Pokarna Limited (532486) Earnings Call Transcript & Summary

Mr. Rupesh, I would request you to kindly come back in the queue for your follow up questions. We have the next question from the line of Mr. Sachin Kasera from Svan Investments.

Just wanted to get, check, if you can give us some update on how is the domestic business shaping up?

Yes. So domestic business is growing for us. But of course, as a part of our entire portfolio, it is still a very small number. But the year-on-year growth is promising, and we've been able to add about 100-plus dealers across India now. So our product is available for display and consumers can walk in, touch and feel the product and can also order via our dealer channel. So I think it will take some time for the -- it will become a sizable component in the business. But I think the demand and the channel development exercise what we are doing here looks very promising to us in the long term.

So sir, just a follow-up on this. So one is that why -- when we can expect some good numbers from this? Secondly, what is the type of feedback you are getting from consumers? And are we also starting to look at the project side of this business?

Yes. So see basically, for this business to reach a sizable critical mass, I think it should at least take 3 to 5 years because we are not doing a B2B type of approach in the local market. It's B2C in India with such a wide depth of the country. It's difficult to reach out to every nook and corner. So today, we are in Dehradun, and we are also available in Kochi. So that shows that we are now looking at going across the platform. But then still, there is a little regional concentration of what we have in our network. So now we are focused on basically [ Kona-Kona ] Quantra we are looking at. So once we are able to be there, then the demand cycle typically will become as it is in the retail side, the U.S. business. Now coming to -- what was your second question, sorry?

One was the response and feedback from the customers who have bought it? And secondly, are we looking also at the project side of this.

Yes. So we've done a project already in Hyderabad with a very large multinational bank out of U.S., and we made their South Asia's technology headquarter. We supplied the product there. And then we are also doing -- there are other headquarters coming up in other parts of our country. Apart from that, we're also doing some other commercial projects also. So we've got into both the retail side of it and also institutional side of it.

And can you comment, I think on the feedback you got from the -- on the retail side from the customers in terms of what is the feedback and what type of views we are getting in? What is the feedback how -- what we need to make?

Yes. So basically this is a unique business model. There's no other company in the country today, which gives you a 360 degree of solution where we come for the initial measurement to finally installing the product and doing everything in between. So this is a very unique experience, which only currently the consumers and the developers like U.S. and Europe have it. So this is a unique business model and consumers are quite happy because we don't have any -- they don't have any hassles of actually waiting for people to come, arrive and then do the fabrication and decide and create pollution, noise and everything associated with that. So -- and there has been repeat demand. And the fact that we are getting the references from our dealer channel, that's what is expanding our network. So when we tie up with a particular retail -- kitchen retail chain, they themselves are referring them to us to the other constituents of their business in the other parts of the country. So that is where the feedback is actually coming that, okay, we are convinced with this product, and that's how they are referring into their extended trade partners. And also on Google reviews, you can look at it, you'll find hundreds of reviews there from the consumers directly.

[Operator Instructions] We have the next question from the line of Pratik Singhania from SageOne Investment.

Sir, my question is with regards to this proposed duty to the competition or the players in India. So sir, what -- is this proposal it stays from and they give on the final duty, then what implication do you see on the entire Quartz import from U.S. terms? And how will we benefit out of that? This is question one. And question two is, similar to Indian companies, does there -- is there been any proposed duty on any other players in other countries? And is there any player who is using Breton technology? And has this proposed antidumping duty on to them?

Okay. Now coming to your question. See, basically, this duty would become final somewhere between October to December '22. That's been under the statute DOCs under an obligation to announce the duties. So it would be possible to comment about the impact on Pokarna because of the duties, I would rather say the positive impact on Pokarna if any arising out of these duties can only be provided once the final duties are out. And what happens to the rest of the constituents, so see basically, there are about 51 companies who maybe impacted because of this. That does not include Pokarna. So for them, there is a group of company which will be subject -- probably subject to 323%, and then the rest would be subjected to about 161.5%. So if that becomes the final norm, then the 51 companies typically will get impacted to that extent. So any product getting out of those companies into the U.S. will be subject to the duty to what I mentioned. And -- but then there are companies who are not impacted because of this, and they will continue to be on the previous rate, which is about 3%. So while there will be a group which will be getting impacted, and there will be probably a group which may not be as severely as impacted as this group of 51 companies would be. Now coming to your second question on -- is the similar duty has come on any other product, yes. So Turkey was also part of investigation like we were. And they also have a relatively similar numbers like our initial numbers, not like 161% and 323% numbers.

