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Aro Granite Industries Ltd.

BSE: 513729 Sector: Others
NSE: AROGRANITE ISIN Code: INE210C01013
BSE 00:00 | 23 Oct 24.60 -0.50
(-1.99%)
OPEN

25.00

HIGH

25.30

LOW

24.60

NSE 00:00 | 23 Oct 25.10 0.55
(2.24%)
OPEN

24.20

HIGH

25.75

LOW

24.20

OPEN 25.00
PREVIOUS CLOSE 25.10
VOLUME 203
52-Week high 46.00
52-Week low 15.35
P/E 24.36
Mkt Cap.(Rs cr) 38
Buy Price 24.60
Buy Qty 1065.00
Sell Price 27.00
Sell Qty 93.00
OPEN 25.00
CLOSE 25.10
VOLUME 203
52-Week high 46.00
52-Week low 15.35
P/E 24.36
Mkt Cap.(Rs cr) 38
Buy Price 24.60
Buy Qty 1065.00
Sell Price 27.00
Sell Qty 93.00

Aro Granite Industries Ltd. (AROGRANITE) - Chairman Speech

Company chairman speech

From the desk of the

MANAGING DIRECTOR

Dear Shareholders

I hope you and your loved ones are all safe and have managed to pass through thestressful phase of Covid-19. The entire world has faced the impact of this unprecedentedpandemic and suffered both human and economic loss. The global economy has beensignificantly impacted due to lockdowns closure of non-essential businesses and travelrestrictions imposed to contain the spread of covid-19. Global trade supply chain traveland tourism has been disrupted which in turn shall drive a degrowth in the global economy.The global economic growth is expected to contract this year though the contraction ingrowth will depend on government stimulations and how fast economy recovers and becomenormal.

Our business has also been impacted by Covid-19 as our plants were closed in March 2020and only partiaIly resumed operations in May 2020. Raw material availability has furtherworsened post Covid-19 as most of the quarries were closed in National lockdown and arenot able to operate at previous capacities. Some of the quarries in south India haveopened up but are operating at a very low capacity due to shortage of labour as most ofthe labourer moved back to their native villages. Quarries in North India have ramped up abit faster and are expected to run at normal levels by the year end.

FY2019-20 started on a good note but since then has turned into a challenging year forthe Company. We were able to increase our sales by 3% from ?172 Crores in financial year2019 to tMl Crores in financial year 2020. Our sales volume increased by 6.2% to4.98 lakh square meter in the financial year f Rs. 2020 but the overall growth was lowdue to slight degrowth in realization. Our profit after tax declined by 62% from Rs. 9.71Crores in 2019 to Rs. 3.6 Crores in 2020 which was largely on account of notional lossesdue to currency fluctuation.

During the year we started production from our Jaipur plant. We started exports fromAugust 2019 and it has contributed 8% of total revenue during the year. Rajasthan hasbecome a preferred hub for granite sourcing as the shades found in the Rajasthan quarriesare in demand in the North America and Europe. Our investment in Jaipur has been crucialfor us otherwise procurement of raw material from Rajasthan would be challenging and wewould have lost sales in the shades that are unique to Rajasthan. Raw material procuredfrom North India is processed in Jaipur plant and exported by Mundra Port which saves hugelogistics cost for us. Rajasthan has 20% of granite reserves in India with vast variety ofcolors specially white grey and brown. We expect Rajasthan will continue to add value toour Company going ahead.

Our Cut-to-size segment is performing well and has contributed 8% in revenue during theyear. Cut-to-size is a value-added product and commands higher margin. We have healthyorderbook in that segment at present. As customers are not able to travel the trust whichwe have built over the year will help us. In Quartzite segment currently our business isdisrupted as we are not able to travel to select colors and quarries to procure rawblocks. Quartzite is a premium product and we import raw block of Quartzite from Brazil.The product is brittle and requires extra processing and careful finishing and so manualinspection is a key part of the buying process. Since there are only limited processorswho can handle such stone we are able to command higher margin on it. Overall the demandin Asian market is growing for Natural Quartzite we expect this segment to startcontributing to our sales once we are able to start the procurement of raw blocks.

