My reasoning was: 1. down 20% from top and 2. availeble at 38 PE FY17e. But now that the earnings have been downgraded too, the price corrected further. Your observation of time/price correction throws up another query: Why is Page (given the quality of the stock) not going thru a time correction, like GRUH? Gruh has been hovering around 240's for a long time.
Discl: Invested both in Page and Gruh.
@bigvig @Maheshcm and @varadharajanr : thanks for the detailed discussions here.very delighted to see your thoughtful/logical questions and reponses.
@varadharajanr: I am glad someone like you asking all the right kind of questions.Indeed ,I was really happy when you found the loopholes in the story.We all put our hard-earned money into the market,it is better if we are well-informed about the companies that we invest it.
Please bear with me if my post is lengthy.
Coming back to your questions:
1.Raw materials for quartz:
a.Need to find out their agreement with Quartz supplier,terms,how long the agreement is valid, pricing,is chettinad group the only supplier or any other supplier they have,environmental clearances.
b.Need to find out if they have any competitive advantage in terms of raw material costs compared to Caesarstone and others.
For granite,do you have any questions? Those mines were acquired a period of decades when no one was interested in exporting granites.
c.Processing capacity for quartz and granite:
Check the installed capacity and the utilized capacity.As per AR 2010,it is 8.89 lakhs sq meter for quartz.In my last call they mentioned it is around 6 lakhs sq.meter.
2.Why sales went up only in 2014?
Primary reason was Quartz sales.I think you should look at the quartz numbers from 2010.
2010 - Rs.8.89 crores
2011 - Rs.31.4 crores
2012 - Rs.40.98 crores
2013 - Rs.47.54 crores
2014 - Rs.61.49 crores
2015 - Rs.135.73 crores
Quartz which was contributing 10% of the total sales in 2010 ,is now contributing to more than 40% of the total sales.
Only during last 3 years,they have ramped up their sales through several marketing initiatives and the results of which are being reflected in their numbers.It is tough to answer why their sales was not good in 2010 because it takes time to build your sales channels.Good evidence is their tie-up with Dal-tiles and Dekker Zevenhuizen B.V.Daltile is selling under One Quartz and Dekker will be selling it under the brand EQ by quantra.
Currently they are striving towards creating a healthy mix of owned and third party distributors across key regions to help develop its business.
3.FCCB:
This was issued in 2007 to fund quartz project.My take on this is since pokarna is already an operating company they decided to issue FCCB under pokarna rather than pokarna engineered stone ltd which was not fully operational at that time.
Though they defaulted in 2012,last year they redeemed all of FCCB.
Look at their Cash flow from operations:Not a single year with negative cash flows.
4.Borrowing profile:
Let us look at their borrowing profile from the consolidated financials:
So,the total borrowing as of 2015 is Rs.260 crores and if we exclude the working capital loan and unsecured loans,term loans of Rs.110 crores is the big obligation.Directors did not charge any interest until last year for their loans to the company.From this year,they are charging 14% interest for this loan.
Looking at the strong cash flow and no CAPEX for another 3 years,they are likely going to pay back a significant amount of outstanding loans.Not sure they pay off banks loans first or the director's/inter corporate loans first.
This brings up some more points:
1.Company never diluted their equity even when they had tough years.
2.Company redeemed its FCCB though after a default.
3.Directors pumped in interest free money for the company to stay afloat during tough times.
Why would they do it?
Below is their working capital since 2003-2004:
4.Price realizations:
Varadha,it is tough to compare the price realizations of Caesarstone and Pokarna because of their business models.Pokarna is B2B wherein they sell it to dealers and dealers will in turn sell it to fabricators,distributors etc.However,Caesarstone is a B2C company which directly sells it though its own distribution network.So,the prices are incomparable.But the company mentioned their avg.price realization is around $8.
