Pokarna Limited (POKARNA.NS) Earnings Call Transcript & Summary

Yes. You are right.

Okay. And second, let's say, I understand there was a fair bit of tariff uncertainty this quarter. And obviously, it continues. And still the margins in the product have been fairly in terms of guided range of 35% or somewhere around that range. The question is that once the probably improved product mix or CHROMIA, designs that we are talking about, fair to assume that these margins we will be able to maintain with the new designs that we're speaking about, assuming that utilization and everything remains where we are today?

See, that is the focus that we will continue with the margins because we have focused on giving the market a better quality of product with more innovations. And when we do that, we really anticipate that the margins we will hold, but it will depend on the orders that we get post tariffs. The reaction of customers right now is that they themselves, because of non-clarity, have withheld releasing the orders. Though they have selected the products, but they have not released orders. Because now today that the clarity has come, we assume that we will start getting customers' orders, but the pricing will be under strain for sure, unless it is a new product where there is no comparison for the price.

Just last question from my side. What will be non-U.S. revenue as well as India run rate, if it's possible to share?

I can only tell you that the non-U.S. revenues are going up gradually on the contrary, every month rather every quarter, I could say. But then the major volume remains from U.S. market. But we are going to now focus -- take this opportunity as an excuse or improve the network in other parts of the world to ensure that our dependence gets reduced.

Next question is from Karthik from Suyash Advisors.

I logged into the call slightly late, so excuse me if I'm repeating the question. I just wanted to understand, given the uncertainty surrounding tariffs, sir, is there a way you can stagger your new project so that the balance sheet strain is minimized? Any thoughts on this?

It's not possible. I think last meeting also somebody had suggested this, but that's not possible because we have already placed the orders, the machines -- it is a time frame of about a year to make the machines. So when we placed the order, the LCs were already open. And now more or less delivery time is very close by. So I don't think we can defer. And I don't think we have to defer our plans because of just a tariff issue in one market. Our ultimate goal is to keep raising our revenues, increasing our profits and find other opportunities to penetrate in other markets. We cannot withhold our business prospects just because in one country there is a tariff issue. And then tariff issue is not so severe that we have to worry about it, because this tariff affects everybody, every product. So there is some percentage variance. And I hope that Indian government and U.S. together will make efforts to make it more viable eventually because the consumer in the U.S. will have to pay a higher price. So going forward, I don't think we need to defer our expansion plans or growth plans just because of the tariff issues.

Great. Great. Good to hear that. Sir, just one additional clarification. Have you finalized upon the product mix you target in your new facility? Would it be more in the slabs, would it be larger slabs, super jumbo slabs? Can you share some color on that?

See, this is a business strategy that we need to take a call from time to time, again, customer to customer. One particular strategy is always we are customer-friendly company. We want to ensure that we retain the customers, we add new customers, and we satisfy our customers. So to that extent, yes, there are some markets which require thinner slabs. Maybe we'll have a little lesser margin in that kind of a product, but when we need to do it, we will do it. So in the new machines, we have the capability to make thinner slabs. We have the capability which I can probably tell you that no other quartz company in the world has, because we have KREOS, we have robots and we have CHROMIA. So a product which can be made by us. Fortunately, not many companies are able to do this. So we will try to explore our equipment that we have to the best of our ability to retain and continue to give new products to our customers.

Just to clarify, sir, the reason I brought up this question was, in the presentation, you have explicitly stated that overcapacity is a problem in the lower end of the product range. Therefore, I was wondering if your strategy is accordingly modified? That is why I was asking you this question, sir.

Unfortunately, I don't think I should share our business strategy on investors calls, because as I told you, overall, we are a customer-friendly company, we are innovators in the products, and our focus will remain there. Even if at the cost of reducing our entire capacity utilization in the bargain, we will do it, but we will have to make it up with better margins. But we will have to focus on what we can do to retain our customers and satisfy our customers and give them a product which others are unable to give.

