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Dear Reader,
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.
Hidden Gem stock of Oct'15 - Pokarna Ltd (BSE Code: 532486) was released on 8th Nov'15 by us and stock has given negative returns of -8% to our Hidden Gems members in last 6 months. Our team suggested Buy on Pokarna Ltd at price of Rs. 1086.25 on 08 Nov'15 with a target price of Rs. 1975. Pokarna stock made its 52 week high of Rs. 1425 on 4th Aug'15, 52 week low of Rs. 660 on 19th Jan'16 and today closed at Rs. 995 giving as on date returns of -8% since our initial recommendation.
In Dec quarter, net profit of Pokarna rose 40.8% to Rs. 20.81 crore as against Rs. 14.78 crore during the quarter ended Dec'14. Sales rose 23.94% to Rs. 97.23 crore in Dec'15 as against Rs. 78.45 crore in Dec 2014 on consolidated basis.
We believe stock is overlooked by investors fraternity and hence available at attractive valuations considering its consolidated earnings compared to peer group companies. However unlike other companies, high debt on books is a concern in short term and we need to keep a close watch on how management will reduce its debt going forward as company is generating good cash flows from its subsidiary business.
Below is the summary of Pokarna Ltd shared by our team under Hidden Gem stock recommendation - Oct'15
1. Company Background:
Established
in 1991, Pokarna Limited is one of the largest exporters of finished granites
and engineered stone in India and provides the best quality material to its
clients from more than 50 countries (including Granite & Quartz surfaces)
globally.
Company
majorly exports its products to markets like U.S.A, Europe, Russia and
Australia to name a few, apart from the domestic market.
Company
mainly operates in 3 segments:
- Granite
- Quartz (Engineered Stone)
- Apparels
The
Company’s main sources of supply are its own quarries. It also sources part of
its requirement from reputed and well established domestic and global
independent suppliers. The Company’s captive quarries are endowed with some of
the most coveted and desirable colors like Silver Waves and Cream Kashmir etc.
The
Company’s two state-of-the-art manufacturing units are equipped with machines
and technology imported from some of the finest companies in the world like
Breton, Pedrini, Pellegrini etc. Company’s color palette is fairly wide and
varied with more than 75 varieties being sourced from within India in addition
to other Countries. The product range comprising of various size slabs and
tiles are supplied to 50+ countries
Pokarna
also manufactures and sells Engineered Stone or Quartz under the brand
“Quantra” Natural Quartz Surfaces from its 100% owned subsidiary M/s. Pokarna Engineered
Stone Limited (PESL).
PESL
is amongst the Country’s leading engineered stone manufacturing Company with
exports across most of the developed and emerging markets, with a strong
presence in the US and Europe. It is also the nation’s only company to
manufacture quartz surfaces using the patented Bretonstone Technology.
Bretonstone
System from Breton S.p.A. of Italy, is considered to be amongst the finest of
its kind in the world. PESL, markets its engineered stone products under the
brand Quantra® which is available in 64 different color palettes besides being
rich in aesthetic appeal also offer an unbeatable quality and panache.
Quantra
is produced using over 95% of natural quartz. The anti-scratch, anti-stain and
anti-bacterial properties make an ideal choice for all kitchen countertop, flooring
and cladding applications.
The
Company’s manufacturing unit located at Vishakapatnam is equipped with
extensive laboratory, enabling the company’s R&D staff to develop new
colors, besides facilitating conducting of tests and analysis of various products
viaits modern machinery. Further, being situated in the port city, offers
several advantages to the Company as it allows the factory to utilize quartz
from the state of Andhra Pradesh, which is noted for its strong physical
characteristics and high level of clarity.
Company also operates its Apparel
Division. Located in A.P, company unit is a one of its kind, state of the art
manufacturing facility. Retail chain of Stanza
as a brand
in Men’s wear was launched in the year 2004 with a vision to become a premium
lifestyle brand for men.
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.
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.
As
per Ministry of Mines report (January 2015), the country has an estimated
46,230 million cu. m of granite resources. The deposits of natural stones are
situated across the length and breadth of the country with maximum
concentration in states such as Tamil Nadu, Andhra Pradesh, Telangana,
Karnataka, Rajasthan and Odisha.