Raw material shortage continues to be the biggest concern for the granite processingindustry. In the last couple of years granite quarries have shut down in large numbers dueto illegal mining and environmental clearance in Tamil Nadu and Karnataka. Historicallydue to their proximity to our plant in Hosur quarries in Tamilnadu and Karnataka has beenour main source for granite blocks. Closing down of quarries in these states has impactedour sales and profits significantly. As sourcing raw material from quarries in otherstates adds to our logistics costs. To maintain our sales we have been forced to procureraw material from other states and also imports. We import 30% of our raw materialrequirements from markets like Brazil Norway Finland Africa Iran and Ukraine.

Another impact on our natural stone business has been the big trend shift towardsengineered stone. Due to the rising popularity of engineered stone and to diversify ourproduct offering we decided to foray in to engineered stone segment. We are setting upbrownfield Quartz molding project in our existing facility in Hosur. The plant shall havecapacity of 180000 square meter per year. We have invested only in machinery and willuse our existing infrastructure of polishing finishing and packing commonly for graniteprocessing and quartz manufacturing. We have completed the civil work and 95% installedthe machinery and the plant was expected to become operational in March 2020. The Chinesetechnicians went back to China for their New Year in late January 2020 and planned to joinback in Mid-February 2020. They were unable to travel back to India due to the Covid-19pandemic. We expect this plant to be commissioned once the international travel ban islifted. We have high hopes on this Quartz plant and plan to sell our products through ourexisting sales network and distributors spread across the world.

The coming year is expected to be challenging for the granite industry. Raw materialscarcity has worsened as most of the quarries are operating at ver low capacities due tosevere labour shortages. At the company level our relationship with our customers that wehave built over the last 30 years is starting to pay off in these challenging times.Inspite of travel ban on international flights we are getting regular orders from ourcustomers. We have good amount of orders in hand but we are facing challenges inexecuting orders due to difficulties in procuring raw material.

We expect our business will grow once the global economy normalises. Our Jaipur plantis doing well and shall contribute significantly to our business going forward. Our Quartzplant shall be crucial investment for us as USA has imposed tariff on import of Quartzfrom China which has created huge opportunities in India to export engineered stone.

We have been in the granite business for more than 30 years and have continuouslyevolved to stay relevant and competitive in the industry. We look forward to future withhope and hope to grow when the Covid-19 pandemic comes under control and global economygets back to normal.

We thank all our valued shareholders and look forward to their continued support.

Sunil K Arora

Managing Director

SAHIL ARORA

Whole Time Director

For the year your sales increased but profits have declined substantially what is thereason for the same?

Pouring the financial year the Indian Rupee (INR) depredated quite a bit. Our Term Loanfrom the bank and working capital limits were exposed to foreign currency fiuctuationssince both were in foreign currency. During the year the exchange loss was approximatelyRs.9.00 Crores as per the AS 11 Accounting Standard issued by the Institute of CharteredAccountants of India which is a notional entry only. As we need to pay for rough graniteblocks in advance and then supply finished goods on credit we borrow funds from the bankin the form of Packing Credit in Foreign Currency (PCFC) for our working capital. At thetime of receiving the customers payment that payment is offset against our PCFCoutstanding and since the currency was depreciated at the time of receipt we have to showa notional loss in the books. Lastly we have lost 2 weeks of working in March 2020 due tothe lockdown driven by the COVID 19 Pandemic Sales for the month were dampened by thelockdown and the costs associated with producing the goods had already incurred during thelast quarter and hence reduced the profit

What has been your experience in Rajasthan? How has the ramp-up been and what are theexpectations for the coming year?

We started procuring Rajasthan's colours a few years ago and we saw it grow steadily inpopularity It was in 2018 we decided to set up a new unit in Jaipur to focus more onthese new in demand shades We started production in our Jaipur unit and exported ourfirst container in August 2019 We have seen a steady monthly growth in the Rajasthanregion and the Jaipur unit contributed to 8% of our overall yearly sale We expect theunit to continue to improve in 2020 Had it not been for the Jaipur unit we would havelost all our sales for the colours from the north With more processing units opening upin Rajasthan the transportation cost of rough blocks has made the sale of North Indianblocks from the Hosur region unviable Hence our expansion in Rajasthan was timely and hashelped us retain our market share With the North Indian shades gaining popularityespecially in North American markets we are quite excited about the future prospects ofthe Rajasthan unit

• The commissioning of the Quartz plant has been WiM delayed. When do youexpect it to start?

