Jatin, I think you got confused Marble with Quartz stone, here is more accurate data, Quartz surface import grew about 50%. Which itself is significant, but far more significant data is Indian Quartz imports grew more than 200%. Thats very encouraging considering issues China is facing. China is still the top, with almost 27% share. Mind you, Indias share is lower 4% of the total US quartz imports.
Now, can you imagine, that all 1.4 million share of imports could be only from Pokarnas Quantra?? Thats what makes it a very very interesting company to be digged more into.
Surprised that no one has asked this question - the biggest moat in this business is access to the mines. How can a company like this get access to mines without paying royalty/bid amount etc. Wonât this come as a national reserve where you have to pay revenue share/royalty to government for the licence.
how did they get this mine out of thin air ? And more importantly, if they had it all along, why didânt they not develop it themselves or outlicence it to someone. itsâ not easy to get 14 mines like this unless you have âconnectionsâ in India. also, there is no amortization/royalty amount of Rs. 19 lakhs which is chicken feed which happens with every precious natural resource where one has to pay for licence/revenue share.
can someone pls answer the above pls ? does quartz come under natural resources or not ? It is a mineral for sure and hence should come under it.
foreign currency debt, low taxes, carry forward losses and sudden change of fortunes are things I am not able to explain. their fortune coincides with last yearâs election verdict. has someone met the management and asked them on this
I did not mean that - I meant specific to the company - how did they get these mines all of a sudden with no trace of them having bid or having owned them earlier.
company raised FCCB pre 2009 and then invested into debentures of pokarna engineered stone which owns the quartz mines. Since itâs a subsidiary I cant locate the schedules of its fixed assets. pokarna engineered stone was incorporated in 2001 and itâs not clear to me how it became a subsidiary of pokarna in 2009.
pokarna raised money in 2009 through FCCBs and invested as debentures into its subsidiary. I canât find detials of the mines owned/leased by them - how much they paid, royalty share with government etc. what are the terms, can these be fished out dry, what about pollution control/environmental clearances.
It seems unbelievable that quartz being a mineral would have no âexternalitiesâ to be shared with the government (especially as its exported for the benefit of a private party) much like telecom spectrum.
At this point, I have no answers either way - anyone in the know, if you can help. the biggest moat in mining business is acquiring a low cost mine itself - similar to acquiring inexpensive spectrum in telecom. The rest of it is riff -raff - for eg., it does not matter what towers you use ericsson or nokia and similarly so, bretton stone or otherwise. Those are the axes to make the trees fall - I am interested in how they got the forest - especially a national resource.
And to round it out, check this article out :most of these names would be familiar - these were companies that raised FCCBâs and defaulted and were not known for their governance. how can things change so quickly - operating a quarry requires environmental clearance etc. and why borrow FCCB and invest into a subsidiary that makes mines. Why not borrow under the subsidiary itself directly ?
Hi, good question. I cant confirm but I think they dont have a quartz mine yet where they can mine, they have applied for a license of quartz mine, its under process. Currently they source the qurtz from a supplier mine close to Vizag.
And PESL is like a factory, not a mining subsidiary as you think , it processes natural quartz material into a manufactured stone. Please read more about how Quartz stone is made.
And the company is 2-3 decades old, I believe they have acquired and developed granite mines over the years, but I think its good to ask them.
Thanks-Mahesh
Looking at pokarnaâs precarious financials over the years, I am wondering how they got the money to buy these - they have been in debt and hardly have had cash. who are these supplier mines - why did they choose pokarna ? why canât they themselves forward integrate and do this
The toughest is to get a quartz mine - not process it - sort of similar to cellular spectrum. once you got the spectrum, equipment and all else only make a marginal difference.
for any mineral, getting access is the biggest moat - not processing it. AFAIK, this brettton stone etals is good marketing spiel but the real question is how do they get such low cost quartz and if they had all of this before, how did things change only in 2014
Good to be contrarian and ask questions. I actually thought otherwise. I thought it was much easier to get a Quarry, mine and was much difficult to process , create Brand, export and compete internationally. Thats just my perception. I think you have raised valid questions and some could be just assumptions. Like for example, nobody in India would even know Quartz Stone and its advantages, so Quartz stone manufacturer has to mostly export. And to export you should be on par with Quality of some one like Caesar Stone and Cambria. And especially American customers are very conscious. So, building that process and network of dealers and market may not be easier for a plain Quart raw material supplier, unless he know what it take and how long it takes.
And what makes you believe granite mines could not have been bought with debt years back?
I think we should find how much do they pay for natural Quart supplier and whats the contract.
