Few things that I got from IR
a) Pokarna top management is not willing to meet people or do calls until the completion of its capex
b) They are doing 5mm. This is used for wall cladding and other applications.
c) IKEA comes up with RFP and Pokarna may participate.
d) The entire mfg./sales/fabrication/installation are all distributed and that helps IKEA in moving across suppliers
e) He was not aware of Home Depot
f) Granite sales are doing well all across. Pokarna had issues selling granite to China last year as China was not importing granite from India. That market has come back. China does not have high quality granite. Although the government export data which I checked back did not confirm the same.
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Granite export data upto Oct. (HSN codes 2516, 680223)
Granite exports have remained flat for the whole year and have gone up by around 20% in October. China is the largest importer of unpolished bocks, US is the largest importer of polished granite.
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Letâs start wearing the âotherâ hat.
Silicosis - how pressing an issue is this?
And is BioquartzÂŽ the answer?
Caesarstone Israel 14 year study on Silicosis (2015)
https://www.researchgate.net/publication/221882272_CaesarStone_Silicosis_Disease_Resurgence_Among_Artificial_Stone_Workers
https://www.stoneupdate.com/news-info/latest-stuff/1809-caesarstone-begins-workplace-safety-program
The full interview
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80% vining is done by hand, labor arbitrage?
http://www.bowe.cc/techlib/pdf/Stone_World_Magazine_vol37_no10_1601929042.pdf
Lots of mfrs doing CALACATTA.
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In continuation to this, as per more discussions, the quartz space is seeing too much expansion in India. Came to know about 2 more names - Haique and Tab India.
There are 25 Quartz players in India now. The person was telling about an unlisted firmâŚwhich had setup a chinese quartz unit near jaipurâŚwith 110 Cr of bank funding and in 1.5 years of setting up the unitâŚthey have paid back the debt.
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@ayushmit There are 84 quartz players in India as per some report,
An interesting article on granite, lays out the landscape quite well and the slowdown that happened in 2014.
Also speaks of Pokarna supplying to some prestigious projects.
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Another set of interview (2010) of Gautam Chand Jain:
https://www.youtube.com/results?search_query=Pokarna+Ltd.%2C+Gautam+Chand+Jain%2CCMD%2C+Part+1
Highest quality in granite and shirts.
Making shirts for Hugo Boss.
From the article:
My notes from scuttlebutt with a key industry insider:
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They said that higher raw material import cost can be negated with low labor cost through their automated plant. They also had a list of counties in the US who are offering 10 year tax incentives for starting a plant in that county. Something to keep in mind.
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They can supply a turnkey plant, if needed. Obviously that would come at a cost. They donât just hand-off plant/technology and go away. They said that we start the business journey when the plant gets started. Clients growth is their growth by selling more to the client.
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They shared that being ahead in the game with respect to the environment and health is of utmost importance to Breton. Their Bio-Quartz line is a solution for this. It needs different raw material from existing Quartz stone. Nobody is producing it right now but two of their existing clients are in the process of installing BioQuartz lines. BioQuartz is the future and all of their existing clients are interested to move to BioQuartz. It is the future! Other unique feature of BioQuartz line is that it reduces wastages by reusing the raw material which can save cost and saving can in thousands of dollars for clients making it in bulk.
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They said that they cannot give names and cannot confirm if Cosentino is offering HybridQ+.
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They said Pokarna is their old and respected business partner. Pokarnaâs quality of Quartz is appreciated in the market. Their Quantra brand is slowly but surely making its mark in the market.
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Few of their customers (without naming the names) have installed Krenos lines recently and their 5mm Quartz products should be seen in the market in next 3 months. 5mm quartz is going to open up a lot of new application and the potential is huge.
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US is a booming market for Quartz. They will share US demand projection numbers from a market research study that they conducted recently.
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None of their existing customers have same plants/lines. Lines/plants are fully customizable depending on what and how the client wants to manufacture. All clients have different lines and capabilities.
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Bio-Quartz product can be made through existing lines, but they would need to tweak the lines to make sure that it is ready to produce Bio-Quartz products.
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I am going through annual report of Pokarana since 2003. I have done reading till 2008. Some key issues of concern six years annual reports are as under:
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Directors:
The company has Rao surname three directors on board which were replaced by Jain in 2004. That was year that pokarana decided to market apparel. Another issue is about corporate governance. One i dependent director is also director of Karvy which underwent default recently. (Need to confirm same as I am updated till 2009). Second more worrisome is an independent director name Sawla who has been on board and also on board of company which has same registered office as Pokarna. Would update this when reach office today) -
in Finance charge, significant portion of cost was toward bill discounting. In my understanding, that would mean company discount its receivable with bank and thus reduce the receivable days. However, in such case, we get bill discounted appear as contignet liability in notes to accounts. In Pokarana, we do not find material disclosure about bill discounted. So what is true receivable day and financial? In credit evaluation and working capital assessment we add discounted debtor to debtor and similar amount in bank credit to get true picture. However there is no information available for same during 2003-2009 period.