The next question is from Vaibhav Gupta from Bowhead.

Sir, this is Sonaal Kohli. For benefit of all, maybe if you allow, I'll ask 3 questions. Firstly, sir, how is the hospitality pipeline looking like considering huge gap in renovation of most of the hotel projects in United States? Will it increase materially this year, either in absolute terms or as a percentage of revenue this year or next year as per your expectations? Secondly, CHROMIA and KREOS, when will you see impact of these products coming out in a meaningful way? And would you expect that to happen during some part of this year? Thirdly, if you could explain what will be the impact of exit of Paras? Who has taken over his responsibilities, and his background? And any plans to hire someone to do so? And does it impact your business in any meaningful way?

So first question about the hospitality pipeline. See, we still are continuing to get inquiries for hospitality industry, because normally it is a long time frame from the time they start planning to execution, because hospitality is one part which is a continuous process. And we really don't see much demand going down in hospitality. So again, because this tariff issue has made uncertainty for every customer, whether a home buyer or a hospitality or any commercial projects. We don't know how things will happen, reaction will happen from the customers post this 25% tariff on us. But I don't foresee that there will be a big degrowth on hospitality industry. We will continue to have -- a lot of inquiries are already there, and I think we'll continue to get a lot of traction from hospitality going forward. CHROMIA and KREOS, we have already started production of KREOS, and we have already started delivering the product from KREOS to the market. The new collection of KREOS and CHROMIA, we are launching in the forthcoming show in Italy in September. And I'm sure that, that will open a big market for these new products from the show where we will be exhibiting these new products. Coming to Paras' resignation. Paras was part of the company. Of course, you must know that he was a Company Secretary, moved to look after the Quartz business, but we have enough team to continue the business. I myself have started this business, and I continue to actively participate in the day-to-day working of the organization. In addition to me, my friend, Mr. Rahul, is the Managing Director, who is full-time involved to take forward whatever work Paras was taking care. So in addition to Paras, we already have a good team in place with a lot of experience. So you don't have to worry about one individual goes from the organization that the organization will not work. I can assure you that we'll work better and continue to be innovators in the market and continue to give good results.

Sir, have you lost any other people after Paras resigned? And secondly, sir, in terms of sales relationships, with whom do the sales relationships reside with, that would give a lot of clarity to all of us on the call.

So I want to give you one clarity first. All the customers that we have on board were all started by me and continue to be serviced by me. So it is not that Paras has gone, so we -- and I don't think we need to emphasize this conference call of investors for one individual leaving the organization. Am I clear?

Sure, sir.

Next question is from Ankush Agrawal from Surge Capital.

So firstly, I mean, if I look at this quarterly results, pretty decent quarter. I think we have stable margins and the revenue is down just 10%, which is quite good. So I just wanted to understand if you can provide a sense of how the demand sort of shaped up over the quarter, like in terms of -- from the customer end, like April would obviously would be much lower because there was a lot of uncertainty. But post that, how did customers start reacting in terms of, say, releasing orders? Obviously, they're still holding back. But since from April to now, I think last 3, 4 months, how do you see? Is there an improving trend? Or if you can give a sense on that?

No. Honestly, the new order which has come into effect from today was issued last night. And all the customers were waiting for this final order that is going to come. But there are still customers who are not concerned about the tariffs because the business continues as usual. What will happen will be that the product pricing will go up. And maybe they will also revisit their own palette, what products can be sold with additional tariff, which is going to be loaded on the product. So today, it's too early because the order was last night and this 25% story is now going to reach everybody. And today now in U.S., it is night. I don't really know how the reaction will be. But overall, I can tell you that a lot of our regular customers with whom we have been doing business, they continue to work for the future collections, new additions that they want to do and our development for them is continuing. And let us see that what will be the total reaction. I think it is too early for me to comment today. But we will make efforts to make sure that we'll have to revisit the pricing. We will revisit the color palette and product offerings, we will do it.

