POKARNANSEQ2FY2316 November 2022

Pokarna Limited

5,784words

32turns

2analyst exchanges

0executives

Key numbers — 27 extracted

rs,

oducing in Unit 2? And also, with the resin prices coming down, let's say, in next couple of quarters, can we come back to our margin levels which we used to do in the past? See, basically, exotic des

10%

have come down. But if you can give us some sense, whatever type of correction you are seeing like 10%, 12% or 20%, that would be very helpful? I said about key raw materials, which is resin, not as

12%

come down. But if you can give us some sense, whatever type of correction you are seeing like 10%, 12% or 20%, that would be very helpful? I said about key raw materials, which is resin, not as raw m

20%

wn. But if you can give us some sense, whatever type of correction you are seeing like 10%, 12% or 20%, that would be very helpful? I said about key raw materials, which is resin, not as raw material

15%

r. But resin is one of the key raw materials in the production. So, we've seen a decline of about 15% happening in the prices. And we believe that another 10% to 15% is in store. Sachin Kasera: An

Rs.400 crore

e you the complete benefit out of the rupee depreciating. Okay, but I thought our borrowings are Rs.400 crore, and our exports are close to Rs.800 crore. Yes. But then you have to do a mark-to-mark on quart

Rs.800 crore

depreciating. Okay, but I thought our borrowings are Rs.400 crore, and our exports are close to Rs.800 crore. Yes. But then you have to do a mark-to-mark on quarter basis, right? Rs.800 crore is going to b

Rs.800 crore

are close to Rs.800 crore. Yes. But then you have to do a mark-to-mark on quarter basis, right? Rs.800 crore is going to be on the year-on-year and Rs.400 crore is constant all the time.

Rs. 25 crore

ction you are planning in second half? As informed last time because of that annual repayment is Rs. 25 crores. Out of that, we paid in actually INR 12 crore. But next 12 months and actually the repayment li

INR 12 crore

rmed last time because of that annual repayment is Rs. 25 crores. Out of that, we paid in actually INR 12 crore. But next 12 months and actually the repayment liability is Rs.35 crores. Okay. And what is the

Rs.35 crore

that, we paid in actually INR 12 crore. But next 12 months and actually the repayment liability is Rs.35 crores. Okay. And what is the full-year Capex guidance or plan that you are having in terms of the ove

Rs.30 crore

rge Capex coming in next 6 months. Sachin Kasera: I think you spent something closer to around Rs.30 crore in H1. Paras Jain: Moderator: Hrishikesh Bhagat: Paras Jain: So that was basically existi

Guidance — 13 items

Paras Jain

“But how do you foresee this trend continuing going forward, particularly with the new housing construction getting impacted because of the high mortgage rates?”

Paras Jain

“So, I think over the next quarter or so, the resin prices should come to a reasonable level starting from this quarter onwards.”

Paras Jain

“And we believe that through this quarter, we'll be able to stabilize and start seeing that benefit probably by the end of this quarter or early next quarter.”

Paras Jain

“Or is it that we have certain hedges and hence, the benefit of the rupee depreciating will be visible in subsequent quarters?”

Paras Jain

“So, which means in the next quarter because now at the current level, that has already been mark-to-market, but we'll continue to see the benefit from Q3, Q4 because as we discussed that every quarter, you'll see the benefit of the currency appreciating.”

Paras Jain

“So, whatever happens on the currency side, whether it is rupee appreciating or dollar appreciating either way, I think that is something which I will be able to only comment once we are into the quarter and reporting.”

Paras Jain

“Going forward, if rupee remains here, then we should see some benefit on the margin because of it.”

Paras Jain

“And what is the full-year Capex guidance or plan that you are having in terms of the overall spend?”

Paras Jain

“We expect that anything between 3 to 6 months of inventory of certain designs in certain customers would have got piled up in anticipation.”

Paras Jain

“I think probably it will be in double-digit is my sense.”

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Risks & concerns — 15 flagged

in light of inflationary pressure and the mortgage rates going up, see, basically, we are actively monitoring the environment.

