Aro Granite Industries Ltd Management Discussions

Global Economy

The global economy in 2024 has been characterised by a series of complex challenges and opportunities. According to the latest reports from the International Monetary Fund (IMF) and the World Bank, global growth is projected to remain steady at 3.2% in 2024 and 3.3% in 2025. This growth rate, while stable, is below the historical average, reflecting the ongoing impact of restrictive monetary policies, geopolitical tensions, and supply chain disruptions.

Inflation has been a significant concern throughout the year. Despite central banks efforts to control inflation through interest rate hikes, inflationary pressures have persisted in many regions. The IMFs April 2024 World Economic Outlook highlights that global headline inflation is expected to decrease from an annual average of 6.8 percent in 2023 to 5.9 percent in 2024 and further to 4.5 percent in 2025. However, core inflation remains high in several economies, necessitating continued vigilance and policy adjustments.

Geopolitical tensions have further complicated the economic landscape. The renewed conflict in the Israel-Palestine region has had far- reaching consequences on global trade and logistics. Increased shipping rates and prolonged shipping times due to heightened security measures have disrupted supply chains, affecting the pricing and availability of goods worldwide. Additionally, the conflict has introduced significant risks, leading to increased costs and reduced profit margins for businesses operating in affected regions.

Supply chain issues have been a persistent challenge, exacerbated by geopolitical tensions and the lingering effects of the COVID-19 pandemic. Efforts to enhance supply chain resilience, such as diversifying sources of raw materials and investing in advanced logistics technologies, are crucial in mitigating these challenges.

Indian Economy

The Indian economy has demonstrated remarkable resilience and growth in the face of global economic challenges, according to the latest reports from the International Monetary Fund (IMF) and the World Bank. As of April 2024, both institutions have revised their growth projections for India upwards, reflecting the countrys robust economic performance and positive outlook. The IMF, in its World Economic Outlook released in April 2024, has raised Indias growth forecast for the fiscal year 2024-25 to 6.8%, up from its earlier projection of 6.5%. This upward revision is attributed to stronger-than-expected domestic demand, improved prospects for private consumption, particularly in rural areas, and the carryover effects from upward revisions to growth in 2023. The IMF also projects Indias growth to remain strong at 6.5% in the fiscal year 2025-26, highlighting the countrys sustained economic momentum.

Similarly, the World Bank, in its Global Economic Prospects report published in June 2024, has revised Indias GDP growth forecast for 2024-25 to 6.6%, up from its January 2024 projection of 6.4%. The World Bank cites several factors for this upward revision, including better-than-expected growth in the industrial sector, particularly in manufacturing and construction, as well as strong performance in the service sector. The report also notes that robust public investment in infrastructure and increased private capital investment have boosted demand in the economy, leading to higher private consumption.

Indias economic performance is particularly noteworthy in the context of global economic trends. Both the IMF and World Bank reports emphasise that India remains the fastest-growing major economy in the world, outpacing other emerging markets and developing economies. This growth is supported by a range of factors, including a large and growing working-age population, ongoing economic reforms, and increasing integration into global value chains.

Global Granite Industry and Key Trends

The global granite industry has experienced significant growth and transformation over recent years, driven by increasing demand for natural stone in various construction and decorative applications. According to a report by Verified Market Reports, the global granite market was valued at USD 100 Billion in 2023 and is projected to reach USD 140 Billion by 2030, growing at a compound annual growth rate (CAGR) of 5% from 2024 to 2030.

Granite, a coarse-grained igneous rock composed of minerals such as quartz, feldspar, and mica, is renowned for its durability, aesthetic appeal, and versatility. It is widely used as a building material for countertops, flooring, monuments, and landscaping. The markets growth is primarily driven by the rising demand for premium building materials in both residential and commercial sectors, as well as the increasing recognition of granites unique aesthetic qualities.

Key Market Trends

Urbanisation and Infrastructure Development

The rapid pace of urbanisation and infrastructure development, particularly in emerging economies, is a major driver of the granite market. Countries like China and India are investing heavily in construction and urban projects, which is expected to boost the demand for granite. The World Banks Global Economic Prospects report highlights the significant role of infrastructure development in driving economic growth and demand for construction materials, including granite.

Sustainability Initiatives

Environmental consciousness is increasingly influencing consumer preferences and industry practices. There is a growing demand for granite products that are ethically sourced and produced with minimal environmental impact. The industry is adopting sustainable quarrying techniques and recycling programs to address these concerns. For instance, the use of resin- based binders and less harmful epoxy adhesives is becoming more prevalent, aligning with global sustainability goals.