Okay. Sir, just one clarification. What is the normal time line between your customer giving you an order and you actually delivering that product on an FOB basis?

See, the product -- actually, it starts with development of the product, because as long as old products, if they are selling, it continues where the development has already taken place and they've already offered it in the market. But when you talk of the new products for the next year collection, normally, the period is 6 months. They give some ideas what they want, re-present some new ideas, what we can make, and then the customer selects the products, then present it to their own sales team. And by the time they place the order to us, it can take up to 6 months' time.

Okay. Actually, what I'm trying to understand is, say, for Q1 FY '26, you would have received orders even before the tariff situation came in April, right? And that is what you have executed. So just trying to get a sense that now post April, what kind of slowdown you have seen in terms of new orders, which would, say, sort of impact the results in the next few quarters?

So what you guessed is right, the deliveries that we made in quarter 1 of this year was the orders we received about 4 months, 3 months before that. So now today situation is, from April onwards, we see a slowdown in the orders, because there was no certainty about what tariffs will come to, because the negotiations between India and U.S. trade has been happening for last more than 4, 5 months. But everybody was expecting that they will conclude the negotiation. But since the negotiations were not concluded, the tariff of this 25%, what was announced has become effective today. We hope that, as we read, the Trade Commission is expected to visit India in end of this month to finalize the final tariffs. And again, this uncertainty will remain until the final tariffs are not finalized. So I see that there will be a pain we will have during this particular quarter. But then if tariffs are finalized, the business should happen as usual.

Next question is from Amey Chheda from Banyan Capital.

So as our understanding is that the end consumer, what he is paying is almost 8x to 10x of our selling price, right? So if we sell at $6 to $8, he is paying $60. So is the understanding correct that if we are paying additional $2 tariff, then the end price only increases from maybe $60 to $62. So in that case, probably the demand won't be impacted as much. Is that understanding correct?

You are seeing only rosy picture of our customers, but you are not looking at what goes in between. These margins are actually not so simple that you are calculating. See, there is a distributor between us and the consumer. Then there is a fabricator in between a distributor and a consumer. So the role played by the fabricator is a major role. And the margins that he gets -- your accounting is not right because this includes the handling, transportation, storage, cutting, fabrication and the losses that they incur on wastages when they execute the project. So of course, the consumer has to pay that kind of a price, but that price is not just processing on the product directly. There are a lot of services involved in between. So this tariff which comes on the product will be a part of the margin, of course. The product, of course, will become more expensive. And maybe they will bring down their margin a little till the price is not absorbed. We can't say, but consumer still, at the end, will have to pay more price for the product.

Okay. On a blended basis, right, for you as a company, what would that incremental price be in terms of percentage? I'm not asking for a specific number.

First, I want you to understand clearly that we sell on FOB basis and we sell at our price, the product. The tariff is paid by the consumer or the dealer when he imports in American market, and that is the time they pay the tariff, whatever taxes are. So we don't pay the taxes here. Our price for the product, suppose it is $10. Customer will have to pay tariff on that $10, whatever the tariff will be.

No, that I understand. I'm asking about the end consumer, right? Because of this tariff, so you must have done some back of the envelope calculations to understand that what would be the price increment for the end consumer because of this tariff?

It must be the same percentage if you look at the face value. But then going forward, we don't know whether the distributor and the fabricator will absorb some price differentiator or they will load it to the customer. We cannot tell that.

Okay. Got it. My second question was what would be the margins of the non-U.S. countries that we sell to?

See, we sell a product for the same price we sell to U.S. and same price we sell to other countries. So the margins will remain same.

Thank you very much. We'll take that as the last question. I would now like to hand the conference over to the management team for closing comments.

Are you taking any more questions? Or that was the last question?

Sir, we'll take that as the last question.

Okay. Thank you, gentlemen. Thank you for joining us for this Q1 financial investors meet on this '25-'26 financial year. Look forward to seeing you again. Thank you.

Thank you very much. On behalf of Pokarna Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.