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Buy Pokarna, target Rs 215: ICICI Direct

Pokarna’s topline grew 63.1 per cent year-on-year (YoY) to Rs 144.7 crore in Q4FY19.

ETMarkets.com|
Updated: Jun 13, 2019, 12.37 PM IST
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The brokerage has set a one-year horizon for the stock to hit the target price.
ICICI Direct has given a buy recommendation on Pokarna with a target price of Rs 215.

Shares of Pokarna traded at Rs 163.55 around 12 pm on 13 June, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

March quarter highlights:
  • Pokarna’s topline grew 63.1 per cent year-on-year (YoY) to Rs 144.7 crore in Q4FY19.
  • Ebitda margin expanded 773 bps YoY to 34.5 per cent led by 826 bps YoY expansion in Ebitda margins of granite business to 31.3 per cent and 575 bps YoY expansion in Ebitda margin of quartz business to 38.4 per cent in Q4FY19.
  • PAT grew a robust 94.6 per cent YoY to Rs 26.4 crore led by strong performance of quartz business.
  • Pokarna’s revenue growth was led by strong performance in the quartz division that grew 112.9 per cent YoY to Rs 107.2 crore in Q4FY19.

Investment rationale:

"We like Pokarna, given its increasing focus on high-margin quartz business, its owned quarries and technological moat (Bretonstone technology) in India. We believe the new quartz facility in Hyderabad will further help the company increase its share in the US market," said the brokerage.

The company is setting up new a 7.8 LSM capacity quartz plant in Hyderabad that is expected to be commissioned in Q4FY20E and has proposed Rs 330 crore capex for the project (Rs 250 crore debt and Rs 80 crore internal accruals).

Pokarna has already incurred one-third of this capex as of FY19. Overall, with quartz business is contributing nearly 68 per cent to overall revenues and the new plant will help Pokarna overcome its capacity constraints and cater to incremental demand, thus boosting overall revenues.

At the current market price, the stock is trading at nearly 6.5 times FY19E earnings per share (EPS).

"We maintain buy rating with a target price of Rs 215 per share (9 times FY20E EPS). Any imposition of antidumping duty by US on Indian Quartz would remain a key risk for the stock," the brokerage added.

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