Spruce Point capital management’s report about Caesarstone on why they are shorting this stock:
1.They collected quartz from multiple companies and did a lab test to find the amount of quartz in each one.As per Caesarstone,Pokarna and others,it should be 93% quartz and 7% polymer resin.Lab results of Caesarstone indicated less than 90% of quartz.
2.Less than 93% of quartz may be because of the 20% increase quartz raw material in the last 2 years.(Need to find out what is pokarna’s agreement with Chettinad group for quartz on pricing).
3.Quartz is no longer a premium stone,there is a new stone called Dekton from a Spanish company called Cosentino is the new premium stone in the kitchen countertop.
4.Market Share gains by Caesarstone in US is not true.They looked at the import data for quartz into US and found that many other players were gaining market share from Caesarstone.Can be verified using this link:
http://www.stoneupdate.com/us-stone-imports/analysis-mid-yearannual/920-test-of-tables
This link shows imports from Indian increased 200% from Q1 of 2015 to Q2 of 2015.
5.Gross Margins of 42% in US is overstated because they included their FX gains,their margins in Singapore and Australia are 32% and 25% respectively.This is despite being a B2C player.Now,if we look at Pokarna’s margins it is more than 70% gross and 25% Operating margins.
6.I have seen some reports using Freedonais’ research report to identify market share gains of stone players.Spruce points mentions that Freedonia made those reports on behalf of Caesarstone and not completely unbiased.
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