Commissioning of the quartz plant in our Existing Hosur (100% EOU) unit was under waywhen the machine supplier's Chinese technicians had to return to China for their ChineseNew Year Festivities They returned to china at the end of January 2020 and were planningto return by the second week of February 2020 that is when the Pandemic hit China Indiain March 2020 barred all international fiights It is only when the International fiightsstart in India can we continue with the commissioning of the Quartz plant This is not ahuge financial burden as we have suppliers credit facilities from our Chinese supplierthat has to be paid over 720 days further most of the infrastructure facilities werealready in place in Hosur and we had planned to use some of the existing machinery forfinishing of the quartz slabs This delay due to the C0VID19 Pandemic is a hugeopportunity loss for us but we expect that once commissioned the Quartz plant will helpus to increase sales and profitability.

• Raw material sourcing has been a big issue for the granite processing industryin India? How has the lockdown impacted the sourcing of raw granite blocks?

Post Lockdown the production in the granite quarries especially in the southern partof India has been impacted heavily Many of the migrant labourer have gone back to theirhome and are yet to return to their work at the quarries This has led to many quarriesrunning at extremally low capacities or not running at all The excess rains duringunlocked period is not helping the current situation with the works further slowing down

What is the total debt on the balance sheet?

Can you share the breakup between term & working capital loans?

Total debt as on 31st March 2020 amounts to Rs.15467 Cr The Term Loanconstitutes Rs.3657 Cr and Working capital loan (limit) Rs.11810 Cr

Why has the inventory increased in FY2020 even " though our sales did not grow? Doyou expect the inventory levels to come down in the current financial year?

During the year we started our Jaipur Unit hence there was an increase in Inventoryfrom the new unit. Moreover as the factory was abruptly shut as on 24th March2020 due to nationwide lockdown export was on hold and the Finished Goods could not beshipped thus adding to the closing inventory. There are plans to reduced our FinishedGoods inventory over a period of time. Also there is no financial risk in holding thefinished goods inventory being polished Granite stones as they are not perishable innature.

How has Covid-19 impacted your company? What are you doing to ensure continuity ofbusiness?

Due to Covid-19 we have essentially lost over 40 days of production and export (March24 2020 to May 5 2020). Furthermore due to migrant labour issue quarries in southernIndia are yet to be 100% operational.

However for the company with relentless customer service and focus on quality over theyears it has built trust and reputation in the export market. This in turn has helped usa lot in getting orders even in the unprecedented situation created due to pandemic.

Due to restrictions on overseas travel customers are unable to travel and inspect thefinished products. But they have continued to place orders and accept goods purely on thebasis of the goodwill developed over the long period of

" association and this has helped to withstand this

unprecedented situation.

• What are your thoughts on impact of Covid-19 on the Stone Industry? Will therebe any changes in the way the industry operates?

With Covid-19 the stone industry like any other industry is facing lot challenges andmany opportunities have arisen too.

The world GDP is expected to contract which will weaken the demand for the products inthe international market. Only companies with high focus on Customer service andcommitment to Quality will survive and sustain in the current situation

The restrictions on travel both domestic and international have contributed to reducedtravel costs restricting physical visits and inspection of materials and we have to relymore on electronic and digital media at least in the short to medium term. This issomething that is helpful to trusted & reputed suppliers like us.

Also the ongoing taritf and trade barriers imposed by USA on China could open up newbusiness opportunities for the industries in India.

How is your various business segments performing? How is the CUT-TO-SIZE segmentfairing?

Both Polished Granite Slabs and Tiles have performed better as compared to last year.CUT- TO-SIZE segment constituting about 5% - 7% of our turnover has also performed welland helping to sell other value added products like modular slabs and tiles to the samecustomers.

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