But any player with Breton technology in Turkey would have received like higher...

No, there is a player in the Turkey, a Breton player who has received a number, but that's not as high as 161% or 323% what you see.

How much that would be, sir, approximately?

That would be less than 5%.

Okay. And this is just a procedural to become a final duty or there is a possibility of them rolling back this proposed candidates?

Basically, I would be doing a crystal gazing if I say this or that. But what I can tell you is that there is a statute under which the Department of Commerce is expected to evaluate all the submissions. So the case briefs are due to be filed this week. And then there will be some rebuttals on it, and then there will probably a hearing as well. So based on the case rates and the final hearing, which will be conducted. The DOC will decide whether it's going to amend its position or it's going to stay with what position it took in the preliminary.

Mr. Pratik, I would request you to kindly come back in the queue for follow up questions. We have the next question from the line of Devesh Neodia from Devesh Neodia SNPL.

Just wanted to understand, considering that the resin and scale change with the new capacity. And right now, we are selling only basic products, largely basic products from that capacity. So what is, let's say, our strategy to scale up the premium Quartz in USA. I mean, the initiatives that you are taking to increase, let's say, if you can just give some data points like number of salespeople you have ramped up the distributor expansion that is going there. The price differential, which is there in premium Quartz with the players who are selling the premium Quartz. So if you can just give a perspective because now we have to actually sell double the volumes to ramp up the new capacity in premium Quartz. So just some perspective you can give on these 3, 4 points. That would be really helpful.

Yes. See basically, the product mix, as we have maintained that the technology requires a lot of training for us to develop a product which we can differentiate in the market and then get a price which we believe is reasonable for the product. And this is fairly a long exercise, and because there are certain cycles within which the product has to be ready and sent to the market so that the overall sales cycle can be accommodated because it's not possible to immediately launch and the product and trade will not be ready to accept it because there are certain months or quarters during which typically the new product launches happen. So if we are able to develop a product during that phase, the chances of the product getting properly marketed and the success rate percentages could be relatively higher. So now coming to the difference between how our basic product and high-end products, there can be almost 100% price difference between a basic product and high-end product. But of course, then the production cycle time will also vary, but it can not really very 100%. It can vary about 20% to 30% or 40% sometimes. So based on this mix, typically, the pricing is done. And then we don't actually determine the prices for resale in the U.S. market. So I would be -- it was not possible for me to tell you how customers actually end up paying between the basics and the high-end product at the U.S. market end. I can only comment, as I told you that prices can vary up to 100% between a basic and high-end product at our end.

Actually, my question for price differential was, let's say, when you're selling to the distributor and then the distributor who sell the product at the retail level. The price for these premium products that we are selling to distributors, it's differential versus the competitors who are selling. I mean, since we are competing with different players. So we might have some perspective of, let's say, our player in U.S. at what price they are selling for the similar premium product that we are making or let's say, a player from, let's say, Turkey, what price differential we have. So in that, where do you think in the price band where we stand and our competitor?

See basically, we believe that consumers don't buy a product, they buy typically a brand. So in the brand, what happens is that there are certain brands who are actually able to sell the same basic product, probably at 100% more than what others would be doing. It can probably sell an expensive product, 200% more than what the others would be selling in. So the range is very, very wide. And especially since it is a brand-driven proposition, the brand equity associated with the product typically derive those additional percentages of what I spoke about.

Okay. Okay. And if you could just elaborate on the kind of scale of premium Quartz in U.S.A. So we know the Quartz opportunity side will let you only for the premium category of Quartz, what would be the scale, which is there in U.S.?

See this is an exercise which is difficult to predict with some scientific analysis. But I think if you look at the overall portfolio, about 20% is where the premium lies and about 80% is where you have the basic to mid-level products coming in.

And what do you think...

Mr. Neodia, I would request you to kindly get back in the queue for follow up questions. We have the next question from the line of Anant Jain, an Individual Investor.

Have you seen the heightened number of inquiries after these duties have been announced, although they are preliminary, but have you seen many more inquiries after these duties have been announced?

Yes. I think the trade is a little cautious because things are not final. So I think the level of activity would only arise after some announcement comes between October to December.

Okay. My second question is that is the capacity utilization, the current capacity utilization, is that like that not being optimum, is that a function of demand? Or is that a function of some issues that earned in terms of freight or the plant stabilization or these kind of things?

It is a mix of both, basically.

If you could elaborate a little more on this, like why would you say that it's a mix of both? I mean you see demand also?