Digital Transformation

The digital revolution is also impacting the granite industry. Technologies like virtual reality (VR) and 3D modelling are being used to visualise granite installations in site, allowing for seamless integration into design schemes. Digital platforms are facilitating direct interaction between homeowners and granite suppliers, enhancing transparency and reducing costs by cutting out traditional intermediaries. Automation in quarrying and processing is further increasing efficiency and reducing waste.

Technological Advancements

Innovations in extraction and processing technologies have enhanced productivity and product quality in the granite industry. Modern quarrying techniques and advanced machinery have made it possible to extract and process granite more efficiently, reducing waste and improving the overall quality of the finished products. Techniques such as Multi-Wire technology and waterjet cutting are enabling the creation of intricate and customised designs, catering to the evolving preferences of consumers.

Customisation and Design Trends

The demand for unique and customised granite products is on the rise. Homeowners and designers are seeking exotic and rare granite varieties, such as Azul Bahia and Cambrian Blue, known for their striking veining and vibrant colours. Fabrication methods like bookmatching and waterjet cutting are enabling the creation of bespoke designs, including statement backsplashes and granite islands, catering to the desire for personalised and distinctive interiors.

Indian Granite Industry

The Indian granite industry holds a prominent position in the global market, known for its rich variety of colours, textures, and high-quality stones. India is one of the largest producers and exporters of granite, contributing significantly to the global supply.

Key Market Trends

Diverse Granite Varieties

India is renowned for its diverse granite varieties, including Black Galaxy, Kashmir White, and Absolute Black, which are highly sought after in international markets. The countrys vast geological diversity allows for the extraction of unique and exotic stones that cater to a wide range of aesthetic and functional requirements.

Technological Advancements

The adoption of advanced technologies in quarrying and processing has significantly improved the efficiency and quality of granite production in India. Techniques such as diamond wire sawing and waterjet cutting have reduced waste and enhanced the precision of cuts, leading to higher quality finished products. These advancements have also enabled the industry to meet the growing demand for customised and intricate designs.

Challenges

Despite its strengths, the Indian granite industry faces several challenges that could impact its growth trajectory. One of the most significant issues is the availability of raw materials due to mining bans in certain regions.

Mining Bans

The southern states of India, particularly Tamil Nadu and Karnataka, have faced intermittent mining bans due to environmental concerns and regulatory issues. These bans have led to a shortage of high-quality raw granite, disrupting the supply chain and increasing production costs. The industry has been advocating for a balanced approach that addresses environmental concerns while ensuring sustainable mining practices.

Regulatory Hurdles

The granite industry in India is also grappling with regulatory challenges, including stringent environmental regulations and complex approval processes. These hurdles can lead to delays in project execution and increased compliance costs. The industry is calling for streamlined regulations that promote sustainable mining practices without compromising on environmental standards.

Labour Issues

The industry relies heavily on skilled labour for quarrying and processing activities. However, there is a growing concern about the availability of skilled workers, as many are migrating to urban areas for better opportunities. This labour shortage can affect production timelines and quality, necessitating investments in training and skill development programs.

Opportunities

Despite these challenges, the Indian granite industry has several opportunities for growth and expansion.

Domestic Demand

The rapid urbanisation and infrastructure development within India are driving domestic demand for granite. The governments focus on building smart cities and improving urban infrastructure is expected to boost the construction sector, thereby increasing the demand for granite in residential and commercial projects.

Sustainability Initiatives

There is a growing emphasis on sustainable mining practices and environmental responsibility within the industry. Companies are investing in eco-friendly technologies and adopting practices that minimise environmental impact. These initiatives not only enhance the industrys reputation but also align with global sustainability trends, making Indian granite more attractive to environmentally conscious consumers.

Value-Added Products

The industry is increasingly focusing on value-added products such as customised countertops, tiles, and decorative items. This shift towards higher-margin products can enhance profitability and cater to the evolving preferences of consumers both domestically and internationally.

Global Quartz Industry

The global quartz industry has seen significant growth, particularly in the construction sector, driven by its extensive use in residential and commercial applications. According to a report by Spherical Insights, the global quartz market was valued at USD 7.2 Billion in 2023 and is projected to reach USD 12.2 Billion by 2033, growing at a compound annual growth rate (CAGR) of 5.42% from 2023 to 2033. This growth is largely attributed to the increasing demand for high-quality, durable materials in construction, with a notable emphasis on the US market for kitchen countertops.

