POKARNANSE30 May 2022

Pokarna Limited

7,812words

113turns

11analyst exchanges

0executives

Key numbers — 33 extracted

100%

l prices have increased significantly, especially the polyester resin. We’ve seen year on year or 100% increase in the polyester resin prices. And same has been with the freight also. And apart from th

30%

o. And apart from that be it all the other raw materials, we’ve seen significant increases between 30% to 100% happening only on the other basic raw materials. And also with the fuel prices going up ev

the other services cost also have gone up. So typically, all these factors impact anything between 5% to 7%. On the EBITDA margin, that’s the reason you see that on overall

her services cost also have gone up. So typically, all these factors impact anything between 5% to 7%. On the EBITDA margin, that’s the reason you see that on overall basis,

70%

rs and all. So how do you see it going forward? Typically, the utilization levels are now around 70%. And now we are looking at going beyond that. And what predominantly in terms of the revenue what

rs,

f this inflation tapering which is happening and goes in the same direction for a couple of quarters, I think bouncing back to the better numbers than what we currently reported is definitely possible.

Rs. 500 crore

nt Managers. Pritesh Chheda: Sir, just wanted to know this debt of Rs. 500 crore plus, how do we see this moving over the next couple of years? And when will you take the next rou

Rs. 100 crore

in the granite business. Pritesh Chheda: Sir, on the debt figure would you be able to repay at Rs. 100 crore per annum run rate, the debt figure or that’s optimistic? Gautam Chand Jain: Maybe around Rs.

Rs. 175 crore

verted in the very first quarter, but that will be a substantial number, because I remember seeing Rs. 175 crore of inventory, which is quite substantial, even if I assume 60% gross Margin number. Paras Kumar

60%

because I remember seeing Rs. 175 crore of inventory, which is quite substantial, even if I assume 60% gross Margin number. Paras Kumar Jain: Typically, what happens is that specific to quartz, abou

Rs. 10

ricings are relatively fixed. So we don't have a pass through mechanism that if I buy something at Rs. 10 and if I can pass on additional Rs. 10 extra to my customer that doesn't work. It's a fixed price.

Rs. 450 crore

ial provision has already been made for expansion at your new unit as well, because the CAPEX was Rs. 450 crore or so. Chairman just pointed out, the focus is definitely on debt reduction, but at the same tim

Guidance — 15 items

Gautam Chand Jain

“So, we for sure will be bringing down debt that is our first target now, before we embark on a major expansion.”

Gautam Chand Jain

“So, that of course, we will be continuing to do it, but not with the major investments.”

Gautam Chand Jain

“And we will be always aiming at optimum utilization of the capacity and we are already working on three shift production facilities.”

Gautam Chand Jain

“So our optimum utilization is the target, but it can never be 100% capacity utilization.”

Karthi Keyan VK

“So this should get converted in the very first quarter, but that will be a substantial number, because I remember seeing Rs.”

Paras Kumar Jain

“So I think 30 to 45 days typically will be in the transit for some more time.”

Fathima Khan

“So when do you expect a normalization in this?”

Paras Kumar Jain

“But you seem fairly confident that you will reach optimum utilization.”

Rupesh Tatiya

“See usually the order books are not for 9 to 12 months in hand, typically, we have three to six months, but then it is a rolling number, which because the productions are based on the forecast, which we have annually.”

Rupesh Tatiya

“And then we keep updating the forecast what we received from the customers.”

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Risks & concerns — 9 flagged

Because the sales cycle, this time because of the shipping challenge is relatively longer than what it would have been in the normal circumstances.

— Paras Kumar Jain

The reason I'm also asking you this is the large inventory does that make it difficult for you to improve profitability?

— Karthi Keyan VK

So, it's difficult to comment at the moment as to what we will do and when we will do and whenever we will do we will definitely keep you guys informed.

— Paras Kumar Jain

So, there is an impact of raw material inflation and then also there is a mix which is towards the basic products which has compressed the gross margins?

— Devansh nigotia

I can understand the impact on the revenues but not on the margin compression part because of the freight cost.