See, what happens is that for us to be able to service all the needs of our customers completely at the basic level would be a little challenging because once we add a customer, it's very difficult to phase out them over a period of time or give them the products which we want to substitute for maybe it will replace some 5 products with of basic ends, with the higher end. So to that extent, it is basically our side of it, like we don't want to take the entire portfolio that is available. That is one side of it. And second side of it with this little recession and demand tapering things looking down. I think to -- and with the year-end approaching probably the customers are also a little cautious about building up things.

Okay, sir. That helps. My last question is, if you could...

I would request you to kindly get back to the queue, sir, for your follow up questions. We have the next question from the line of Dixit Doshi from Whitestone Financial.

My first question is regarding -- you mentioned that there is a price realization difference of almost 100% to 200% if the consumer have a good perception about the brand. So what we do for creating our brand in the U.S. and any annual budget we have?

See basically, we are currently a B2B organization, but we are also building up B2C organization. And that we started with India per se, currently. So while -- when we go to the U.S., we typically focus on servicing the big boys of the industry largely. Of course, we do have certain pockets where our distributors operate and sell the product under the brand name Quantra. So the different ways we approach on the branding side is that one is that we participate in trade shows where we display a product and where we invite all our customers and their customers to come and see our product experience it live. And secondly, we also give certain marketing budgets to our Quantra brand partners, which they can utilize in their local markets to market, be it advertising in the local magazines or doing all the other point of sale related marketing activities, which can be done in that particular regional market. Apart from that, we've started the digital marketing initiatives. You can follow us on Instagram, Facebook, LinkedIn. And you can see that we are regularly active on the platform, promoting the product, the projects we've done and all the exciting news which we have to share with our trade. So digital marketing is one route. The trade and exhibition is one route, then being on the online portals is something which we are doing and then our partners do the regional marketing.

Okay. And my second question is regarding the margins. So you mentioned that the resin prices have started coming down. So from the peak, how much it has come down? And if we see other than the last 2 quarters, we used to make 30%, 33% EBIT margin on the segment result. So can we come back to those margins, let's say, by Q3, Q4?

See we have seen about 12% to 15% price decrease in the resin so far. And we believe that it can probably go down a little more. That answers your first question. The second question is on the margin side, see basically, margins is again a function of the raw material prices, what we spoke about during this conference call and also the product mix. So if the raw material side is taken care with the resin prices becoming relatively better than what they were in the past. And if there is an improvement in the product portfolio, what we are expecting will happen in next couple of quarters then yes, 30% plus can come. Whether it will be 35% or 40%, what we enjoyed at some point of time, I think I can only comment as we go closer to that.

We have the next question from the line of Abhishek from Bowhead India.

Sir, considering market share which turns out to be...

Mr. Abhishek, I would request you kindly come closer to the mic, we are unable to hear your question very clearly.

Yes. Hello, is it better now?

Yes, it is.

Considering our market share in the U.S.A., which approximately comes out to be just around 1%. So considering this is a slowdown in demand to some extent, how much confident are we for utilizing our capacity at optimum level or, let's say, at the level that we are currently utilizing it?

See, as you see the demand scenario seems to be -- it's not possible to completely predict how the things will pan out. But if the things stand as they are today, then I think the numbers can be range bound. But if there is a little slowdown in the U.S. market to that extent, I think we will also not be insulated is what we believe.

Okay. Sir, just one more question. Considering the new plant, we will be making super jumbo slabs. So would it be safe to presume that when we are utilizing that plant or the margins will be better than the old firm, considering the market for super jumbo is better than the jumbo slabs?

Yes. So basically, it is like all the planets getting configured to give you the positive results. So it's not just the size of the flat, it is the production capacity optimization or benefit because of the improved technology and the processes which have come in place the raw material and the product mix. If these 3 are aligned at some point in time, then the benefits of all this together will help in improving the margins.

We have the next question from the line of V.P. Rajesh from Banyan Capital.

Last time, you had talked about that the growth could be 20% to 30% over fiscal year '22 this year. So given what you are seeing on the demand side, do you think that particular view has changed in any way?

At the moment, we believe that what we spoke about 20% to 30% growth over the previous year, seems to be achieved unless there is some dramatic change in the U.S. demand outlook.

Okay. And secondly, in terms of realization, how do the domestic realization compared to the realization you get in the U.S. for a similar or same product, let's say?

