Pokarna Limited:

  • Mgmt, in an earlier interview, guided for 30-35% growth in FY25. In H1FY25, the company’s revenue increased 23%, while PAT increased by 53%.

  • Stars aligning? Factors at play:

  1. Margin Expansion: Company’s strategic shift towards producing margin products is leading to expansion in margins (for reference, EBITDA margins were 26% in FY23 while 34% in FY24). In H1, the company did margins of 36% & company is confident to maintain this margin profile. H2FY25 should see this play out as well, as margins were about 32% in the second half of last year which should improve this year.

  2. Tax benefits: In FY25, the company is transitioning to a lower tax regime. The company’s effective tax rate for FY24 was 36%, and they are shifting to a 25% tax regime. However, in H1, due to some reversals, the company could bring it down to just ~32% levels. The company has guided for 25% tax rate from hereon, hence next 4 quarters should see PAT margins to increase by 5 to 6 percentage points on account of normalizations

  3. CRHOMIA & KREOS: The company has completed/in process of completing a CAPEX of 100 crore for CHROMIA and KREOS. The CHROMIA line went live on October 11th, and KREOS will become operational in Q4FY25. As per management, this will result in the production of thin slabs with exotic designs, which will contribute to further increase in margins and operating leverage. The main contribution from it will be from FY26 onwards, as it would take 3-6 months to stabilize.

  4. New Production Line: The company has recently announced 440cr, which will come live by March’26. Company is expecting 100cr+ PAT from it on steady state. For reference, company’s TTM PAT is 115cr. What’s even great is that it will be been set up on land that the company already bought a few years back, hence improvement in asset turnover and return ratios.

  5. Monetising Apparel business: The company closed its unprofitable apparel business in March 2024. It is looking for buyer & expect to complete the monetization in next 12 months.

  6. Granite business: Company is working on reviving its loss making granite business. Any improvement in that is cherry on the cake.

  7. Other factors to contribute include:

    • Interest rate cuts in US to boost house construction, leading to Quartz demand,
    • Diversifying into other geographies like Russia, Canada & parts of Europe is also happening on good pace, albeit on a low base – would take few more years to see major revenues from these regions
    • Most of the earnings of the company are in USD, which is expected to get stronger post-Trump joining in Jan – this will make export to the US more attractive as well contribute a bit to FOREX gains
    • Freight rates have been normalizing from last few months; this should ease the trade
    • Due to healthy cashflows, expecting the company to repay a substantial % of its debt (including for recently announced CAPEX of 440cr) by the end of FY27 and become debt-free
  • Key risks:
  1. Import Tariffs: Post Trump taking over, US could impose import tariffs, including on Quartz which could impact the company’s business. However, the company believes that any such tariffs would affect all exporters equally, hence not much of a concern.

  2. Antidumping Duties: While the company has been successful in recent duty reviews, there remains a risk of future anti-dumping actions.

  3. Health and Safety Concerns: The potential health hazards associated with quartz manufacturing and potential regulatory restrictions pose a risk to the industry. Company is following all protocols to ensure safety of workers. Further, even if US ban manufacturing of quartz in US (looks very unlikely), will it impact positively to exporters from other regions?

  4. Intensifying Competition: Increasing competition from Chinese, Vietnam, Thailand, Turkey, and other exporting countries could impact market share and pricing. Worthy to note that, there is already heavy anti-dumping duty on Chinese export of Quartz, hence currently impact is not much. Further, company’s product is well placed with distributors / channel partners which is key for growth.

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You are comparing with Sept 2024 nos and not December 2023. It’s a seasonal business, please compare YOY, there was 36% sales growth with EBITDA margin expanding from 32 to 34%.

Disclosure: Not invested (no transactions in last-30 days)

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True YoY is strong. Number came intraday and movements are anyways looking good.

Pokarna a lot of interesting things are happening here.

