UNEXPLORED MULTIBAGGER SMALL CAP STOCKS
EQUITY RESEARCH REPORT
POKARNA LTD. BSE CODE: 532486
Industry: Construction Materials CMP: Rs. 1086.25 (08/11/2015)
Market Cap: 673.48 (INR in Crore) Target Price: Rs. 1975
Date: Nov 08, 2015 Time Period: 12 – 24 months
Saral Gyan Capital Services
An Independent Equity Research Firm
www.saralgyan.in | www.saralgyan.com

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TABLE OF CONTENT
S.No Content Page No.
1. Company Background 03
2. Recent Developments 10
3. Financial Performance 12
4. Peer Group Comparison 14
5. Key Concerns / Risks 14
6. Saral Gyan Recommendation 15
7. Disclaimer 18

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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
Initially Pokarna entered the industry with quarrying and thereafter, expanding its
operations into manufacturing of slabs, tiles and cut to size for the various requirements
in the industry all over the world. Today, company processes more than 80 premium
colors both from India and abroad to the most reputed companies though out the
globe.
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.

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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.
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.

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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.

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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.

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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.

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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

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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.
Also, the usage of natural stone countertops is relatively common in countries endowed
with extensive quarries irrespective of local economic development. In countries, where
natural stone has to be imported, it is utilized more often in high-end applications based
on its comparatively high price. In 2013, Solid surface comprised approximately 20
percent of global demand, of which nearly 70 percent of was sold in Asia / Pacific region
wherein they are low-cost options because of an extensive local production base

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2. Recent Development
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.
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.
PESL Products receive GreenGuard and 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.

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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.

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3. 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
1 2 3 4 5 6
Net Sales 61.78 82.68 78.45 103.45 96.35 98.6
Net Profit -0.99 3.82 14.78 13.75 11.79 13.05
61.78
82.68
78.45
103.45
96.35 98.6
-0.99
3.82
14.78 13.75 11.79 13.05
-20
0
20
40
60
80
100
120
RsinCrores
Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15
Last 6 Quarters Net Sales & Profit

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Current & Expected Earnings
Quarterly Ended Profit & Loss Account
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.
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. We expect
Quartz segment will continue to drive revenue growth and profit margins going forward.
Particulars
(Rs in Crores)
Dec
2014
Mar
2015
Jun
2015
Sep
2015
Dec
2015 E
Mar
2016 E
Audited / UnAudited UA UA UA UA UA UA
Net Sales 78.45 103.45 96.35 98.6 105.73 119.79
Other Operating Income -- -- -- -- -- --
Total Income - Operations 78.45 103.45 96.35 98.6 105.73 119.79
Raw Materials Consumed 22.5 22.88 21.79 22.99 23.14 24.31
Purchase of Traded Goods 0.12 0.36 0.47 0.75 0.46 0.62
Increase/Decrease in Stocks -2.8 5.38 1.34 1.19 1.43 3.80
Power & Fuel 5.14 5.14 5.72 5.56 5.66 5.72
Employees Cost 7.23 10.53 8.37 9.18 8.56 11.79
Depreciation 4.88 5.27 4.42 4.47 4.74 5.97
Provisions And Contingencies -- -- -- -- -- --
Other Expenses 22.81 31 29.86 27.46 26.90 34.31
P/L Before Other Income 18.56 22.89 24.39 27 34.84 33.27
Other Income 1.73 3.09 0.9 1.25 0.99 3.49
P/L Before Int., E. Items & Tax 20.29 25.98 25.28 28.26 35.83 36.76
Interest 9.09 7.2 8.63 10.08 11.27 11.66
P/L Before E. Items & Tax 11.2 18.78 16.65 18.17 24.56 25.10
Exceptional Items -- -- -- -- -- --
P/L Before Tax 11.2 18.78 16.65 18.17 24.56 25.10
Tax 4.34 5.03 4.86 5.13 7.44 7.12
P/L After Tax – Ord. Activities 6.86 13.75 11.79 13.05 17.12 17.88
Extra Ordinary Items 7.92 -- -- -- -- --
Net Profit/(Loss) 14.78 13.75 11.79 13.05 17.12 17.88
Equity Share Capital 6.2 6.2 6.2 6.2 6.2 6.2
Calculated EPS 11.07 22.18 19.02 21.04 27.61 28.84
Calculated EPS (Annualised) 44.28 88.72 76.08 84.16 110.45 115.35
No Of Public Shares Holding 0.27 0.27 0.27 0.27 NA NA
Public Share Holding (%) 43.33 43.33 43.33 43.33 NA NA

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4. Peer Group Comparison
PEER GROUP POKARNA ARO GRANITE
DIVYASHAKTI
GRANITES
MADHAV
MARBLES
CMP 1086.25 50.15 115.50 48.25
52 W H/L 1425.00/349.00 41.50/97.90 38.20/121.80 35.10/63.95
Market Cap 673.56 75.43 118.61 43.17
Results (in Crores) Sep-15 Sep-15 Sep-15 Jun-15
Sales 98.60 60.39 17.64 20.45
PAT 13.05 2.83 3.46 2.32
Equity 6.20 15.30 10.27 8.95
EPS (TTM) 86.07 6.46 9.18 9.19
P/E 12.62 7.63 12.58 5.25
5. Key Concerns / Risks
 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.
 Heightened volatility in currency exchange rate following changing economic
environment can have a bearing on the Company’s financial condition.
 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.
 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

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6. Saral Gyan Recommendation
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.
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.
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.
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.
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.

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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.
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.
Company’s EBITDA and PAT margins are expected to further improve going forward
considering robust revenue growth in high margins Quartz segment.
Key Financial Parameters Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015
Return on Equity (%) -34.21 -86.96 -91.62 36.92 57.12
ROCE (%) -0.03 -0.57 2.72 9.83 13.56
Operating Profit Margin (%) 14.81 16.24 17.45 21.38 26.17
Net Profit Margin (%) -13.10 -18.11 -8.49 3.31 6.90
Debt to Equity (%) 469 10.7 17.64 12.04 5.47
Working Capital Days 118 139 136 138 109
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.
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%.
YEAR Mar'11 Mar'12 Mar'13 Mar'14 Mar'15
EPS 0.00 0.00 0.00 18.83 50.58
Dividend / Share (In Rs) 0.00 0.00 0.00 2.00 3.00

HIDDEN GEMS – OCTOBER 2015
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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.
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.
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.
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.

HIDDEN GEMS – OCTOBER 2015
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further update and not buy more of the stock at current market price.
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keeping in mind the objective of the recommendation service.
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