Buy Aro Granite Industries Limited

Buy Aro Granite Industries Limited at cmp of Rs 57.05

There has been a lot of investors interest in Granite Industry and stocks from this industry are scalog new heights on the back of anticipated demand in future. The demand is expected to come from revival in domestic housing and infra sector as well as from overseas emerging markets and improvement in US economy.

India is blessed with unique colours and large deposits of granite and is among the best for granites so far as colour, variety, quality and pricing are concerned.  Let us look at one such company from this sector which is into 100% exports.

Aro Granite Industries Ltd (Aro) is 100% Export Oriented Unit (EOU) promoted by Mr Sunil Arora and is engaged in the processing of granite tiles and slabs. Aro has two processing facilities at Hosur and Krishnagiri in Tamil Nadu  and has  an aggregate installed capacity of 5.4 Lakh sq m per annum for granite tiles and 5.9 Lakh sq m per annum for granite slabs. Aro mainly exports its products to USA, Europe, Africa and other Asian countries. For FY 14, there was a 33% increase in the sales to North America, 314% increase in sales to Libya, 50% increase in Germany and double the sales in Poland, Italy and Japan.

The major challenge to the company comes from shortage of quality raw material in the domestic market resulting in an increased dependence on imported raw material resulting in less margin. The problem is compounded from with depreciation in rupee. Though company’s imports are naturally hedged to some extent. However company incurred forex loss of Rs 4.21 crs in FY 14 on account of working capital borrowings in foreign currency which was left unhedged.

However the company looks to be a great buy opportunity at current market price basis:

1. The entire sector is getting rerated due to anticipated demand in future. Company’s sales has been consistently increasing sales over the past 5 years and has shown huge growth in export market. Operating margins for Q1 FY 15 has increased both QOQ and YOY. Company will also benefit from stable INR and increase in the capacity in the past.

2. A company with sales of Rs 251 Crs and Pat of Rs 21 Crs in FY 14 is available at a market cap of just Rs 87 Crs.

3. Company’s book value as on 30 June 2014 is Rs 96.15 as against cmp of Rs 57. Low PE of 5 as compared to industry average of 15.

4. Consistently dividend paying and infact gave 1:2 bonus shares in FY 13.

Buy for long term at cmp of Rs 57.05.