Sir, where did you find out they have captive Quartz mines and they are mining it? can you share? @Sambath found out they dont have any Quartz mine yet and all the natural quartz raw material is sourced from quartz mining supplier.
"2.QUARTZ:* a.Raw materials: Currently compay has applied for quart license and does not have any captive quarries.All of the quartz is sourced from a quarry owned by chettinad group(from Tamil Nadu) in Vizag.No risks with raw materials even if the quarries are not approved. Company calls this quarry as strategically located because of the proximity to the port and its manufacturing facility.This reduces transportation costs as well.emphasized text
Ok - thanks - i stand corrected. if the company is sourcing its quartz from a third party, it begs even more questions.
look at ceaser stoneâs RM cost it is 50% of sales at a realization that is at least 2-3 x of pokarnaâs as per this thread.
Pokarna claims gross margins of 70% incrementally - that means their RM cost has to be 20-25 % of their sales - which by itself is only 50% of that of caeserstoneâs in terms of yield. So, that begs the question - if chettinad being a rational seller can sell anywhere in the world, why would they sell to pokarna at a lower price when cesaer stone claims to be sourcing from india too and chettinad might as well sell to them for a logically higher price.
And in any case they had this bretton stone agremeent from 2010, why is it that only after april 2014, their sales soared ?
And for such an important subsidiary, why are detailed financials not given - what about environmental clearances, PCB clearances etc. on the subsidiary ? Also, why take a FCCB and loan it to the subsidiary in turn - why couldânt the subsidiary itself have raised money on its own with corporate guarantee ? Was it to prevent detailed disclosure ? So many RPT all over between pokarna and PES
The first question would be to understand the entire supply chain and how they are managing all these clearances in the subsidiary and what has changed post FY 2014. I pass no judgements - when facts change I change my mind.
I donât understand what is the issue here. They have mentioned that accounting rules provide exemptions to publish full financials of subsidiaries.
Company issued FCCB in USD to fund quartz capex which was supposed to bring USD revenue. The mistake they did was that it was not hedged leading to almost default like scenario. It takes sometime to build a biz. You canât start selling a product is US by opening a shop.Customer qualification, brand building etc takes time and then comes inflection time.
Quartz mines are not owned but it is not critical since it is widely available material on this earth. It is almost like lifting dirt from earth.
Granite mines are owned but not fully utilised and they buy from other mine owners too on which they donât need to pay royalty.
One should know that granite and quartz are minor minerals where it is the state which gives mining license and royalty is generally very low.
Why it is important to know âwhenâ they got mining license. They are more than twenty yr old company and granite was their main business till few yrs ago.
Varadharajan, I will have to look in detail about their raw material cost compared to CaeserStone, I remember reading CaesarStones AR and finding that most of their raw material comes from Turkey?? May be a tiny bit from India. I am equally curious how much is the raw material cost for Quantra and whats the contract with supplier. It makes me nervous that they claim to have only one supplier, I am interested to know the kind of contract they have with Chettinad. More later on this.
You raised another interesting question, why sales grew only beginning 2014? I have learnt that setting up a quart stone making facility 2 years. And then, I feel they had very marginal sales from Quantra and I think it took time to convince the dealers that its quality is on par and still economical. I have spoken to all of their dealers here, Bedrosians , Daltile and IMG. All of them said as long as its Bretton made the quality is on par with CaesarStone and likes. I think Daltile started selling Quantra only recently. Bedrosians confirmed me they will sell only Quantra Quartz stone and no other brand. I thought that was very positive considering (as Bedrosians employee claimed) they are top 2nd or 3rd slab dealer in USA. I would encourage you to call the dealers, so that we learn more and more. And lets continue questioning and we should try and talk to management.
Sure @Maheshcm - thanks would you know if their realizations are on par with caeser stone or higher/lower.
@sumi00 - I agree that they do not have publish full financials of subsidiaries - in this case, the subsidiary is material and is going to be growth driver. Another thing I am trying to understand is about lack of clarity on environmental, PCB clearances - quartz processing is a environmentally sensitive activity. When did they get these ?
Based on numbers, it looks a good story but I want to get to the bottom of what makes them tick.
I went through most of this thread and thanks for the hard work in bringing the information together. Here are some points from my research on Pokarna.
