Aro Granite IndsQ3 FY17Consumer Durables

Aro Granite Inds

Q3 FY17 Earnings Call Analysis

Management growth scorecard

Revenue

Category 4

Margin

Category 3

Fundraise

N/A

Order

N/A

Capex

Yes

1 of 3 growth signals are positive — mixed outlook.

Revenue guidance

Category 4

→Introduction of new multi-wire machine for cutting Quartzite launched a month ago is expected to boost revenue and profitability.
→Current production capacity utilization is around 60%, down due to competition from Engineered Stone.
→Market share is expected to improve in the future as the trend may reverse in favor of natural stone.
→The company is exploring setting up smaller units closer to raw material sources to reduce high transport costs and improve cost competitiveness.
→The Cut-to-Size segment, started recently, is expected to grow steadily with higher value and margins over time.
→Domestic sales are a small portion (5%) and impacted by real estate market and taxation but expected to slowly increase.
→Overall, short-term growth faces challenges from Engineered Stone trend and GST working capital impact, but new products and cost-saving strategies aim for better volumes and revenue ahead.

Category 3

→Introduction of new multi-wire machine for cutting Quartzite, a new product launched about a month ago, expected to increase revenue and profitability.
→Current capacity utilization is around 60%; with industry headwinds, volume growth is limited in the near term.
→Market share has declined due to rising popularity of Engineered Stones like Quartz; natural stone demand expected to revive in future, potentially improving margins.
→Focus on reducing variable costs underway, but material consumption costs expected to remain stable in the near term.
→Plans to set up multiple smaller processing units closer to raw material sources to reduce transportation costs and improve competitiveness, which could enhance operating efficiency.
→GST regime has impacted cash flows due to upfront taxes and delayed refunds, affecting working capital but expected to normalize once refund mechanisms improve.
→Overall, earnings growth expected to be gradual with a positive impact from new product launches and operational efficiencies.

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→The company is exploring setting up smaller processing units closer to raw material sources to reduce transportation costs and improve competitiveness.
→This new business model involving smaller units is still in the planning stage; they are "seriously working on it" but no firm plans or timelines have been finalized yet.
→Sunil Arora mentions that once plans are firmed up, they will provide more details.
→There is no explicit mention of current or future fundraising through debt or equity to fund this expansion in the provided transcript.
→Therefore, as of the call in November 2017, no confirmed new fundraising through debt or equity has been announced, though capital expenditure (CAPEX) will be required for the smaller units once plans mature.

→The Cut-to-Size segment is a new area started about a year ago, involving value-added products.
→Around 40 containers of shipments have been done in the Cut-to-Size segment so far.
→The company is seeing further orders coming in this segment and is hopeful for growth in the next few years.
→This segment is still stabilizing and requires more time to achieve large volume orders.
→No specific numeric value of current or expected order book is provided in the transcript.
→Overall, the company is optimistic about expanding order volumes in this newer product segment.

Yes

→ARO Granite is seriously working on setting up smaller production units closer to raw material sources (Rajasthan, Andhra Pradesh, Telangana) to reduce high transportation costs and improve competitiveness.
→The current large unit in Hosur (production capacity >1 million sq. meters) is being supplemented by plans for these smaller units, which would have lower overheads and be more cost-effective.
→No detailed plans or timelines have been finalized yet; the company will provide more updates once the plans are firmed up.
→This strategy represents a shift from the earlier single large-unit model to a decentralized production model.
→The company is exploring new products like Quartzite, facilitated by recently installed multi-wire saw machines, which increase cutting capacity by 1,50,000 square meters.
→There is no specific mention of exact CAPEX amounts or funding sources yet, but management confirms they are seriously working on this and will share more details soon.

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