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Change in auditor
In 2004, the company appointed auditor in AGM, however 2005 balance sheet was signed by S Daga and company who continue to remain auditor till 2009. Normally, change in auditor need EGM approval which I could not find in annual report. So just wondering about corporate practices followed by company. The audit fees for new auditor were also 20% higher which increases my concern.
I shall so more work and revert with my finding. However, the company has major issue about capital allocation in textile, which has adversely affected performance (despite quality and other aspects) for more than decade. The annual report has third page with one line on page
NOT TAKING A RISK IS THE BIGGEST RISK UNDERAKEN BY DECISION MAKER.
Could not find appropriate while working on Pokarna.
Disclosure: No position
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Thanks Dhiraj for your diligence. Much appreciated. My request would be
a) Please update yourself quickly on the 2010-2020 period
b) Please write to company/IR about above issue seeking clarifications
Yes he continues to be a director with the company. He has been a director on lot of Hyderabad based companies.
Agree with Donald, we can question them on the more recent past.
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Shall revert in day or two. Did two more annual report today but nothing serious in my view
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Reverse order se padho/karo/pakdo - pehle 2020, 2019, 2018 
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Had a superb ~40 minute conversation with COO of big US importer. An industry veteran who has been doing business for 30+ years. He was very candid and shared some amazing business nuances that I feel only a businessperson can provide. Below are my notes:
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A lot of pilferage is happening since ADD implications on China. Chinese Quartz is being routed to the US through Malayasia, Vietname, S Korea, etc. This is not sustainable and will level-off soon. Current supply scenario is stable. Turnaround time from manufacturer is normal.
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Recent construction surge (both commercial & residential) in last 5 years has helped Quartz demand. Post Covid slump construction activity is again back to old levels and demand situation is looking good. Covid has in fact increased renovation related demand since people were spending more time home and spent time on home projects mainly upgrading their bathrooms and kitchens. Demand situation is looking good. Quartz market may not grow at historical rate but it has got enough room left for decent growth in near future.
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Quartz is an easy product to sell (he said even an 18 year old sales girl/boy can sell it). In granite sales person has too many hills to climb since each stone is unique because its natural design. Quartz designs are pre-fixed. In granite you can have some colour variation within say âBlack Galaxyâ. But Caesarstoneâs Calacatta Nuvo is going to look same all the time. Because Quartz designs are standard, it sells easily especially in commerical market who want to keep things standard across their locations. His example was a 1500-2000 multi-family residential rental company would want low range Quartz stone in their studio apartments and but may want higher end Quartz for their 3 bed apartments. But they would want all 3 bed apartments to have similar Quartz stone. And sometime these companies want same Quartz in their 3 bed apartments across all locations across US to keep things standard. Same thing in Hotels, Hospitals, etc. This is the reason why Quartz is such a popular product in commercial segment. Architects and Interior designers are decision makers of what stone and what design would be selected for most commercial requirements.
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Chinese are not going to sit quietly. They have idle capacity at the moment. They will innovate and try to enter US market with somewhat similar product. But until new product comes out which is better than Quartz, Quartz shall be a preferred choice in both mass residential and commercial segment.
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Quartz relationship with manufacturers is more sticky than Granite relationship. Granite designs comes from same quarry. A granite design can come from Spain, Brazil, India, China, Turkey, etc. More or less that design will be similar because its all natural. So I can call around to check who is providing me cheapest design in granite. But I canât do that with Quartz. Most importers who have their own brand designs - they want consistency in their designs. Importers have their own designers and they work with manufacturerâs design team too to finalize the design. And once a design is finalized - importer will not switch manufacturer. So there is that stickiness to remain with same Quartz manufacturer which is not there in Granite. He said we date with our Granite supplier but we marry with Quartz supplier (my biggest takeway from this call).
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Bix box players like HD and Loweâs want to work with minimal players. Players who can do big volume business at national or regional level. Currently, if a supplier has strong IT system in-place, they can get into HD and Loweâs much faster. Having IT infrastructure is a must to work with big box. You cannot sell your stone to them without IT infrastructure.
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They bought 1-2 containers of Granite from Pokarna some 15 years back. They have not done any business with them since then. Nothing wrong but he said that they didnât click for some reason. He said they are very stingy and picky importer and may be it was because of them that relationship didnât build. They are very choosy with whom they want to do business. He had high regards for Pokarna and said their products are of very high quality and they have amazing designs coming from Breton lines.
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All of their Quartz was coming from China before ADD. They have switched Quartz suppliers post China got hit with ADD. It doesnât matter to them whether stone is made on Breton line or Chinese line. All that matters is design of the stone. All quartz is of same quality its just that designs that make them different.