  • Quartz surface business is going great for them.
  • Pokarna has automated all their plants and don’t undercut the other company given the EBITDA margins on screener.
  • That tells u something about the business.
  • Guiding : 950-1000 of topline and in the concall they said 35% of EBITDA margins (building material company with 35% margin Just Wow)
  • Full year tax guidance is 25% so by inference Q3-Q4 tax rates will be low as expected.

Capex : 300-350 cr and it gives them almost topline 450 cr (1.3x asset turn) by March 2026

  • That line will give them 100cr PAT (capex of 22% PAT margin)
  • So we can see 120-130Cr PAT with tax rate normalisation and tailwinds in real estate market.
  • 100 cr from the new line : giving us a Total ~ 230Cr PAT

KREOS : New technology called KREOS is launching in Q4
CHROMIA technology is launching next year

image
^ Tax rate KREOS and CHROMIA technologies in concall

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Sale of their apparels business might become another trigger for it. Has management in the previous concall mentioned about how much it’s worth or how much they are expecting the sale to generate?

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i feel PAT is a little underestimated. exisitng business is on a runway of 45 cr PAT quarterly. with new line coming in total PAT can be north of 300 cr.
Disc- Invested

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KREOS and Chromia are the technologies purchased from Breton. Few years back, Pokarna used to claim they are the only ones with Breton technology. But especially in regard to KREOS and Chromia, there is another co called Pacific Surfaces which seems to have worked/invested in these two technologies with Breton https://breton.it/en_eu/customer-stories/a-coffee-with-varun-somani-pacific. So maybe there are atleast 2 exporters of these kind of surfaces from India.

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…Continuing with my post of last quarter

Company has reported revenue, EBITDA and PAT growth of 36% / 45% / 138% in Q3FY25 on year-on-year basis. This is even when one of the 2 unit was closed for around 15days in october on account of installation of KREOS

Few other pointers from conference call:

  • Granite: Chinese businessman are not given VISA in India, hence they cannot come to inspect the granite quarries leading to weak growth
  • Quartz: Company is seeing good growth from Czech Republic, Canada, France, Russia, Germany, Mexico etc
  • Seeing Slow uptick in the demand in US - residential demand is improving, hospitality demand is picking up;
  • Scope of demand improvement: new house construction demand is improving but to cycle cycle it will take some time to come; commercial demand is not yet improved
  • Vietnam have lower cost structure than India; also they have does not have antidumping duty like India & Turkey;possible that few Chinese player have shifted to Vietnam and driving the growth
  • Growth in Turkey exports is majorly because of falling currency which makes their product more competitive in US
  • Too early to comment on tariff, whether it would be passed through to customer or be borne by company
  • Operating at optimum level; Some Growth in FY26 to come from operational efficiency, looking to add some capacity in existing lines
  • One of the unit was closed for 15 days (I expect volume loss because of this was around 5-6% which will get back from next quarter onwards)
  • Stabilization of new line to be relatively quicker unlike previous ones
  • Aim to maintain EBITDA margin of 35% of the subsidiary company
  • KREOS / CHROMIA havent contributed anything to Q3, it would contribute from FY26; these would lead to margin expansion
  • Other income was largely due to FOREX gain: 7.4cr in Q3
  • Havent seen any US player adding capacity to capture the demand lost when US imposed anti dumping duty on China and India in 2019 / 2020 as adding capacity is factor of many other things like availability of semi-skilled and unskilled labor, sand, etc. However, 1 or 2 production line (of competitors) is under construction in US
  • Production of Quartz in Canada is not much; No major benefit from US tariff on Canada to the company
  • In advance stage of finalizing distributors in metro cities of India, this would lead to growth in India. Will take around 6months post the capacity in place to participate in aggressive marketing. Aiming to have 15% - 20% revenue from India in 2-3 years
  • R&D team is keep on woking on low -silica products; not yet announced yet
  • Net debt: 279cr (around 56 crore to be repaid in FY26 + 250cr to be taken for new capacity)
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