There has been a question on timing of sales growth for Quantra. Here is what I have pieced together as the chronology of events
⢠Entered into agreement with Breton in early 2006 (Feb?) with a completion timeline of 15-18 months. Also understand that they have 10 yr exclusivity of Breton technology in India (needs validation), which assuming 2006 signing timeline would expire next year. From @sambath discussion, it seems to have already expired
⢠Commenced production in Aprâ09
⢠Launched Quantra brand in Febâ10
It took them 4 yrs for significant ramp-up of revenues. Since US is their biggest market for Quantra (72%), the fortunes might have turned in line with change in US housing/commercial market. It may also be due to the timing of signing up distributors. @Maheshcm your distributor scuttlebutt is very helpful. Could you find out when they started selling Quantra, so we can explain this story better. They have appointed Dekker in Netherlands earlier this year, so distribution is ramping up. On the negative side I did not find a mention of Quantra on Dekker website as claimed in the announcement of the agreement
I did some scuttlebutt at Raja Garden stone market in Delhi. Found that only about a few shops (maybe 5%) keep Quartz. Most of them were Spanish (GTX, Compac) while Asian Granito was also present. I was told of another manufacturer called Kalinga but didnât find the product. These are all non-Breton, so as expected domestic retail market is not addressed by this product. The product sold from ~200-350 per sqft and Spanish ones were less expensive. As an aside, Granite was available from 85-550 per sqft and Italian marble was 220 onwards.
@varadharajanr Your point regarding the raw material cost comparison between Caesarstone and PES. Caesarstoneâs Cost of revenues was 57% of revenues for FYâ14 while that for PES was 43%. It doesnât seem to be 2-3x and I think the difference could be explained by the lower scale of PES, thus higher percentage of Other costs. Does that make sense?
Regarding availability of financials of PES, they are available on MCA website till FYâ13, had trouble finding FYâ14. I have received FYâ15 AR from Company but canât upload here due to size. Reading consolidated and standalone financials, one can work out PES financials to a good extent but I still have some open points on loans which Iâm working on. I can send the PES financials if somebody needs it.
In order to figure out their Quarry capacity I looked up Andhra and Telangana govt sites. There is one mention of Pokarna having a Quartz & Feldspar mining license but it has been shown non-working. Interestingly they also feature in two cases of Environmental violations for Granite mines in Telangana. Telangana govt site does not provide a list of mining leases yet. I think this is a promising source of information on their Quarries. Iâm thinking of using RTI to get hold of this information. I havenât used RTI before so could somebody help with the RTI process.
As per @sambath discussion with company, the granite processing capacity is 5 lsqmt, but their FYâ10 AR mentioned 6.36 lsqm. Similarly, Quartz capacity from the discussion is 6 sqmt while the AR said 8.85 lsqmt. This does not tie up. @Sambath, could you follow-up on your previous conversation for a clarification
Concerns
Meka Yugandhar who is on board of Pokarna has been chargesheeted in Coal scam
Gautam Jain took more salary in FYâ09 than permitted by Companies Act. The amount of 53 lakhs was not a small one to ignore
Sidharth Jain from the promoters left Pokarna in 2011 to start his own Granite trading company. This does not show well on the promoters
Capital allocation in Apparel business is a tragedy, calls to question promoter capital allocation skills. I think it was just a carryover from his Raymond distributor past.
Environmental violations in Pokarna mines
Unhedged forex exposure
62.5 cr of contingent liability for legal undertaking of SEZ.
great effort in collating. On point 3, it should be the converse I thought - RM as a % of sales is higher at lower scale (since your bargaining power with supplier is lower) and in any case, PES being India based should have lower âother costsâ than caeser stone which is based in israel/USA.
REquest you to look at PES financials and look at their fixed assets and see what they own, what they have leased and amortization of payments etc. Also, check on their environmental, Pollution control clearances.
I would not be worried on your concerns save for 1, 4 and 5. their sense of business seems to be all over the place - granite to apparel to granite to quartz
wonderful summary rishi - all said @sambath, if you can get a clarification on the origin, validity and expirty of RM supplies and environmental aspects, this story should hold. Thatâs the most important part for sustainability of this.
On RM, let me clarify. I meant utilization, but used scale. Since Pokarna has significantly lower utilization than Caesarstone their fixed cost would form a larger proportion of cost, crowding out RM on a % basis.
On assets, while standalone financials (granite) mentions Quarry buildings, PES financials donât. So this almost confirms that they donât have own Quarries. My notes from last read of AR donât mention Environmental/pollution clearances. Will post if I find it.
It will be quite valuable to know the sold and processed square footage of granite and quartz for the last year. @sambath could you try to get this as well.
Very impressive guys. Feels very good to be part of a forum where there is so much of discipline , attention to details and lot of scrutiny. I havnt learnt much from my earlier mistakes of " bigger picture" attitude. I will be busy next 3-4 days and when I come back I will update as much as I can.
However, I remember asking one of the Bedrosians store how long are they selling Quantra, I vaguely remember he said 4-5 years, but i can get more accurate info later.
We should also make a plan to visit their office in Hyderabad for more detailed discussion with the management.