— Paras Kumar Jain

Till the time we reach the optimum capacity, yes, but once we reach the optimum capacity, then reaching the 20% 30% number is definitely a challenge year-on- year.

— Paras Kumar Jain

50 crore would be impact of all those factors.

— Paras Kumar Jain

We don't see any impact of any mortgages or new building constructions coming down on our business.

— Paras Kumar Jain

But I mean, let's assume status quo, all the inflationary factors would the regular product mix improvement and pricing changes would that help to at least bring back by a 200 basis points or that's looking difficult?

— Surhid Deora

Q&A — 11 exchanges

Sir, just wanted to understand what was the impact on the margins because of the increase in freight costs and the raw material inflation, which has been impacting all the companies? And my second question was more related to what are your thoughts on how the U.S. countertop market is expected to grow with now the interest rates increasing? And the third question was related to any update that you might have on how the investigation on the Malaysian quartz imports, which USITC had started any update on the same would be quite helpful? Yes. So on your first question, how the raw material inflat

Paras Kumar Jain

or onboard the ship, we don't get the bill of lading. And then that's how we're not able to get on our payments also processed. But I think with the container situation now dramatically easing, at least in last couple of months than what it was in the last financial year, probably the sales cycle and the working capital cycle should become healthier than what it was in the recent past. The next question is from the line of Dixit Doshi from Whitestone Financial Advisors. My first question is regarding the utilization of the new plant, if you can mentioned for the Q4, I mean, how much was the ut

Sir, just wanted to know this debt of Rs. 500 crore plus, how do we see this moving over the next couple of years? And when will you take the next round of capacity expansion?

Gautam Chand Jain

No, our decision is that now we have to keep reducing the debt. So, our unit one is already debt free. So debt what you see is basically the new debt of the unit two and some promoters debt, which is still not paid. So, we for sure will be bringing down debt that is our first target now, before we embark on a major expansion. Okay. And these two units do they have scope for any brownfield expansion if any, if you want to take your peak revenue potential at these plants by a minor tweaking here and there or would you will need a new plant? I understand your point. So, as you know that both the

Couple of questions, one is that you have a fairly large amount of inventory lying at the end of the year, how much of that would be transit inventory? The reason I'm also asking you this is the large inventory does that make it difficult for you to improve profitability? Some thoughts on that would be interesting.

Gautam Chand Jain

Are you asking about the granite company? No, sir, I'm talking about the consolidated numbers and most of the inventory anyway I thought was at the subsidiary level. So… See, if you see the inventory reasons for this inventory, when you talk of granite the inventory was lying in the quarries, when we talk of quartz, a lot of inventory has been in transit within the factory to the ICD, to the port, and then it is not recognized because we don't recognize the sale till the bill of lading is received. So this should get converted in the very first quarter, but that will be a substantial number, b

Just couple of questions, sir, one, I just want to reclarify you mentioned that the sales group this year in quartz is largely volume related and we have not taken the pricing, is that the correct understanding?

Paras Kumar Jain

Yes, because we had our unit two coming up. So, we had a lot of volume coming out of unit two, so there we are doing a basic materials at the moment. So, there is an impact of raw material inflation and then also there is a mix which is towards the basic products which has compressed the gross margins? There is a raw material inflation, there is an impact on of all other services cost including shipping and also definitely the product mix. Okay. And in case of receivables so basically, when we look at the delta, if I look at last year, receivables were around Rs. 43 crore and this year it has

Yes, so I have a follow up question on the margin side. The current presentation mentions that the operating margin was impacted by container unavailability and increased freight cost. But if we look at the previous concall, which was the last quarter it was mentioned by the management that the freight cost is typically borne by the buyers. So, how does that impact the margin? I can understand the impact on the revenues but not on the margin compression part because of the freight cost. There are two aspects to it. One is on the input, when we buy a lot of raw materials from Belgium, Norway an

Gautam Chand Jain

In addition to that, the marketing shows that we do fell through the last quarter. And that also has impacted the margins. Okay. So when do you expect a normalization in this? See, typically with inflation cycle relatively being better than what it was last year, I think second half of the year probably will give a good clarity and probably will help us in getting the margins back to better level than what you saw in the last financial year.

