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:
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.
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
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.
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.
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.
Granite business: Company is working on reviving its loss making granite business. Any improvement in that is cherry on the cake.
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:
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.
Antidumping Duties: While the company has been successful in recent duty reviews, there remains a risk of future anti-dumping actions.
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?
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.
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)
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?
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
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.
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)
US Housing market revival coupled with timely increase in capacity: Post the first Covid wave, the US Housing market began to pick-up, led by increased housing starts and uptick in renovations driven by the shift to a workfrom-home culture. High demand meant that the Company would be able to use its increased capacity quickly.
Housing completions were strong in Jan’25, mortgage rates are also coming down. However analyst are predicting slowdown in US economy due to trump tariff, which would affect US real estate sales too
Great results by the company. Mgmt has give cautious outlook for near future amidst the uncertainty on tariff, however I expect this to get resolved in 1-2 quarters once the India-US trade deal is signed.
As an update, KREOS line did got started but did not contributed to revenue, mgmt expecting meaningful contribution from H2. Chromia line will get started in next few days.
Company is also investing into low silica product so as to derisk the business.
Till now, all the tariff is borne by the buyer & there is no margin impact on the company. Goinng forward too, mgmt is hopeful to maintain the margin of 35%.
The CAPEX plan is intact & on track & there is no change because of tariff.
Pokarna gets 85-90% of export revenue from the US , so this tariff spike hits them square in the wallet. Exports are about 53% standalone revenue share, roughly ₹490-500 Cr.
Are there any alternative markets where they can route their products to?
Response from Company Secretary regarding possibility of future concalls:-
”Please note that due to the uncertainty surrounding the US tariff situation, we have not conducted Investors’ Meets over the last two quarters, as we were awaiting greater clarity on the matter. With the recent trade agreement between the Governments of India and the United States, and the reduction in duties from 50% to 18%, we plan to resume our Investors’ Meets in the forthcoming quarters.
In the meantime, we continue to regularly update our financial results and other relevant information through the Stock Exchanges.”
Here’s currency performance of top-10 quartz exporting to USA. Clearly, except Turkey, India is in most advantageous position from export-competitiveness point of view.
The USITC is conducting a global safeguard investigation (TA-201-79) into Quartz Surface Products (QSP), having determined that imports are seriously injuring the domestic industry.
Both commissioners recommend a four-year tariff-rate quota (TRQ) on QSP imports, with an in-quota tariff starting at 25% and an above-quota tariff starting at 40%, each decreasing by 1 percentage point annually.
The in-quota volume starts at 140 million square feet in Year 1 and rises to 169 million square feet by Year 4, allocated on a quarterly basis.
Imports from FTA partners — including Canada, Mexico, Australia, South Korea, and several others — are recommended to be excluded from the TRQ, as they were not found to be a substantial cause of injury.
Commissioner Kearns additionally recommends “de-stacking” of tariffs to protect downstream users, a product exclusion process for items not domestically produced, and broader international negotiations to address global overcapacity in QSP.
While this sounds big negative, there’s 2 observations:
The quota volume itself is set at 140 million sq ft (US total import of quartz is roughly 180 million sq ft) in Year 1 — that’s a recognition that the US simply cannot supply the entire market domestically. So imports will continue, just at higher cost.
Commissioner has recommended for de-stacking which means if US-India has bilateral treaty 18% reciprocal tariff from all goods Exported from India to USA, the total tariff on quartz would not be 18%+25% but rather just 25%, so in effect 7% extra tariff on quartz product
If this get applicable, it could really make difficult for European countries like Spain to sustain with these rate. Countries like India could sustain due to lost cost of production + recent rupee depreciation of 12%. Further, Pokarna’s high quality product could make it pass the duty to buyer. Having said this, this is still recommendation, Trump can still reduce this (or increase upto max 50% limit) or India my try to cover it in BTA, both of this would be positive.