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As long as manufacturer can build national distribution network, they can work directly with big box retailers. Distribution is the key for manufacturers like Pokarna to bypass US importers. Itâs not easy as it takes time but at the same time it is not impossible. You have to spend money to build the distribution network.
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His view was that Pokarna is lucky in a way from timing stand-point. They are coming up with new capacity when China has got hit with ADD. So it is great opportunity for Pokarna to capture ground left by Chinese. He felt Pokarna should be able to sell their new capacity in US given existing demand tailwind and lots of ground left up for grab by Chinese.
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A lot of millennials are buying stuff only online. Itâs easier to sell Quartz online as compared to Granite because of standardization in Quartz color.
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High-end luxury segment prefer exotic Granite with natural designs and veins.
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His view is that new Slim Line Quartz is not going to be game changer or open up a lot of new applications right away. Itâs a slow and gradual process. It takes time for designers/architects/customers to have confidence in new products - just like it took them a while to fully accept Quartz while moving out of Granite.
We ran out of time. I was able to ask just 60% of my questions. He asked me to email him rest of the questions and he shall reply back.
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I would add 170cr to their existing borrowings of ~274cr which company has nicely put under âOther Non-Current Liabilitiesâ. I guess this will be shown as âBorrowingsâ once new plant goes into production.
From their FY20 AR:
From H2 FY21 B/S:
As of today, company is available at EV of around ~1030cr (603cr equity + ~444cr debt - ~20cr cash & bank)
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I think we need to work more on the debt part. I tried spending sometime to figure our the rate and source of borrowing:
The cost of borrowing looks higher than the usual rates. But as a large part of borrowing is yet to show up, its important to figure out the rate and repayment profile going forward.
Despite every thing right, companies fall in traps if there is mis-match in cash flows or if things go wrong for even a short period when the debt is high.
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USITC investigation report on Quartz surface imports from China:
Some excerpts from the report volume/value/China percent share :
Price per sft.
Information on Chinese capacity and capacity changes over the years
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This is a concern but looking at the cash flows they should tide over it. The debt repayments for newer facility starts from FY23.
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Quartz worldwide capacity is around 20 lac sq. meters and Breton currently has around 60 lines in place.
A very good article to go through and understand the hiistory of Quartz.
https://www.isfanow.org/a-look-at-the-history-of-engineered-stone
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I was looking at the import statistics for HTS 6810.xx for last 8 quarters on USITC Import monitoring site:
Above data is representing % contribution by some of the key Quartz exporting countries to total US Quartz import. Intrigued by the fluidness of supply substitution aspect in the overall market:
- China had a sharp drop in US import contribution within 2 consecutive quarters of Q4â18 and Q1â19.
- Significant part of this vacuum was filled by India and Vietnam on immediate basis - as if the domestic industry had that much of spare capacity to stretch.
- Next, Q4â19 Indian industry came under scanner due to the ADD legal proceeding.
- Part of Indian volume shifted to Malaysia - again on almost real time basis.
Next, below is the realization data (USD/Sq.FT) based on Quartz export volume and Realization data from hardsurface website
| Octâ20 | Sq. Ft | USD | Realization |
|---|---|---|---|
| China | 28,578 | 115,440 | 4.04 |
| India | 3,990,694 | 23,488,028 | 5.89 |
| Malaysia | 1,339,234 | 9,777,326 | 7.30 |
| Thailand | 156,884 | 1,189,432 | 7.58 |
| Czech Republic | 158,994 | 1,215,121 | 7.64 |
| Turkey | 729,932 | 6,268,159 | 8.59 |
| Philippines | 215,795 | 1,943,795 | 9.01 |
| South Korea | 646,663 | 5,947,395 | 9.20 |
| Italy | 390,687 | 3,635,760 | 9.31 |
| Spain | 1,915,425 | 18,586,548 | 9.70 |
| Vietnam | 2,053,106 | 20,099,142 | 9.79 |
| Taiwan | 575,600 | 5,710,622 | 9.92 |
| Israel | 772,191 | 7,996,443 | 10.36 |
| Brazil | 159,338 | 1,797,561 | 11.28 |
| Canada | 831,673 | 9,714,784 | 11.68 |
China has been lowest price/Sqft exporter followed by India for Quartz to US market. Their realization was way moderate as compare to other key players. Other two player who has emerged very strong also looks competitive as compared to rest all.
@rupaniamit, @Anant, @rupeshtatiya - Would really help if you guys can cover this aspect in the upcoming session. From a sustainability perspective, its really important to understand:
- what is the key differentiated factor between players/geographies.
- At large, what really drives this market? cost or specifications.
- What is working to Indiaâs advantage from cost perspective? is it labor, scale or something else?**
To me, purely based on data, it looks like Quartz import market is very sensitive to price. Purely based on pricing power some of the exporting countries - Malaysia and Vietnam particularly - are gaining significant market.
Regards,
Tarun
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