In
terms of exports, the country shipped granite blocks worth Rs. 12, 047 crore in
2013-14 as against Rs. 9,766 crore in the previous year a growth of 23 percent
over its previous year. The growth was primarily value led as volumes remained
more or less stable during the period. Granite and products, exported mainly as
either raw blocks or after cutting and polishing constituted majority of the
exports revenue, followed by other stones and products, marbles and slate
stone. While Granite was exported to China and European countries, finished
marbles was mainly shipped to Japan.
Demand
for the product continues to remain strong aided equally by improving domestic
and commercial constructions. While, the primary demand for granite is for
flooring and kitchen countertops, it is also used for gravestone segment which
has a large export market.
Despite
impressive growth, presence of inadequate infrastructure facilities,
inconsistent and contradictory leasing policies and dearth of export oriented
policies are curbing the growth of the segment. The Federation of Indian
Granite and Stone Industry (FIGSI) is urging the government to bring granite
under “major” mineral category as it will help lower the royalty outgo on
mining and enhance the segment’s competitiveness. The quarrying industry is
expected to grow rapidly following the acceptance of proposal as the same will
ensure rationalization and result in uniform implementation of granite
policies.
Home
owner’s preference for granite stems from its attractive and durability feature
making it one of the favored surfaces to be used in flooring and countertops.
Of all the tile types, Natural stone / granite is projected to grow most
rapidly through 2017 through US overtaking porcelain, expected to be the second
largest type in area demand terms by 2017.
US
demand for decorative tile is forecast to rise 6.7 percent per year through
2017, reaching 3.2 billion square feet. Gains can be attributed to the
country’s improving housing and commercial construction spending. The new
housing market is expected to show robust demand as housing completions grow
from their low 2012 base.
Tile
demand in non-residential building construction applications will be spurred by
strong growth in office and commercial construction spending and increasing use
of tile as a low-cost, low-maintenance flooring alternative to carpets and
rugs.
Quartz (Engineered Stone) – Quartz is the most commonly
found material on the surface of the earth. Besides hardness, it also possesses
superior abrasive properties and is highly chemical resistant. Engineered
quartz surfaces, comprising of 93 percent quartz particles and 7 percent
binding resins and additives are recognized for their durability, strength,
stain and heat resistance qualities. Such attributes make it near maintenance
free product thus helping it score over other surfaces namely granite, which
can more easily be stained or scratched. Quartz is also a nonporous material,
which restricts the growth of mold, mildew, or bacteria.
It
is on account of such factors that Consumer Reports Magazine has rated quartz
as the top performer amongst countertop materials such as granite, ceramic
tile, stainless steel, laminate, marble, limestone, and concrete when it came to
resisting prime kitchen hazards such as stains, heat and scratches. In addition
to its superior exterior qualities, the initial malleable property of quartz
enables flexibility and innovation in design, style, textures and production
process as well as ease of fabrication. While the usages of natural stones like
granite, marble, soapstone for countertops were dominant in the past, there has
been a visible shift in favor of quartz over the past decade. The migration has
resulted in the product becoming the fastest growing material to be used in the
countertop industry, gradually eating into the share of other materials, such
as granite, manufactured solid surfaces and laminate.
Between
1999 and 2014, global engineered quartz sales to end-consumers grew at a
compound annual growth rate of 15.7% compared to a 4.4% compound annual growth
rate in total global countertop sales to end-consumers during the same period.
The
trend is expected to remain strong in the future, given the greater awareness
and acceptance level of the product across its key markets.
While
the product has attained different life cycle stage across these markets the
common theme of rising usage and acceptability is clearly visible across these
regions. While Australia, Europe, Israel are matured market for engineered
stone the product is still at a nascent stage in America and Canada region. The
rise of the quartz is partially also attributable to its wider applicability
varying from kitchen countertops, bathroom countertops, bar, floor and exterior
walls and so on.
From
single digit share in USA to more than eighty percent usage in market like
Israel, quartz is developing as a preferred choice for customers and
developers. Granite and other solid surfaces continue to dominate the US
countertops market presently, with even laminate scoring over quartz.
Despite,
increasing usage, Quartz accounts for just 8% of all countertops in America,
resulting in one of the least penetrated developed markets in the world. The market
share is very low when compared with Australia and Europe wherein the share of
the product ranges from 30% to 50%.
However,
the awareness for quartz’s fine points -- its beauty and durability is driving
the demand for the product in US and Canada, regions that materially lag the
penetration of other countries and the marginal improvement and acceptability
of the product within these regions will have a disproportionate impact on the
category’s growth trajectory.
