy bet, unless managment mess up with execution…
From the concall details- I am wondering what is wrong with the business that people in this thread is panicking ?
Is there any Supply Constraint ? No
Has Management goofed up any data or ran into some regulator issues ? No
Has USA banned Quartz from Export from India ? No
well, perceived growth is the problem. If they can not start a new plant in another 3 yrs where would growth come from? If there is no growth what are you getting for waiting? nothing since dividend is meagre. Growth would still come from better product mix but it would be unpredictable which gets less discounting. However, this is a bull market so nothing big to worry as valuation might expand. This kind of companies would show earnings growth in step function so there will be good waiting period for the next step, IMO.
Disc: No holding
2 Likes
3 years of waiting period in this bull market is big opportunity cost
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Exactly! not only opportunity cost for shareholders but the company itself. I am more worried about loss of market since other players will fill the gap in the meantime. Snatching market is always problematic rather than capturing virgin territories. I think this time they should go for 100acre of land so that next 10-15 yrs of growth could be taken care of. I have heard that many polluting companies in China are willing to shift their plants to other countries. It is also quite possible that Chinese players learn and improve their quality standard which will make them acceptable to Indian RE developers.
pokarna result Q2 /17 Declared…
http://www.bseindia.com/xml-data/corpfiling/AttachLive/98241edd-3693-4710-80fb-83f53c934ceb.pdf
I have been investing in Pokarna since Apr 17. THe Q2/17 result looks disappointing. I sold more than half my holding fearing steep downside. What do experts in the group suggest about the stock and its future prospects ?
Don’t want to discuss price here, though in my opinion valuation is very reasonable around 200. It is trading at 6 times its FY16-17 operating cash flow. Too cheap in my opinion. Of course, this requires an outlook of close to 3 years for any meaningful upside. I think it was a sell at 1500 when there was euphoria. It has already corrected quite a bit since.
By the way, if you look at total borrowings, has reduced from 271 cr in March to 221 cr in September.
Granite division has fired this time (look at margin improvement). Though, quartz division has posted weak numbers. Will have to check why.
Delay in new capex is actually not bad as they will have to raise lesser debt in order to expand as majority of the chunk can be met through internal accruals (they are generating very good cash flows). More the delay, lesser the debt they will have to take. 
Regarding weak result, we will know more in the concall.
3 Likes
Hi,
Whoever able to make out for concall along with numbering details, need to dig further through con-call or any other direct method on following red flags. Pls help to bring clarity on biz culture and ethics otherwise no meaning to numbers! -
- Accounting policy changed -
-
The financial statement totaly by Mgmt, Auditors not qualified (Note-8 is majorly above point-1)-
-
Ind Director and co. secretary resignation -
Most of these are Ind-AS changes.
Regarding qualified opinion on subsidiaries, this is the norm in India. Check any other company’s result. Subsidiary numbers are provided by the company. You can check the audited financials of the company (must be there on their website or you can ask them if it is not there).
Regarding resignations, again, why do you see this as a red flag. Company secretaries resignations is a common thing. So are the resignations of independent director.
None of these are red flags in my opinion.
Yes, for subsidiaries AS audit typically are done by other accountants. However, the comment is for standalone biz. If you ready carefully and try to make our between lines that auditors dont want to take even standalone numbers as ‘limited review’… Its my critical opinion…
always better to get verified independently, as retail has challenging task to come up with opinions…
Thanks.
I think what they have said is that the limited opinion only applies to total comprehensive income for 2016 and the comparative figures. This has been the case with lots of companies for this qtr due to IND AS. Nothing that is specific to Pokarna.
When I started understanding the business of Pokarna, I thought it had a great opportunity. The US housing market had just started recovering and was moving in the right direction (new housing starts has increased significantly last 3-4 years after a crash in 2008.) and Quartz continue expand market share. I never thought Pokarna will fail to
capitalize it, apart from the fact that it has access to low cost material and Breton technology. I hoped it had positioned itself in a very sweet spot. After a long wait and significant opportunity cost I am moving out of it. But I still fail to understand how they messed up such a golden opportunity.
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Hi Mahesh,
Yes, the delayed capex for the new plant has been painful. And, this Bretton tech has been a double edged sword, as it never felt like that there could be a rapid scale up of the capacity for Pokarna( factoring in company’s balance sheet also).
Can you list down your total set of reasons, why you feel company has totally messed up?
Thank You
Aditya