Dhiraj

There is not capex because this is a services led business - world over most of hardware + services companies do not need a lot of capex.

I did talk to a packaging head of a FMCG company and he told me control print is offering much looser credit terms than their competition - look at inventory + receivables days and it's jumped from 232 days in 2009 to 335 by FY 2015 - hardly sign of an increasing moat. Infact, that explains the reason why promoters have to keep bringing in money in what's a high margin,high ROE business. Look at operating cash flows as a % of sales and they are falling too.

ultimately for a Rs. 300 Cr. mcap you are getting 8 cr. of OCF - Even without growth, its about 15-16 cr. of OCF - that's very expensive IMHO. A company that keeps growing EPS without a growth in OCF has a lot of risks - eg., opto circuits, suzlon

I did look at their competitors - their receivables/inventory are not as high.

Look at what munger has to say about such a business -

“There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested — there's never any cash. It reminds me of the guy who looks at all of his equipment and says, "There's all of my profit." We hate that kind of business.”

@aojha, as you understand the business model of 8k, wanted to have your insights on the following:

1. What is the kind of customer stickiness in the space where 8K provides cloud data management services and is it repetitive revenue for 8k or one time. Can their customers switch to some other company easily, basically want to understand their strengths in generating revenues consistently.
2. Their operating margins are near 30% range - can 8k continue to sustain such margins as they scale up and look for new clients and if you can explain this little more as to what makes them command this margin profile.
3. There does not appear to be listed companies exclusively operating in this space, so what is the kind of competition they face. Any other companies to your knowledge which are developing cloud data capabilities. Are Persistent Systems etc not providing similar services. It's not very often that you find small companies quoting at 10x sales that 8k does.

Disc: Not invested.

Though the company may not be transparent about raw material cost (they could argue they would keep it confidential to have an edge over competitor), they should let the share holder know what are their arrangements (contracts) to have a uninterrupted supply of Quartz in critical cases just so the production is not stopped because of raw material issue. The company should also disclose how many suppliers they have. We should pursue to gather it.
We should also request the most updated capacities for both Granite and Quartz.
I think its good if they have excess capacity (which I think they do) for the increased demand since they have added more dealers recently. Considering the current OPMs, if they can leverage the current idle capacity to the increase in the demand without additional capex its a boost for the profitability.
@varadharajanr, is there a way if you could find out how much of raw material CaesarStone sources from India , from your hedge fund contact that you have?
I have seen their report on CaesarStone, can you also find out if they know there is any other Quartz exporter from India than Quantra? Because the suggests they have researched most Quartz imports to US.

I think we are all too over concerned about one single "Chettinad" supply while the consensus is Quartz is easily available. But good to understand if they have only one raw material supplier and why Pokarna thinks Chettinad is better, does Chettinad have high quality raw material over others or something else?

With union government's push for make in India and transparency and efficiency in allocating the natural resources, the license for Pokarnas Quartz mine should be processed faster which would have taken longer otherwise.

Hi Varun,

One of the key concerns some investors like me have is the 2nd line of management - Daughters and other senior management team. It would be good if you can try and assess the same. For example-

Interact with daughters and senior management team to understand their competency level - Asking specific queries addressed to them during AGM or after the AGM, etc.

Thanks for your help

I attended the AGM held today. Here are key takeaways.

Products with process patents are generating roughly 65% of revenues. The exclusivity of a process remains with the co. even if the patent is not granted yet. The co.'s strength is heterogenous catalysts,Mr. Omkar also is a PhD in heterogenous catalysts. Heterogenous catalyst is the X factor used to tweak a product process to derive more yield,the co. thus passes on a good chunk of extra yield to the customer in form of lower costs and keeps some benefit for itself. The products with process patents earn 40% types operating margins. The co. has filed 18 process patents and has received grants for 3,2 earlier and 1 very recently as mentioned by Mr. Omkar. He also mentioned it's very difficult to estimate the market size of patented products but said its huge. There are 4 criteria that need to be fulfilled to introduce a new product,market size,diversified customer base,backward integration/existing chemical family and ability to file a patent for the same. The co. is looking to reduce dependence on iodine based products. Selenium derivatives and Resolving agents have fat margins among commoditised products. The co. plans to introduce 3 new products,one for Vitamin C,one for Folic Acid and one a Vet API. The co. is expected to get environmental clearance for Chiplun plant very-very soon,after trial runs and commercialisation it will contribute 20-25 crs of sales in the last quarter. Capex for this fiscal will be 40 crs approx. of which most is done,for next year it's slated to be 30 crs. approx.,plans to take Lasa to 600 MT capacity. The co. is looking to enter veterinary formulations in 15 month's time,forwardly integrate its API business,it expects to win contracts from existing customers which buy API and outsource formulations,will acquire a readymade facility with all approvals and infrastructure in space. Recognised Sequent Scientific as a competitor,Mr. Omkar said difference between the 2 is that Sequent follows conventional processes while Omkar follows catalytic processes,it's forte. Plans are in place to reduce WC cycle,iodine supplier from Chile has put up a facility at Nava Sheva due to which capital blocked due to transit time will reduce and co. has consciously tightened credit terms-brought down from 60 days to 30 days,has lost only 10-12% business because of the same. Debt is on books mainly due to a long WC cycle and reduction of same will release capital and also help reduce pledge of shares. Target is to bring WC down from 120 days to 90 days,achievable in a couple of quarters. QIP is taking time because of market conditions and mainly because co. aims to dilute at a higher valuation,QIP might get priority if co. can zero in on an acquisition. Sales growth is expected to be at 30-35% CAGR for next few years.