See basically, in the Indian market, we don't just sell the product, which is typically the case in the U.S. market. We sell the product. And in the U.S. market, majority of the product, what we sell is typically the class. But in Indian market, we sell the product, which is fabricated. And additionally, we also have an element of installation. So typically, since we are catering to 3 different segments like material, fabrication and installation, there are 3 different buckets. So if you look -- really look at all the buckets together, the realization is better in the Indian market. But then initially because we are also investing a good amount of money in marketing, creating point-of-sale material displays at the dealer's plate. So overall, I think there will be a little incremental margin in the domestic and not exponential difference actually.

Right. And just going to the...

This is the operator. I would request you to kindly get back in the queue sir for follow up questions. We have the next question from the line of Sachin Kasera from Svan Investments.

Sir, just one thing on this capacity utilization. You mentioned that the optimum can be 85%. But if you remember something in the Line 1, we have achieved high utilization. So is it that the consolidation of the Line 2 is a little different than Line 1? Or is it that -- if you can just comment a bit on that.

See basically, the capacity utilization number, unlike in many other industry here, is again a function of what design you are producing. So you will not be producing -- if it is a basic design, then you typically have a higher square foot produced, whether the design which has got more complication, you have relatively a lower square foot, which is produced. So when we say 80%, 85%, we mean that based on the product mix what we have, we think that seems to be a reasonable number to achieve. So the same thing will translate between the -- between both the units, whether it is Unit 1 or Unit 2, if in a particular quarter or a particular month, we have a higher production of basic versus lower production of expensive product. To that extent, square footage may go up, but the realization may not necessarily match it. And it can be vice-versa also that the square footage can come down, but the realization may go up because we actually produced a high-end design. So we believe that 80%, 85% in our experience so far seems to be a number to look at.

Sure, sure. Sir, second question was on the capacity expansion. You mentioned that you keep looking opportunity and you can't comment it right now. But just to get a sense, what is like the cost difference between a brownfield versus the greenfield because my sense is that as and when maybe 12 months or 24 months down the line, whenever we look at expression or it will be more for brownfield. So if you could just give us a sense, normally for the same plant, if you were to go from greenfield to cost would be INR 100, what is typically the same plant costing when you go for a brownfield?

See typically, if you look at our infrastructure the way we have designed our Unit 2, we can actually accommodate additional production line in it without having to do expenditure or investment for the scale of greenfield, which we had to set up a plant. So I think typically, at least 20% to 25% savings you can have between a greenfield and a brownfield.

And because we don't have to do the infrastructure, we may also save in terms of the overall time to operate?

Yes. But then we actually invested in advance to that extent that you have a drag on your depreciation and the other return.

I understand. And just saying but in your terms of a time to...

I would request you to kindly get back in the queue sir for a follow up.

This is a follow up. This is the continuation of the previous question. I'm saying, sir, about the time taken to start the plant will also be lower because it's a brownfield versus a greenfield, you say sometimes like 3 years for greenfield, brownfield be maybe like 2 years or 2.5 years?

Yes. Yes, relatively the time will be lower than the greenfield because, one is that your team is already available, ready train on the product. Secondly, a large infrastructure is already in place. And all your adjustments which you wanted to do in the machines are already told to the supplier well in advance. So all those learning curve-related issues are already taken care in that.

We will take the last question of the day from Mr. Pratik Singhania from SageOne Investments.

Okay. He is not there. He already left.

So if we have somebody else for the last question we can take.

Sure, sir. Give me a moment let me check. We'll take the last question from the line of Aman Vij from Astute Investment Management.

On the new plant, by Q4, what kind of value addition portion can we get? Is it like 10%, 20% sales will be value addition by Q4 or higher and lower? And also if you can talk about the same for FY '24 target? Second question is on the utilization part of the new plant. So every quarter, we are seeing improvement. So do you think Q2 utilization will be better than Q1 and similarly, every quarter, we'll keep seeing higher utilization of the new plant? These are the 2 questions.

See, the target, what we have is that at least 20% of our production should be of design. So whether it will be Q4 or in '24 is something which I think only next couple of quarters can answer that. So I think if we're able to come to a 10% plus, probably you can start seeing the benefits of it in the numbers. That is on the mix side. On the capacity side, see, basically, if there is a demand opportunity which we want to tap, we'll definitely go and take it to have some scope on the capacity utilization side. So it all depends upon the demand and the needs of the market. So we're just closely watching how this duty scenario and how the U.S. demand scenario will pan out and probably we're able to get a clarity when we talk about Q3.

I would now like to hand it over back to the management for closing comments.

Thank you, everyone. It was pleasure talking to you guys and look forward to chatting again in Q2 results. Thank you.

Thank you, sir. On behalf of Pokarna Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.