POKARNA LTD ( Stock opportunities )

Stock Opportunities Untested - but worth a good look
21

Hi Sambath

There arent any capacity expansion plans… they have enough capacity currently…
They use their own mined RM and also import… most of it is from its own mines (havent found a number though).

Caesar/Cambria- both claim that this tech helps them get great consistency in the product and high product quality… so- I assume it must be good… but havent read about any other tech anywhere else to say its the best…

The biggest help u can provide is if u can help pull together the consumer model in the US… a) who are teh typical consumers of quartz…b) how do they decide what to buy c) Are architects/interior designers the key influencers on the material/brand d) If yes how does Pokarna stack up vs Cambria/Caesarstone e) How is the distribution and after sales service vs the others etc.

Any help here would be of great value

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22

Out of curiosity asked few dealers (stores), Andersons, Lowes and one more local fabricator. No one has heard about either Pokarna or Quantra. Visiting 2 more more today.
A quick question, are there any Indian Quartz stone manufacturers? and what is the entry barrier for Nitco/Kajaria to make Quartz stone?

Thanks-mahesh

23

Hello @Maheshcm,

Looks like they have distributors for each region in USA which is given in their website:
http://www.quantra.in/?page_id=151
they dont have any distributor in Boston where I live.
On the question of other Indian Quartz manufacturers, there are many doing it.There is nothing unique that Pokarna does except it is the exclusive licensee of Breton technology from Italy to make Quartz stones which gives an edge over others.

Entry Barrier for Kajaria/Nitco:
Getting access to raw materials through mining licenses and some technology access to create high quality product in terms of consistency,colors,size.

Given the Quartz usage is very nascent in India,not sure domestic markets focused players like kajaria would be interested in it at this point.

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24

http://stonetileindia.com/?p=2008, pokarna supplies quartz in owns brand, as well as private labels…key is if the co. can scale revenue of its own brand, which is also the focus of the mgmt. (highlighted in f15 Annual report)

25

So,most of our questions have been answered here in this link:

Looks like these 3 brands **Caesarstone, Silestone and Cambria accounts for 80 % of the market share in USA.**There is a new Turkey company called Beleneco has also entered the market in the last 3 years.There are some other companies like Zodiaq dupont and Hanwha(Korean) also selling Quartz in North America.

Interesting thing is all of them uses Breton technology.One needs to spend around $60 millions just to get the machinery from Breton and all the frontline players are using this technology.

I guess there is not much difference between the brands about the way the product is made. The way they position their brand (like Cambria address the premium market) and the product portfolio like colors may make the difference.

And Reasons why Quartz made by chinese machineries could not make a dent in Breton Tech:
“There is also other Quartz companies who uses Chinese machinery to manufacture their quartz slabs. I think, there are many disadvantages of using Quartz coming from Chinese plants. The most important one to me is that they use a lot more chemicals to manufacture their slabs. Their colors fade so easy and if you want to use two or three slabs in the same project, it is very difficult to match the slabs.”

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26

Sambath, Visited IGM (Internationa Granite and Marble), it is Pokarnas dealer as per the website.

Unfoetunately IGM sells only Granite and some marble in this region. His Granite stock was Mostly Brazil and Indian. They couldnt tell me who is the manufacturer, it was 40% brazilian, 25% Indian rest was italian , Turkish, African and some Chinese.

They said Fabricators go with colors and not origin, their corporate office in NJ sources the granite and sells it to fabricators. Called them to confirm if the corporation sources Granite from Pokarna, receptionist wasnt sure but said sounds familiar. Asked me to call Monday to speak some one in specific.

The Flooring in US is 50% carpet, so stone has to mostly to the kitchen counter top (except hotels and malls, offices, whos construction has saturated). But in India flooring is mostly tiles and stone, and stone (granite) is increasing.