Sir, my first question is this sales and marketing event cost that came in Q4, can you can you please provide the number what was quantum?

Paras Kumar Jain

It was around Rs. 2.7 crore. And sir this Rs. 183 crore of inventory roughly, what would be the finished goods inventory and what would be the rest? Finished goods is Rs. 85 crore. And raw material is about Rs. 38 crore and work in progress is about Rs. 30 crore and then consumable stores and spares and all that is about Rs. 39.5 crore and then materials and all about Rs. 7 crore. Okay. So, I think Chairman, sir, was trying to say something Rs. 2.7 crore and then maybe there were some other thoughts, I think we lost the management line. I think, on the overall year basis, we also had a hit of

Sir my question is with respect to the logistics, in terms of our total sales of quartz, what percentage of contract is through the FOB route, and how much percentage is through the CIF route when it comes to shipment?

Paras Kumar Jain

Typically, it depends upon how the scenario will pan out. But it can be anything between 30% to 40% would be on CIF basis, and the rest would be on FOB. And sir this number changes very frequently every year, like meaningfully it changes or it changes… It can change because if the customers are not able to get their contracts in place, they will definitely like to use our contracts or our associations with a freight agencies. So that can change. And what was this trend in H2 of previous financial year? It was higher side, because we were having good contracts than our customers. So we were abl

So sir, assuming for unit two optimum product mix and optimum utilization, how much incremental revenue we can do? A every ballpark number will be fine.

Paras Kumar Jain

It depends anything between 20% to 30% increment is possible. On FY ‘22 revenues, you are saying incremental 20%, 30%. We have not given the breaker between one and two. I'm talking about what increment is possible from two, but I can't give you a number of two for competitive reasons. So, broadly sir at total capacity, my question is like how much incremental growth we can achieve total all capacities available? 20% 30% annual growth is possible? Till the time we reach the optimum capacity, yes, but once we reach the optimum capacity, then reaching the 20% 30% number is definitely a challenge

From the domestic market, if you can tell us how FY ‘22 has gone by, if you could share some numbers on that. And how are you seeing the traction in the overall growth outlook for the Indian market in the next one to two years?

Paras Kumar Jain

See Indian markets without revealing you the absolute number, what I can share with you is that we've grown about 50% in Indian market than what we were in FY ‘21. So while the numbers are still low, but I think with the brand building exercise and the reach what we are establishing and what -- to some extent we've already established, I invite you guys to look at the website to find out where we are currently available in India at different locations, you can see that the reach is growing beyond Hyderabad all the way from Delhi to Kochi, you can find our products at multiple locations. So ide

I just wanted to know if you can give us a sense of how much of your sales comes from new building versus refurbishment?

Paras Kumar Jain

See typically, we don't have access as to what happens in the residential or the commercial segment of our product. So largely since in U.S. renovation market was relatively higher than the new construction market and then now the new construction market is also catching up. So looks like -- I don't know the absolute number, but I think both the segments are catered well, probably the commercial and the hospitality segment is relatively lower than what it was in the past. Because we don't sell it to the end consumers or last line or last but one line of the consumer. Most of our customers are

Thank you everyone for participating on our Q4 call. Look forward to talking to you again in Q1 FY23. Thank you.

Management

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Speaking time

Paras Kumar Jain

Moderator

Gautam Chand Jain

Aman Vij

Karthi Keyan VK

Rupesh Tatiya

Surhid Deora

Pritesh Chheda

Pratik Singhania

Anurag Patil

Opening remarks

Gavin Desa

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir. Thank you. Good day everyone and a warm welcome to Pokarna Limited Q4 and FY ‘22 earnings conference call. We have with us today Mr. Gautam Chand Jain, Chairman and Managing Director; and Mr. Paras Kumar Jain, Chief Executive Officer, Pokarna Engineered Stone Limited. I trust most of you have gone through the communication and the results mailed to you earlier. In the interest of time, we would like to commence with Q&A immediately. So I'd like to hand it over to the moderator to open the floor for Q&A. Over to you.

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