Flooring and
Carpet Segment
The
global demand for floor covering is expected to rise 4.5 percent annually to
19.4 billion square meters, reaching a level of $325 billion through 2018. The
improved demand is expected to be fueled by the revival in the housing
construction segment in developed countries in conjunction with sustained
growth in building construction activity in the emerging economies. Sustained
growth in construction coupled with rising per capita income in the developing
world permits households to expend major proportion of expensive floor
coverings. In addition, rising motor vehicle production across multiple regions
is expected to further harden the demand for floor coverings.
Through
2018, demand for floor coverings is expected to be fastest in North American
region, buoyed mainly by the recovery in the US housing sector, with region
wide demand for floor coverings in residential buildings forecast to rise 6.2
percent per year through 2018. The Asia / Pacific region is projected to pose
the second fastest gains in floor covering demand, with China alone accounting
for 36 percent of the incremental demand generated during the period. The
strong growth forecasted for Chinese market is expected to further cement their
place as the largest national floor covering market.
Growth
in other developed countries such as Western Europe, Australia and Japan is
expected to fall short in comparison to those expected to be seen in North
America or emerging economies. However, the renewal in new housing construction
in Australia and Japan both, along with improvement in other Western European
countries is expected to result in firming up the demand for floor covering in
comparison to the one witnessed during recent years.
The
consumption pattern across flooring industry comprising of materials such as
ceramic, laminate, wood, carpeting and natural stone varies greatly across
geographies. For instance, Ceramic tile constituted approximately fifty percent
of flooring covering demand in the Asia / Pacific region and Central and South
America, while carpets and rugs were predominant in North America during 2013.
The same period also witnessed, maximum usage of resilient flooring in Eastern
Europe, where it accounted for just over one-third of regional floor covering
demand.
Non-resilient
flooring products, which represented nearly three-fifths of floor covering
demand worldwide during 2013, are expected to post the fastest growth demand
through 2018. Manufacturers of non-resilient flooring are expected to benefit
from rapid growth demand in Asia, wherein the same account for vast majority of
floor covering sales.
Demand
for carpets and rugs will enjoy its fastest growth in North America due to
these products extensive use in the residential market in the US.
Countertop Segment
Based
on average installed price, (including installation and other related costs),
the global countertop industry generated approximately $81 billion in sales to
end consumers in 2014. Amongst the surfaces, Granite with a share of 27 percent
continued to remain the preferred material for countertops, to be followed by
25 percent share of solid surfaces in 2014.
Quartz
with a meagre 10 percent share remains near the infancy stage of a long term
penetration opportunity. Region wise Europe, Asia Paci! c and North America
with demand in excess of 20 percent continued to remain the top three markets
for the products. Demand in North American market remained strong following the
improved labor and housing market in the region. Improving new and existing
home sales coupled with consistent repair and remodeling spending helped
maintained the growth momentum.
Global
demand for countertops is projected to grow at 4.3 percent annually through
2018 to 505 million square meters (Source: Freedonia), with building activity,
building size and economic wealth being the key pointers of countertops usage. Improved
building construction activity, primarily in the developed economies which
continues to recover from the worldwide recession and the subsequent gradual
recovery through 2013 coupled with the developing economies efforts towards
expanding and modernizing its building stock given their sustained population
growth will principally drive the demand for the segment.
Usage
of countertops in kitchens, bathrooms, and other areas is more predominant in
developed markets like North America, Western Europe, Japan and other developed
markets as compared to emerging countries. Gains in North America which was the
second largest regional market for countertops in 2013 are expected to sustain
given the continued recovery in US building construction and, in particular,
growth in single-family housing completions, which will further benefit from
ongoing consumer preference for spacious kitchens and multiple bathrooms that
require more countertop area. Western Europe is expected to witness similar
growth through 2018 given the pick-up in construction of new houses in many
countries across the region, further boosting the demand for countertops.
The
Asia/ Pacific region was the largest market for countertops in 2013, with
nearly half of the global total. The region, generally an immature market with
free-standing furniture, pedestal sinks, and other low-cost alternatives being
more common than conventional countertops is expected to achieve the fastest
gains in countertop through 2018. Within the region, China owing to its rising
standards of living and continual projects towards modernizing their housing
and nonresidential building stock is expected to drive the growth in the area.
India the region’s second largest market in 2013 will continue to see gains
stemming from its present lower level of countertop penetration, coupled with
the improving per capita income level and enhanced distribution network given
its economic progress.
