We keep on receiving mails to share some of our new stock ideas which can deliver multibagger returns like our past Hidden Gems stocks. As many of you are aware, our Hidden Gems stocks like Camlin Fine Sciences, Wim Plast, TCPL Packaging, Cera Sanitaryware, Kovai Medical are multibaggers which have given returns in the range of 600% to 1700% in period of 2 to 5 years.
However, as an exception we decided to circulate one of our Hidden Gem stock released last year which is currently available below our initial recommended price and offers a great investment opportunity for long term investors. As our Hidden Gem report was released 6 months back, we decided to make it public for benefit of all our subscribers.
Below is the summary of Pokarna Ltd shared by our team under Hidden Gem stock recommendation - Oct'15
1. Company Background:
- Quartz (Engineered Stone)
In last financial year, the Granite Division garnered revenues worth Rs. 183 crore as against Rs. 155 crore, growth of 18%, while reporting PBIT of Rs 47.56 crore as against Rs. 30 core of previous year FY14. Quartz segment reported a strong performance with revenue growth of 120% for the year following revenue and PBIT of Rs. 135.73 crore and Rs. 31.63 crore. Performance of Apparels Division continued to remain soft, having generated revenues of Rs. 7 crore during the year as against Rs. 14 crore during FY14.
2. Industry Outlook:
Granites – India is home to some of the best quality dimensional stones available across the globe. Endowed with vast reserves and diversities of almost every conceivable natural stone namely granite, marble, sandstone, limestone, quartz etc., the country is the third largest natural stone manufacturer in the world. Of the 300 varieties of granite present in the world market, India supplies about 200, reflecting the availability of wide array of color, texture and structure in the country. India produces more than 27 percent of the overall stone production in the world and exports over 11 percent of the world’s stone exports.
i) PESL’s Quartz Surfaces Receives Kosher Certification – Sept 01, 2015
Important certification like Kosher, Greenguard & Greenguard Gold, NSF, ISO 9001 certifications give an edge to the company as it exports its products to quality and safety conscious US and European markets.
4. Financial Performance: (as on 08 Nov'15)
Pokarna consolidated net profit rises 241.62% in the September 2015 quarter
Net profit of Pokarna rose 241.62% to Rs 13.05 crore in the quarter ended September 2015 as against Rs 3.82 crore during the previous quarter ended September 2014. Sales rose 19.25% to Rs 98.60 crore in the quarter ended September 2015 as against Rs 82.68 crore during the previous quarter ended September 2014
Pokarna reports consolidated net profit of Rs 11.79 crore in the June 2015 quarter
Net profit of Pokarna reported to Rs 11.79 crore in the quarter ended June 2015 as against net loss of Rs 0.99 crore during the previous quarter ended June 2014. Sales rose 55.96% to Rs 96.35 crore in the quarter ended June 2015 as against Rs 61.78 crore during the previous quarter ended June 2014.
i) Despite being present in multiple markets, the Company derives major proportion of its revenues from USA. Any shift in the consumption pattern on account of political or economic event in that market could have a material impact on company’s business as well.
i) Total global countertop market is valued at USD 74bn with Quartz at USD 6bn. USA and Canada account for 24% of the global countertop market. Demand wise Europe, Asia Pacific and North America continued to remain the fastest growing regions with growth rate in excess of 20%. Quartz Surfaces the fastest growing category with a market share of 10% remains near the infancy stage and gaining popularity amongst industry users and customers. Quartz’s share in the US and Canadian counter top market is estimated at mere 6% and 12%, respectively. As per report by Freedonia (market research firm), natural stone and engineered stone / Quartz will be among the fastest growing countertop materials, hence an excellent long term growth opportunity for the Company like Pokarna.
ix) As company spent 200 crores on engineered stone production facility in 2009-10 and funded the same largely through debt and FCCBs. Capex of 200 crores resulted in almost 18-20 crore additional annual interest burden and 12-14 crore increase in depreciation. However, the capacity utilization of the plant increased only gradually over last 5 years. Company has already redeemed the entire outstanding FCCB with face value of USD 12 million and the net debt has also reduced significantly with increase in revenue growth. As company capacity utilization in Quartz segment is still below 50%, we do not see any major capex requirement for next 2 to 3 years.
- 80% at current market price of 1086.25
- 20% at price range of 900 - 950 (in case of correction in stock price in near term)
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Team - Saral Gyan.
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