— Paras Jain

But I definitely think, there is going to be a little slowdown in the demand scenario, especially in the new home construction and to some extent, even in the commercial.

— Paras Jain

So that's one way of looking at what we are trying to use as a tool to mitigate a certain amount of pressure coming from the demand side.

— Paras Jain

So, introducing new design is one of the key features which we have taken to actually offset the margin decline, which can happen either due to the muted demand or due to the raw material prices not cooling down.

— Paras Jain

And then as I said that there is a little slowdown in the market as well.

— Paras Jain

So, both offtake and this together is responsible for a marginal decline basically.

— Paras Jain

So, we've seen a decline of about 15% happening in the prices.

— Paras Jain

So, while it completely passed through, but it also has other effects that customers typically are getting subject to a certain level of stress because of certain fall in the shipping prices.

— Paras Jain

Those companies typically, theoretically, will have challenge in shipping out because their rates can be anything between 323% to 162%.

— Paras Jain

customers typically will not have significant challenge what they would have had, had all the 51 companies got into that trap.

— Paras Jain

Now coming on to your cost of resin, yes, from the peak level, we have seen a 15% decline.

— Paras Jain

So that is how the freight costs have actually behaved, dramatically causing a little stress on the existing inventory and typically also on the new demand as well.

— Paras Jain

Basically, as I told earlier, giving you an exact metric would be a challenge because it is part of our chemistry.

— Paras Jain

Sir, has the distributors or our clients started to see offtake at the end consumer also slowdown?

— Paras Jain

Or is it that they are trying to reduce their inventory in anticipation of expected sort of a slowdown in consumer demand?

— Paras Jain

Q&A — 2 exchanges

Sir, I wanted to understand on the demand side, particularly in the U.S. market. So as of now, the hard surface product, the demand seems to be resilient in the U.S. market led by the home improvement theme. But how do you foresee this trend continuing going forward, particularly with the new housing construction getting impacted because of the high mortgage rates? That was my first question. and the other question is, by when do you think that the resin prices will start correcting, which will help in your improvement in the EBITDA margin side? See coming to your first question on the demand

Paras Jain

And along with the resin prices, even the logistic cost will help? Yes. To some extent, the import logistic cost will help, but then the local logistic costs with the diesel rates and all is staying at a higher level may not really give that benefit. So that is one side of the thing. So, I think the overall input logistic cost will definitely come down and we are seeing that the peak rates coming down. That's something which we already started seeing. Okay, and my second question is can you mention about the utilization level at the Unit 2? Unit 2 utilization level during the quarter was very

Just one question. You referred to additional shipments from India in anticipation of these duties by the players. Rough sense, what could be the kind of inventory pile up, plus of course, the higher freight cost base inventory, So, could you have some sense of the level of pile ups that could have happened? We expect that anything between 3 to 6 months of inventory of certain designs in certain customers would have got piled up in anticipation. Right. And what would be the extent of erosion base case scenario that has happened in your assessment? Would it be like 3%, 5%? Or will it be a much

Paras Jain

That's perfectly fine. I'm asking about the cycle in terms of number of days. There seems to be some increase. So, with the demand getting muted, that is one reason where we have to be a little aggressive. Secondly, with the sort of some shipment delays, which were still invoked during the second quarter, the bill of ladings and all that did not come in time and for us to get the payment from the suppliers, from the buyers, we need to present the bill of lading. So, these are 2 factors which actually caused the receivable days to go relatively higher. And with the shipping-related changes now

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Speaking time

Paras Jain

Sachin Kasera

Moderator

Pratik Singhania

Manan Shah

Gavin Desa

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's Q2 and H1 FY'23 Earnings Conference Call. We have with us today Mr. Gautam Chand Jain, Chairman and Managing Director; and Mr. Paras Kumar Jain, Chief Executive Officer of 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 start with Q&A immediately. So, I'd like to hand over to the moderator to open the floor for Q&A. Over to you, Rutuja.

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