The
type of materials used in countertops varies depending on factors such as the
relative wealth of consumers and their style preferences, and the availability
of local materials. Laminate and natural stone are the dominant materials used for
countertops at present. Almost 33 percent of all laminate countertops were sold
in North America, wherein usage of the material is predominant given their low
cost. However, Laminate is expected to lose its market share globally to natural
and engineered stone. Engineered stone countertops are projected to record the
fastest growth reflecting lower penetration rates in many markets.
3. Recent Developments: (as on 08 Nov'15)
i) PESL’s Quartz Surfaces Receives Kosher Certification – Sept 01, 2015
4. Financial Performance:
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) PESL’s Quartz Surfaces Receives Kosher Certification – Sept 01, 2015
Pokarna’s 100% subsidiary, Pokarna Engineering Stone (PESL)
has received Kosher certification from OU (Orthodox Union) - New York for its
Quartz Surfaces brand Quantra under Pareve designation. It is also acceptable
to be used on Passover without special certification as it contains no raw
materials that would affect food prepared on it during Passover.
This certification confirms that the product adheres to the
highest quality of Kashrut supervision and allows the Kosher consumers to use
Quantra in their Kitchens.
This certification besides enabling company to expand its
market presence will also help company to meet the growing demand for products
conforming with Kashrus (Kosher Concept) principles. It will help company to
strengthen the trust for its products in the Jewish Market.
ii) Pokarna
partners Dutch firm to tap Benelux market – March 10, 2015
Pokarna has inked a pact with Dutch firm Dekker Zevenhuizen
B.V to broaden its consumer base in the Benelux market.
Under the co-operation agreement, Dekker Zevenhuizen B.V
(leading producer of kitchen worktops and accessories in Netherlands) will
exclusively distribute Pokarna Engineered Stone's Ltd (100% subsidiary of
Pokarna) quartz surfaces in the Benelux (Belgium, the Netherlands and
Luxembourg) market. The products will be co-branded as 'EQ by Quantra'. The alliance is expected to help company to
strengthen and widen its connect with the Benelux region.
iii) PESL Products
receive GreenGuard & GreenGuard Gold Certification – Feb 24, 2015
Pokarna Engineered Stone Limited (PESL)
products have received GREENGUARD and GREENGUARD Gold certification from UL
Environment, a division of UL (Underwriters Laboratories), the global safety
science leader.
GREENGUARD certification demonstrates
that PESL products meet stringent standards for low chemical emissions into the
indoor environment and GREENGUARD GOLD certification reflects that PESL
Products are acceptable for use in sensitive environments such as schools and
health care facilities.
Before being awarded these
certifications, PESL products were tested to meet UL rigorous emissions
standards, screening for more than 10,000 chemicals and limiting more than 360
volatile organic compounds, also known as VOCs, which pollute indoor air and can
contribute to health issues.
Products carrying GREENGUARD
certification can also contributes to LEED (Leadership in Energy and
Environmental Design system developed by the U.S. Green Building Council)
points attainment. PESL is the first Indian Quartz surfaces manufacturer to
have GREENGUARD and GREENGUARD GOLD certification.
PESL is already an NSF and ISO 9001
certified Company and these latest certifications further reflects the Company
stringent commitment to the environment.
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.
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:
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.
In
FY 14-15, 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. Performance of Apparels Division continued
to remain soft, generated revenues of Rs. 7 crore during the year as against Rs.
14 crore during FY14.
5. Peer Group Comparison:
6. Key Concerns & Risks:
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) 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.
ii) Heightened volatility in currency exchange rate following
changing economic environment can have a bearing on the Company’s financial
condition.
iii) Company along with its subsidiary has a sizeable proportion
of loans outstanding and as such any failure in cash flow generation following
business slowdown could impair the Company’s ability in its debt obligation on
time.
iv) Apparels business of the company has been
reporting losses. Though with the growth of granite and quartz surfaces
businesses, the contribution of apparels has decreased to mere 5%, we believe
management does not utilize its capital by investing further behind the
apparels business which will impact overall margins of the company
7. Saral Gyan Recommendation:
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.
ii) The
earnings visibility for the Granite segment remains strong given the steadily
rising demand for the products in domestic and international market. Backed by
captive quarries, latest machinery, renewed thrust on marketing, company is
well positioned to capture the opportunities. Further, company is also taking
measures towards increasing the dependency on procuring raw materials from
captive quarries, and as such has made several applications for grant for new
mining lease(s) in different states.
iii) Company’s
product Quantra has received Kosher certification from OU (Orthodox Union) -
New York under Pareve designation. Certification confirms product adherence to
the highest quality of Kashrut supervision and allows the Kosher consumers to
use Quantra in their Kitchens. Moreover, the Subsidiary Company’s products also
received GREENGUARD and GREENGUARD Gold certification from UL Environment, a
division of UL (Underwriters Laboratories), the global safety science leader.
