Ashish Chugh, Investment Advisor
Aro Granite Industries : Reco Price Rs. 104.90 CMP: Rs.125.80 (Gain 19.92%)
Aro Granite Industries Ltd. is a 100% Export Oriented Unit located at Hosur near Bangalore and exports polished Granite Slabs and Granite Tiles to US, Canada, Europe, Japan, and Far East. The operations of company have suffered due to the strengthening of rupee in recent times, however the company’s expanded capacities in Granite Tiles and Granite Slabs which has recently gone on stream alongwith its change in focus and a shift towards the domestic markets may see it tide over the problems due to rupee rise.

Aro Granite Industries Ltd.

Aro Granite Industries Ltd. is a 100% Export Oriented Unit located at Hosur near Bangalore and exports polished Granite Slabs and Granite Tiles to US, Canada, Europe, Japan, and Far East. The operations of company have suffered due to the strengthening of rupee in recent times, however the company’s expanded capacities in Granite Tiles and Granite Slabs which has recently gone on stream alongwith its change in focus and a shift towards the domestic markets may see it tide over the problems due to rupee rise.

Background

Aro Granite Industries Ltd. started its operations in the year 1991 with the manufacture of Polished / Flamed Granite Tiles with installed capacity of 1,80,000 Sq. Mtrs. The unit is located at Hosur, which is just 35 Kms. away from Bangalore - the Granite Hub of India. The strategic & geographical location of the plant ensures close proximity and direct access to quarries in South India.

Over the years Aro Granite has earned a high degree of credibility with its broad clientele base as a reliable and consistent supplier of premium Indian Granites. The customer network of Aro Granite spans the globe and it currently exports to USA, Canada, Europe, Japan, Far East and South Pacific Countries.

Modular Granite Tiles Unit

The capacity of the modular granite tiles has gone up three fold from 1,80,000 sq. mtr to 5,40,000 sq. mtr in the recent past. The company earlier had a unit with a capacity of 1,80,000 sq. mtr. The company has set up a new unit having a capacity of 3,60,000 sq. mtr, thereby taking the combines capacity of Granite Tiles to 5,40,000 sq. mtr. The company manufactures Granite Tiles in various sizes and also as per customer’s specifications.

Granite Slab Unit

The Granite Slab unit has 8 Gangsaws and a capacity of 3,90,000 sq. mtr. This includes a capacity of 95,000 sq. mtr which has recently gone on stream.

The Tile Unit and the Slab unit are fully equipped with modern machinery and infrastructure. The company adopts a strict 100% inspection system during all stages of manufacturing process.

Besides the mines located in South India, the company sources rough granite blocks from various countries including Brazil, Saudi Arabia, Norway and Finland.

Financials

The latest financials of the company are given as under :-

QUARTERLY - LATEST RESULTS - Aro Granite Industries Ltd (Curr: Rs in Cr.)
Particulars	Quarter Ended	Quarter Ended	Quarter Ended	YTD / Latest Half	YTD / Latest Half	YTD / Latest Half	Year Ended	Year Ended	Year Ended
	(Sep 07)	(Sep 06)	(% Var)	(Sep 07)	(Sep 06)	(% Var)	(Mar 07) (12)	(Mar 06) (12)	(%Var)
Sales	24.38	28.32	-13.9	49.05	53.55	-8.4	104.52	78.19	33.7
Other Income	0	0.28	-100	0	0.46	-100	0.16	0.8	-80
PBIDT	4.94	5.86	-15.7	10.03	11.65	-13.9	20.29	12.85	57.9
Interest	0.48	0.76	-36.8	1.29	1.63	-20.9	2.9	2.1	38.1
PBDT	4.46	5.1	-12.5	8.74	10.02	-12.8	17.39	10.75	61.8
Depreciation	0.63	0.59	6.8	1.19	1.18	0.8	2.36	2.34	0.9
PBT	3.83	4.51	-15.1	7.55	8.84	-14.6	15.03	8.41	78.7
Tax	0.6	0.14	328.6	0.64	0.31	106.5	0.58	0.56	3.6
Deferred Tax	0	0	-	0	0	0	-0.76	-0.09	-744.4
PAT	3.23	4.37	-26.1	6.91	8.53	-19	15.21	7.94	91.6

Latest Data As On 14/01/2008
Latest Equity(Subscribed)	7.02
Latest Reserve	62.15
Latest Bookvalue -Unit Curr.	98.53
Latest EPS -Unit Curr.	19.37
Latest Market Price -Unit Curr.	104.9
Latest P/E Ratio	5.45
52 Week High -Unit Curr.	121.5
52 Week High-Date	1/12/2007
52 Week Low -Unit Curr.	75.25
52 Week Low-Date	8/29/2007
Market Capitalisation	74.13
Stock Exchange	BSE
Dividend Yield -%	1.89

The company has been a consistent dividend payer since 1994 and paid 20% for FY 06-07.

Change in Shareholding

In March 2006, Mr. Prem Arora, Co-Promoter and Co-Founder of the company exited the company and sold his entire stake of 25% to Mr. Sunil Arora and Pearl Mineral Pvt. Ltd., a strategic investor at a transaction price of Rs.75 per share. Pearl Minerals Pvt. Ltd. is a Granite Mining company having its corporate office in New Delhi and mining leases in Andhra Pradesh and Tamil Nadu for exclusive Indian colours like Black Galaxy, Green Pearl, Ocean Blue and Kashmir White. Pearl Minerals has been a key supplier of rough Granite Blocks to the Aro Granite.

Conclusion

Aro Granite has been hit due to appreciation of rupee – we donot expect the company to register growth in Sales or Profitability in the current FY. The company has however completed expansion projects both at the Granite Tile units, where the capacity has gone up by 200% and Granite Slab unit where the capacity has increased by 32%. The expansion has been funded through a debt of Rs.24 crores and Internal Accruals of around Rs.10 crores. The expansion projects have gone on stream recently.

The full benefits of the increased capacity will start accruing to the company from FY 08-09, wherein the company can achieve a Sales Turnover of Over Rs.150 crores with a correspondingly higher profitability.

The strategic investment by Pearl Minerals Pvt. Ltd., which has picked up 14.25% stake in Aro Granite will ensure consistant and regular supply of quality raw material to the company.

The demand for Granite Slabs and Tiles has been on a rise due to boom in construction and infrastructure sector. The construction and Infrastructure boom in India and the company plans to focus on the domestic market to sell its products may help the company partially offset the effect of rupee appreciation on company’s margins. Moreover, Italian Granite industry is under pressure and many units are becoming sick, hence it may be Advantage India.

Aro Granite may not be a part of an industry which is highly fancied on the bourses nor a company which is currently going through the best of its times. The silver lining however is that the capacity has been doubled without any equity dilution, the full benefits of which will start accruing to the company from FY 08-09 onwards. The other positives are that the stock has a Book Value of Rs 100, the company has been a regular dividend payer since 1995 and the stock trades at a PE of 5.50 on TTM earnings and there is a visible growth from FY 08-09 onwards, thanks to expanded capacity having gone on stream. The Sales & Profitability surely have declined in the first six months of FY 07-08, they have however not been severely dented due to rupee appreciation. Our key concerns however are competition from countries like China and the availability of good quality granite blocks especially of rare colours and patterns.

Investors can choose to accumulate the stock at the current levels and on declines.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members donot have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com.

This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.