Saturday, 17 October 2015


There is difference between analyzing a stock and researching a stock. This stock story is the perfect case study for it. Nowadays, where anything and everything to do with granites/ceramics/tiles is going out of roof, its very difficult to get cheap but high quality and high growth companies. If the research is not proper its easier to get into the trap of Madhavs and Stylamsz of the world.

Background: ARO Granite Industries started operations as a 100% Export Oriented Unit in 1991 for processing Polished / Flamed/modular Granite Tiles & Slabs. It is engaged in manufacturing of modular granite tiles and granite random slabs. It is a star export house; exporting to around 30 countries like North and South America, Europe (UK, Germany, the Netherlands, Italy), Africa, Greece, Portugal , Iran and the Far East. Their plants are strategically located and therefore, it gets direct access to quarries in South India, which are known for the finest and widest range of appealing granites. The company has installed the most sophisticated and environment-friendly granite processing machinery imported from Italy.

Past Great Future Even Better: Last year company completed yet another expansion plan (they have to keep expanding because due to the high demand of their products, they are almost always running full capacity – it’s the best part), complete effect of which will be seen this year. As per my interaction with the management the company would become debt free this year(ex-working capital debt). This would be strong bottom-line booster. This quarter promoters have freed all their shares from the pledge too. Revenues have almost doubled in last four years and bottom-line has more than doubled. The management is very upbeat about the growth prospects moving forward and there’s a reason to it. According to them, if they could double both topline and bottomline, inspite of recessionary trends in the world, now that world economy, and especially domestic economy, is picking up, “bettering” what they have achieved so far should be a piece of cake. Most of their growth has come, courtesy export markets but they could also start focusing on domestic market if they see smart cities project actually taking off. This could take the growth to another level.

Why To Buy: The Company has been very consistent with dividends and has also been rewarding shareholder with regular bonuses and is available at extremely compelling valuations of less than 4.2 times trailing PE. The company would keep bettering on the growth moving forward and would be a clear beneficiary of word economy picking up and smart cities project could be the icing on cake. The company would becomedebt free this year. With a lot of its raw materials being imported and most of the products exported, the company is naturally hedged against currency fluctuations. A point to note is that No other company in this sector has this level of natural hedge. It’s great because it saves finance costs. The company’s almost doubling its sales every four years and should better this moving forward. The company that’s consistently growing for last 10 yrs, regularly rewarding shareholders with bonus shares and dividends and is in one of the hottest sectors of the moment cannot keep on trading at these kinds of ridiculous valuations. The management quality is impeccable here. This is one stock that has not just survived but thrived in harsh business environmentand with improving business environment, the company can graduate to a new level altogether.

Super Compelling Valuations: With the current market cap of just 100cr and cash equivalents of more than 15cr + last near net profit of 21 cr + this quarter’s profit of more than 5cr, we are getting a company in 100cr with around 41cr of cash, This is a wonderful cash bargain. On top of it its being trading at a dirt cheap PE of just 4.2. Even doubling from these levels the stock would still be just 8.5 PE. Given that its peers are trading at anything between 20-80 PE and given the strong demand of its products, strong earning consistency and visibility the stock, backed by an ethical managementshould get strongly re-rated in near future. Even something like Asian granito (whose net profits have actually reduced by 30% in last five years instead of growing) is trading at 15 PE and orient bell (whose profits have actually been on a downtrend in last 4-5 yrs) is trading at 86 PE – think about it.

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