Following which, PESL became the first Indian Quartz surfaces manufacturer to
have been awarded such certification.
iv) Pokarna’s
subsidiary PESL also entered into a strategic alliance with Dekker Zevenhuizen
B.V, wherein the latter will exclusively distribute PESL’s quartz surfaces in
Benelux (Belgium, the Netherlands and
Luxembourg) Market. The products will be co-branded as “EQ by Quantra”
under the agreement. The alliance will result in further strengthening and
widening of the Company’s reach in Benelux region.
v) Pokarna uses best in class Breton Stone Technology
for manufacturing quartz slabs and tiles. BRETONSTONE® SYSTEM is the patented
technology of Breton s.p.a, Italy and Pokarna has the exclusive right to make
use of this technology in manufacturing quartz surfaces in India. Breton Stone
technology manufactures superior quality of Quartz products. Globally, only
10-12 sizeable manufacturers produce quartz using the Breton Stone technology.
Pokarna’s exclusive technology contract with Breton Stone for India gives it an
edge over other quartz slab producers in India.
vi) Quartz is growing faster than Counter top
market, since 1999 to 2014 quartz segment grew at CAGR of 15.8% while counter
top grew at CAGR of 4.4%. Company is gradually shifting its product mix towards
high margin Quartz segment from traditional Granite segment. In first half of
FY 15-16, Quartz reported 38% EBITDA margin with 48% contribution to total revenues.
Quartz is expected to be the key growth driver going ahead for Pokarna.
vii) Pokarna
has recently upgraded its Quartz surfaces manufacturing facility, by which it
is capable to manufacture Jumbo Slabs. Jumbo Slabs measure 131" X
65", in comparison to traditional slabs, which are 120" X55".
Demand for Jumbo Slabs is growing in the US market as this size improves yield,
facilitates color-matching and minimizes seams. Offering value added products
will augur well for the company in terms of revenue growth and profit margins.
viii) Company’s
EBITDA and PAT margins are expected to further improve going forward considering
robust revenue growth in high margins Quartz segment.
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.
x) As
company turns profitable, management has rewarded shareholders by started paying
dividend from last 2 years. However, dividend payout is low considering debt on
books and working capital requirement by the company. For FY 14-15, the company
has paid dividend of Rs. 3 per share. At current share price of Rs. 1086.25,
dividend yield is at 0.28%.
xi) Promoter’s shareholding since last 3 years is stable at
56.67% (as on Sept’15) without pledging any shares. FII shareholding in the
company is 1.23% and DII shareholding is nil.
xii) Company’s
topline continued to grow with steady growth in granites sales and very strong
growth in Quartz surface sales which resulted in expansion of gross margins. On
the back of improvement in gross margins and economies of scale, the EBITDA margins
kept on improving from 10-12% to 20% in FY 14 and 25.6% in FY 15.
xiii) As per our estimates on consolidated
basis, Pokarna Ltd can deliver PAT of ~60 crores for full financial year 2016,
annualized EPS of Rs. 97.8 with forward P/E ratio of 11.1X for FY16. Valuation looks
reasonable considering strong revenue growth and earning visibility of the
company during next 2 years.
xiv) On equity of Rs. 6.2 crore, the
estimated annualized EPS for FY 15-16 works out to Rs. 97.8 and the Book Value
per share is Rs. 125.61. At current market price of Rs. 1086.25, stock price to
book value is 8.65.
Considering company’s gradual shift in
product mix towards high margin Quartz segment from Granite segment, use of
best in class BretonStone technology to manufacture superior quality of Quartz
products and immense growth potential in global countertop market, Saral Gyan
team recommends “Buy”
on
Pokarna Ltd at current market price
of Rs. 1086.25 for target of Rs. 1975 over a period of 12 to 24 months.
Buying Strategy:
- 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)
Portfolio
Allocation: 3% of your equity portfolio.
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Regards,
Team - Saral Gyan.
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