Global Surfaces

Exporter of slabs

Exporting slabs of granite, marbles and engineered quartz largely to the USA

Global Surfaces, promoted by Mayank Shah, is engaged in the business of processing natural stones and manufacturing engineered quartz. Its products find application in the flooring, wall cladding, countertops, cut-to size and other items and are used in both commercial and residential industry. The company sells its products both within and outside India.

The company was incorporated as Swastik Niwas Private Limited on August 23, 1991, and its name was changed to Global Stones in 2004 and then to Global Surfaces in October 2021.

The company, promoted by Mayank Shah, started its activities with processing of natural stones and latter branched out to manufacturing engineered quartz, which offers better profit margin compared to natural stones. Currently the product portfolio of the company can be categorized into natural stones and engineered quartz. In FY2022, about 82.7% of its revenue came from engineered quartz and about 17.3% revenue from natural stones.

As the company largely focused on exporting its products, majority of its operational revenues comprise of export sales. It has exported to the United States of America, Canada, Australia, and Middle East. Approximately 99% of its revenue from operations have been derived from exports in FYs 2020, 2021 and 2022 and approximately 98% of its revenue from operations have been derived from exports in the period ended September 30, 2022. Moreover, in FY2022 and the period ended September 30, 2022, the revenue generated from exports to the USA represented 99.13% and 94.85%, respectively, of its operating revenue.

Natural stones are produced by complex geological processes and include many products such as granite, limestone, marble, slate, quartzite, onyx, sandstone, travertine, and others that are quarried from the earth. Natural stones are widely known for their uniqueness, aesthetic appeal, texture, color, and composition as no two natural stones are the same.

Engineered quartz, on the other hand, is an example of engineered stone used in the countertop industry, which is a composite material made up of crushed stone bonded by an adhesive. For instance, for countertops, the slabs are made from quartz crystals bonded with a resin binder. Various types of engineered stones are: Engineered quartz, polymer concrete and engineered marble. Historically, among the three kinds of engineered stone, engineered quartz has accounted for the highest market share followed by engineered marble stone.

The operating units of the company are located at Jaipur, Rajasthan, with Unit I located at Riico Industrial Area at Bagru and Unit II at Jaipur Mahindra World City SEZ. The company currently has a processing/manufacturing capacity of 471164 sq m (square meters) and 521643 sq m of natural stones and engineered quartz, respectively. In FY22 the capacity utilization of natural stones and engineered quarts stood at 28.74% and 68.96%, respectively.

Further, the company is in the process of setting up a manufacturing facility in Jebel Ali Free Trade Zone, Dubai, and UAE through its wholly owned subsidiary at a total cost of Rs 150.742 crore. The installed capacity of the proposed facility is to be about 622896 sq m of slabs and is expected to commence commercial operations by start of third quarter of FY2024.

The IPO comprises Offer for Sale (OFS) of 2550000 equity shares [1400000 equity shares by Mayank Shah; 1150000 equity shares by Sweta Shah both promoter shareholders] and the Fresh Issue of 8520000 equity shares. Of the net proceeds from the fresh issue it propose to utilize about Rs 90 crore towards investment in Global Surfaces FZE (a wholly owned subsidiary) for part-financing its capital expenditure requirements in relation to the setting up of manufacturing facility for engineered quartz at The Jebel Ali Free Zone, Dubai, United Arab Emirates. The balance amount will be utilized for general corporate purposes. Post IPO, the share holding of Mayank Shah will stand at 55.46% and that of Sweta Shah will be 5.66%.

Strengths

Wide product portfolio and multiple designs. Natural Stone product portfolio of the company comprises Marbles (Fantasy Brown, River Blue, Marine Black, Calcutta Veneto, Ocean Blue), Granite (Azul Nuevo, Bianco Star, Blue Dunes, Blue Flower, Crema Petra, Dona Brown, Mona Lisa, Monte Cristo, Shadow Blue. Sparkle Grey, Sparkle Blue), Quartzite (Picasso) and others. Similarly, its product portfolio of quartz has been categorized into four series namely Aurora, Kalmasa, Prismatic and Stratum.

Established presence with strong customer relationship in international markets such as USA.

Experienced leadership team with significant tenure and track record.

State-of-the-art production facilities and continued focus on R&D

Weaknesses

The clientele profile is concentrated, with the company deriving around 65.4% and 60.1% of its revenue in FY2022 and H1FY2023 from top 3 customers and about 82.8% and 83.1% of its revenue from top 10 customers. Loss of any key customers or delay in placing orders by a client will impact the performance of the company. Similarly, the top 10 suppliers account for 76.99 and 66.38% of its total purchases of raw materials in FY2022 and H1FY2023.

Major raw materials include blocks of stones, grit, powder, pigments, resins and other chemicals. It depends on external suppliers for all the raw materials required and typically purchase raw materials on a purchase order basis and places such orders with them in advance, based on its projected requirements. The absence of long-term supply contracts subjects it to risks such as price volatility caused by various factors, i.e., commodity market fluctuations, currency fluctuations, climatic and environmental conditions, production and transportation cost, changes in domestic as well as international government policies, regulatory changes and trade sanctions.

Granite and engineered quartz are declared as minor minerals in the country. The availability and price of raw material especially for natural stones business largely depend on functioning of quarries which is subject to various factors ranging from allotment and license, environment clearance and other government regulations and policies. The company being granite and marble processor does not own any captive quarries.

Tariff barriers to protect local manufacturers in key export markets of the company will adversely impact the competitiveness of the company. For instance, sales of engineered quartz surface products from India are presently subject to anti-dumping duty of 3.19% applicable from July 2022 and counter-vailing duty ranging from 2.34% to 1.57% with effect from June 2020.

The company is in the process of expanding its operations and establishing a network of customers, particularly for engineered stone product category, in regions where it does not have a significant presence or prior experience. Any failure to expand into these new regions could adversely affect its sales, financial condition, result of operations and cash flows.

Contigent liability as of September 30, 2022, stood at Rs 5.05 crore.

Most exports of the company are from the Mundra Port located in Gujarat and thus any disruption of transportation from this port due to natural or man-made disasters may interrupt its exports.

Stringent environmental, health and safety laws and regulations or stringent enforcement of existing environmental, health and safety laws and regulations may result in increased liabilities and increased capital expenditures.

Demand for the product of the company largely comes from real estate both commercial and residential which is cyclical in nature, which is influenced by factors such as interest rates, consumer sentiments etc. After a strong first half of FY2023, housing and construction markets in the United States have witnessed a significant decline on the back of rising interest rates and high inflation.

Competition from alternative materials available in the market such as tiles, laminate, hardwood flooring and soft flooring like carpet.

Valuation

Sales for FY 2022 were up 9% to Rs 190.31 crore and with the OPM down by 500 bps to 22%, the operating profit was down by 12% to Rs 41.80 crore. Lower margin seems largely on account of increased share of cost of traded goods and logistics costs. With other income up 121% to Rs 8.04 crore, 13% fall in interest cost to Rs 2.96 crore and 17% fall in depreciation to Rs 10.78 crore, the PBT was up by 5% to Rs 36.11 crore. With taxation down 21% to Rs 0.47 crore and the PAT was up 5% to Rs 35.63 crore.

The EPS for FY2022 based on post issue expanded equity is Rs 8.4. The PE on upper price band of asking price works out to about 16.7 times.

In comparison, Pokorna is quoting at PE of 11.8 times of its FY2022 consolidated EPS.