5.Interesting part about their cash flow is there has never been a year with negative cash flow from operations:
6.Recently i wrote to Breton with the following 2 questions: Please see the answer below:
-----Messaggio originale-----
Da: Simonetto Alessandra
Inviato: lunedì 31 agosto 2015 12:08
A: Zamperin Pietro
Cc: Crestani Giancarlo; Caon Damiano
Oggetto: I: Sambath - Small Investor
Dear Sir
See my answer in UPPERCASE
Hello Team,
I am small investor, doing some research on Stone Industry and quartz manufacturing companies.I know Breton is the leader in quartz technology and more than 10 sizeable players are using Breton across the world for quartz.
It would be great if you could answer the following questions:
1.Does Breton offer their technology to only one company per country ? or there is no such limitation? NO, THERE IS NOT SUCH LIMITATION
2.To set up a new line of Breton,how long does it take from the time of ordering the equipment? ABOUT 10 MONTHS DELIVERY + 6 MONTHS INSTALLATION
Please add your questions if you have any.I will reach out to them or if you want i can send you their investor relations contact.You can contact them as well(They might ask your DP id).
Thanks,Sambath.
Disclosure: Invested.
Yes - I could be suffering from endowment and availability bias.
Based on the Orange Book data it appears that Ibuprofen up to 200 mg could be sold over the counter without any prescription and Granules had the permission for the same since 2010. But Ibuprofen above 200 mg requires a prescription and Granules did not have a permission to sell the same. Now, they should be able to sell prescription based higher dosages(400mg, 600mg and 800mg) on their own.
Spoke to CFO Mr. JK Jain. Key points:
Company had income tax exemption till FY15. Now onward will have to
pay normal tax rate.
Company enjoys 6% excise benefit at its plant in HP. This will come
to end by Jan 2016. The company will not be able to pass the same to
the end customers.
End customers industry is very fragmented and competitive. Anyone
with Rs.15lakh can set up retreading unit. Can take material from
Indag or others and retread the tyre. Its take typically 3-4 hours
to retread tyre. After that it may need 24hrs for cooling of the
same.
Radialisation may increase retreading. But as the tyre are good
quality, requirement of retreading will come after more running of
KMs than current.
Company don’t have a pricing power to its buyers
Rajasthan plant got shut down due to issue with labor unrest.Apart from this my finding on Khmeka - Sun group:
This is a very mall part of the group. Mr. Khemka is busy with Russia, work and ties related to that. Dont know how much time he spent on this company.
Disc: Had invested but exited post the call with MR. CFO
Very impressive guys. Feels very good to be part of a forum where there is so much of discipline , attention to details and lot of scrutiny. I havnt learnt much from my earlier mistakes of " bigger picture" attitude. I will be busy next 3-4 days and when I come back I will update as much as I can.
However, I remember asking one of the Bedrosians store how long are they selling Quantra, I vaguely remember he said 4-5 years, but i can get more accurate info later.
We should also make a plan to visit their office in Hyderabad for more detailed discussion with the management.
Thanks-Mahesh
@varvp14 My returns aren't worth broadcasting in this great forum of wiz kids. But let me unmask it, since you had asked. Unrealised gain for a 15 - 18 month period used to be a respectable 60-70% but it has nose dived to a meagre 30% , after steep corrections everywhere but the killer nose dive in 2 of my key holdings - Page and Eicher plus not to mention the southern sojourn of Axis, Yes, Kitex, Ambika and of course big cuts in Repco - plus Gruh in standstill mode.
Varun reasons for you exiting Syngene please.Whats your take on kaveri after recent downfall n reasons behind it?Why are you liking tat Elxsi.It listed way back in 1991 .why the price rise now?
As disclosed in PI industries thread, I have increased PI weightage by a little bit and would most likely stop here. No fresh money, just re-allocation. I would put the weightage of PF once the dust settles as the %ge change with the volatility in the markets. I prefer to take the %ge weights at some steady state point.
Mostly your selection is good - it also depends upon the price point you have entered. 38% to banks may be large nad in that too karur Vyasa may not be the best bet.