Considering Quartz stone replacing Natural (granite) in developed market, it can happen in India also gradually. And as the income levels go up, tiles might be replaced by stones for flooring. I have heard my friends saying " oh the difference between tiles and granite was not much , so we went for granite". That makes the market size much bigger compared to just counter tops. Then you wouldnt be Kajarias interested to make quartz stones since natural quartz is available abundantly as per Pokarnas?
When I spoke to the other Quartz stone fabricator who mostly deal with Quartz stone,
They didnt know about Quantra, they had Viatera, Ceasarstone, Color quartz, Silestone.
They sell quart stone to Lowes, Home depot, Costco, Sears. They said top seller for them is Viatera. Confirmed Saesarstone was most expensive. They said customers mostly go with color. Customers pay premium for combination of Brand and color.

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27

Thanks for the link! good read for anybody trying to understand the company.

Anybody planning to attend AGM on 10th Aug?

28

Their website , strangely, look more like of a innerwear maker.

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29

Sambath, where did you get the capacity info from? If you make some math, it doesn’t match their revenue. What I did? I added both Granite and Quartz stone capacity that you mentioned, that is 1.5 million roughly. Lets give it a avg of $45 realization per sqrft, that makes it about $67.5 million for full capacity, and at avg of Rs 62/ US$, it makes it Rs 410 cr worth capacity. However they are already doing about Rs 100 cr per qrts revenue. So capacity info may not be accurate. And for any increase in market share and revenue, they might have to do large capex.
Am I missing something?

30

Mahesh,that is a brilliant question.Capacity details remain murky,even their annual report does not say anything about that.I have subscribed for a paid service from which i got those numbers(not sure how they got these numbers).I do agree with your calculation,may be if someone attends their AGM,we might get more details.

Many thanks for your scuttlebutt.It is quite difficult to ascertain their competitive advantage since almost all the bigger players have Breton techology,certified for GREENGUARD,NSF-51 certifications.May be the choice of colors,size,COST and the marketing capability would distinguish them from the rest.

Almost all of Pokarna’s sales(Granite + Quartz) happening at the B2B level rather than the retail stores,difficult to gauge the customer satisfaction since they dont know the brand they are buying.

From my interactions with people here,there are 2 types of customers: One who buys a new house and the one who renovates/remodels their existing home.
If someone is buying a new home from a builder he/she has no say or very little say in the brand/color they would like to have even if they are aware of QUARTZ(very few people build their own homes from scratch) because of the choices offered by the builder.
If someone is renovating their home they have a greater control on what materials they what to use(Either they buy the materials directly provided they know what they want or buy based on the recommendations from their construction guy).

Regardless of what type of customers they are,not sure how QUANTRA brand could get traction from the end customers given the top 4 players occupy majority of US market.

May be they are focussing more on institutional sales through dealers/fabricators rather than spending money on advertisement targeting retail market.Looking at the below investor presentations,they have supplied for NFL stadium,Marriott hotel,Radisson hotel.

http://www.pokarna.com/wp-content/docs/presentation/Q2_FY15_Presentation.pdf

31

Yeah, I guess some one who goes to AGM should ask the management about Capacity, Utlization and expansion plans to meet the demand.

Some one asked a very relevant question, are all the queries owned by the company? or do they pay royalty?

32

I wrote to their investor’s relations asking if they would answer my questions.They responded back saying they are ready to answer all our questions.Currently,preparing my set of questions and post it in a day or two here.Please add your questions here,I will consolidate them and send it across.

33

Great Sambath! I was planning to write but can tag along. You can add following if you have not included already.

1> Quartz biz: Since this is driving earnings it is important to know current capacity utilization. They had invested around 200cr in this biz what is expected asset turnover on steady state. Are they fully in control of quartz raw material or will it require getting more mines.

2> What are expansion plans for quartz and granite business separately? What should an average investor make out of these negative headlines? http://www.thehindu.com/news/national/andhra-pradesh/tribals-oppose-colour-granite-mining/article7500901.ece Sure this is a new mine acquisition but how about existing operations? Are they insulated from these headlines?

3> It appears that apparel business is not yielding any tangible results so far so what are their plans for medium to long term? Will improving macro in textile business lead to sucking more capital going forward?

4> Last down cycle during 08-09 they were complaining about lack of demand from housing segment in North America (Source - AR). It is unlikely that current upcyle will last forever. What do they plan to mitigate or reduce cyclical nature of the business?

