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Aro Granite Industries Ltd.

BSE: 513729 Sector: Others
NSE: AROGRANITE ISIN Code: INE210C01013
BSE 00:00 | 11 Oct 38.20 0.20
(0.53%)
OPEN

38.00

HIGH

39.00

LOW

37.75

NSE 00:00 | 11 Oct 38.70 0.30
(0.78%)
OPEN

39.85

HIGH

40.05

LOW

37.60

OPEN 38.00
PREVIOUS CLOSE 38.00
VOLUME 2202
52-Week high 60.35
52-Week low 29.60
P/E 5.54
Mkt Cap.(Rs cr) 58
Buy Price 37.00
Buy Qty 1.00
Sell Price 39.35
Sell Qty 3.00
OPEN 38.00
CLOSE 38.00
VOLUME 2202
52-Week high 60.35
52-Week low 29.60
P/E 5.54
Mkt Cap.(Rs cr) 58
Buy Price 37.00
Buy Qty 1.00
Sell Price 39.35
Sell Qty 3.00

Aro Granite Industries Ltd. (AROGRANITE) - Chairman Speech

Company chairman speech

Dear Shareholders

Financial year 2017-18 was a tough year with many macro headwinds impacting theoperational performance of the company. The revenue of our company declined by 15.89% fromRs.238.65 Cr in FY17 to Rs. to Rs.200.72Cr in FY18.The profitability of the company wasalso impacted with its EBITDA declining by 55.08% from Rs.30.68 Cr in FY17 to Rs.13.78 Crin FY18. Our Net Profit declined from Rs 12.62 Crin FY17to Rs 1.17Crin FY18.

The realisations in granite slabs business declined by 9.70% to Rs.3960 per sq meterdue to increasing competition from engineered stones and adverse currency movements. Whileour investment in the new warehouse has been successful its impact has been diluted bythe headwinds that the overall granite processing business is facing.

There is a growing demand for engineered stone i.e. Quartz which in turn is impactingthe demand for natural granite stone. In our main export markets like USA UK andAustralia Quartz engineered stone has captured significant market share over the last fewyears. Quartz is largely popular in the white color shades. This trend of preference forwhite colors has been playing out over the last couple of years and for us the challengeis that supply of white material slabs in India is very limited. However the availabilityof White shades from Rajasthan has helped us increase the sales in the US.

Availability of Raw material remained challenge during the year. We source 60% of ourraw material from within India of which 15% is source from Tamilnadu. In the last coupleof years a large number of quarries were shut down due to their inability to getenvironmental clearance which in turn has created raw block shortages and upward movementin raw material price. We have been forced to source raw materials from Rajasthan whichin turn has impacted our margins due to huge transportation cost which itself adds upto30% of the rough block costs. We import 40% of our raw material requirement fromBrazil Norway Finland Africa Iran and Ukraine. There is a long lead time for theseblocks to reach our processing unit and here also transportation costs are very high.

In order to mitigate these issues we are planning to set up a which will handle rawblocks sourced in and around Rajasthan. This unit will be able to process 150000 sq mtrsof granite slabs. The expected capex for this expansion would be Rs.55-60 Cr. It will takearound 18 months to become operational from the ground breaking ceremony. We expect thisexpansion will give us competitive edge in terms of better pricing and margins. This plantwill enable us to half the total cost ot transportation per container.

Our business further was significantly impacted due' to GST GST mechanism ha* hit oiirbusiness by creating a working capital crunch. fOUs are no* exempt ffomrGSJ but in thecurrent GST regime exporters have to pay GST on material and ser>ices^nd then claim arefund. EOUs are forced to pay GST upfrontand to avaifl refund of fnpu! Tax Credit on alater date. These refund claims haven't been processed smoothly since July 2G17 and thisin turn- has blocked a huge amount of funds which in tom has resulted in wording capitalcrunch for us. As on 31st March 2018 the company has a total offiS^-OCr stuck withgovernment as GST refund claims. The PNB LOA scam has further impacted the cash flows ofyour company* After PNB scam the banks are taking four to five days in clearing paymentsdue to extra documentation and approval from multiple desks within the bank which in turnis acfding b. the working capital requirements. Being a Cash and Carry Market thfsworking capFtal crunch has impacted our purchase and bargaining power with quarries. Many.:ppputarquarries now prefer to export rough blocks to China and Italy as they get- irtfPiedifltrremittances from them. Indian factories are suffering with the Working Capital Blockage by. GST.

To counter this adverse effect we started processing Quartzite a premium produetwEthSate value three times that of granite. Quartizite is very expensive and brittle materialwhich cannot be cut properly by traditional gang saws. We imported a 72 wire Multiwiremachine with diamond wires to process Quartizite and installed it in the Hosur Plant. Mostof the quartzite blocks are imported from Brazil. Quartzite market is qualitydriven and price plays second fiddle to quality and timely delivery. We expect thissegment to help us improve not only exports but Domestic Sales as well as these quartziteare in the hands of only a few around the globe.

Our domestic sales were 5% of revenue. The domestic sales remained lower due to lowerdemand in India for higher priced quality granite products. The Tax of 10.3% customs duty+ 18% GST also makes it difficult for us to compete against the unorganised sector.

Given the current head winds we expect the FY19 also to be challenging for us.Competition from Brazil shortage of raw material and working capital crunch due to GSTimplementation remain major concern for the company. For the coming year we are focusingon Cutting costs and improving the bottom line. We are trying to cut down on ourtransportation costs by setting up a new unit in Rajasthan. With the global market demandis currently skewed towards engineered stone we expect this trend to change back tonatural stone in the coming years.

Sunil K. Arora

Managing Director