34

Great work Sambath

A few more questions if u could add from my end

a) Whats their market share position/trend in US. How are they really competing against the Caesar’s and the Cambria’s and their plans to gain share.
b) What are the mining rights that they have. How long, what terms

I will think through a little more and revert by tomorrow if I have any more questions. But these two are the ones that have been troubling me the most…

35

Great work Sambath, I have been following it and doing some work before I decide to buy some.
CaesarStone is the most popular, pure quart stone player with about 12-13% market share in North America, they reduced the guideline for this year a bit in spite of bringing up a new quartz stone plant in Atlanta, can we find out if competition is really heating up? or does Pokarna has an advantage of cost? (CEO of CaesarStone mentioned, cheaper quartz stone from far east, coulnt make out whether he meant chinese or Indian). Is there a way to find out avg per sqrft realisation for quartz stone?
CaesarStone has a gross margin of 42%, inspite of sourcing raw material from Turkey and other parts of the world, what about Pokarna and are margins lower because of they do more of B2B ?
and is there any possibility of margin expansion?
And how is Pokarna prepared to meet the demand in quartz stone and grow market share, because of consumers shift from Granite to Quartz stone?
Whats the ratio of single family home to multifamily home market?
Any long term plans of having direct channels of distributions to fabricators just like Caesarstone /Cambria? Has Pokarna planned to build brand awareness and marketing strategy?
Whats the long term market share target in USA?

How many Granite and Quartz quarries does Pokarna own? and where are they located?

Thanks-Mahesh

36

The stock has turned weak after AGM. Anybody attended the same? China FX devaluation will have negative impact on all exporters including Pokarna.

37

@Sambath . Did u manage to send your queries across to the IR team ?

38

Growth in import of Quartz in US, H2 up 60%, though Granite up just 1%

U.S. Worked Granite Imports
(metric tons)
Q1 2015 Q2 2015 First Half 2015 Change H1 2014
Brazil 168,094 249,765 417,859 -9.7%
China 86,861 131,022 217,883 -4.5%
India 62,531 81,882 144,413 38.9%
Canada 4,380 24,694 29,074 50.9%
Italy 15,063 18,880 33,943 -5.1%
Spain 7,458 13,297 20,755 5.2%
Taiwan 5,544 1,396 6,940 39.7%
Saudi Arabia 585 1,181 1,766 -32.9%
South Africa 470 848 1,318 -20.7%
Portugal 385 361 746 NA
Argentina 89 204 293 -62.9%
Hong Kong 49 171 220 27.9%
Indonesia 25 138 163 NA
Korea 90 95 185 77.9%
France 21 88 109 -4.4%
Sub-Total 351,645 524,022 875,667 0.4%
All Other 7,215 626 7,841 343.2%
Total 358,860 524,648 883,508 1.1%

U.S. Worked Marble Imports
(metric tons)
Q1 2015 Q2 2015 First Half 2015 Change H1 2014
Turkey 22,638 44,210 66,848 200.0%
Italy 22,427 31,397 53,824 15.1%
China 20,277 28,247 48,524 67.9%
Spain 4,747 6,904 11,651 -8.9%
India 5,713 5,975 11,688 99.5%
Brazil 2,891 5,544 8,435 47.4%
Greece 1,579 3,322 4,901 55.4%
Egypt 991 1,272 2,263 -12.2%
Mexico 101 637 738 -26.5%
Israel 466 595 1,061 -13.7%
Morocco 39 437 476 N/A
Portugal 476 416 892 34.1%
France 205 240 445 N/A
Pakistan 150 230 380 -25.3%
Vietnam 226 190 416 N/A
Subtotal 82,926 129,616 212,542 60.1%
All Other 839 958 1,797 -16.1%
Total 83,765 130,574 214,339 58.9%
Source: USITC; Stone Update analysis

US housing too doing fairly well.

39

thanks @jatin for the data! this is for Q2 right? you have mentioned H2. Market is little worried that Yuan devaluation will bring back Chinese suppliers back into the competition.

40

Hi @varun_kejriwal,Yes I did…They mentioned they will get back soon…