Key Market Trends

Rising Demand in Construction and Infrastructure

The construction sector remains a significant driver of the quartz market. Quartz is highly valued for its durability, aesthetic appeal, and resistance to weathering, making it a preferred material for countertops, flooring, and decorative elements. The World Banks Global Economic Prospects report highlights the ongoing urbanisation and infrastructure development in emerging economies, particularly in the Asia- Pacific region, as key factors boosting the demand for construction materials, including quartz.

Key Market Trends (Contd.)

US Market for Kitchen Countertops

In the United States, quartz has become the material of choice for kitchen countertops, surpassing granite and other natural stones. This surge is driven by quartzs superior properties, such as non-porosity, resistance to stains and scratches, and low maintenance requirements, making it ideal for kitchen environments. Homeowners and designers are increasingly opting for quartz due to its wide range of colours and patterns, which can mimic the look of natural stone while offering enhanced performance.

Technological Advancements

Innovations in quartz extraction and processing technologies have significantly improved the efficiency and quality of quartz products. Advanced techniques such as waterjet cutting and precision grinding have enabled the production of intricate and customised designs, catering to the evolving preferences of consumers. The adoption of these technologies has also reduced waste and enhanced the sustainability of quartz production.

Challenges and Opportunities

Despite the positive growth trajectory, the quartz industry faces several challenges. Supply chain disruptions, geopolitical tensions, and environmental regulations can impact the availability and cost of raw materials. The renewed conflict in the Israel-Palestine region, for instance, has led to increased shipping rates and prolonged shipping times, affecting global trade and logistics. These disruptions have had a direct impact on the pricing and availability of quartz products, straining profit margins for businesses operating in affected regions.

Company Overview

Aro granite industries limited, established in 1989, has grown to become Indias leading processor and exporter of granite tiles and slabs. With state-of-the-art manufacturing facilities located in Hosur and Jaipur, the company transforms raw granite into exquisite finished products, setting industry benchmarks for quality and innovation. Aro granite operates as a 100% Export Oriented Unit (EOU) in Hosur and a Special Economic Zone (SEZ) unit in Jaipur, boasting an impressive annual production capacity of 1 Million square metres.

Company Performance in FY24

FY24 was marked by significant challenges and opportunities for Aro granite industries limited. Despite the global economic uncertainties and disruptions caused by geopolitical tensions and supply chain issues, the company demonstrated resilience and adaptability.

Revenue and Profitability

Aro granite reported a total operating revenue of ?155.1 Crores for FY24, reflecting a 5.67% degrowth compared to the previous year. The Companys net profit stood at ?1.35 Crores, showcasing its ability to navigate through challenging times while maintaining a focus on long- term growth and sustainability. The companys EBITDA margin improved to 20.14%, driven by strategic cost-saving measures and operational efficiencies.

Operational Highlights

The Hosur facility, integrated with the quartz stone manufacturing unit, continued to meet the evolving demands of clients, contributing significantly to the companys revenue. The Jaipur plant, designed to process material from Rajasthan, played a crucial role in the success of the granite business, enhancing the companys production capabilities and market reach.

Strategic Position and Outlook

Aro granite industries limited is strategically positioned to capitalise on the growing demand for high-quality granite and quartz products in both domestic and international markets. The Companys robust infrastructure, advanced technologies, and skilled workforce provide a solid foundation for sustained growth and competitiveness.

The Companys strategic focus on expanding its production capabilities and diversifying its product portfolio is expected to drive future growth. The quartz processing facility is set to add a new dimension to the product offerings, catering to the increasing demand for customised and high-end quartz products. With a strategic investment of ?20 Crores, the Company plans to double its quartz production capacity, enhancing its ability to meet market demands and drive revenue growth.

Particulars	Hosur Tiles	Hosur Slabs	Jaipur Slabs	Hosur Quartz
Sales (In Sq. Mt.)	95078.81	124659.11	81968.41	119372.77
Production (In Sq. Mt.)	95923.69	117072.49	86938.75	114744.33
Capacity Utilisation	26.65%	18.29%	57.96%	63.75%

Key Financial Ratios

Particulars	FY24	FY 23
Current Ratio	1.54	1.54
Debt Equity Ratio	0.98	1.08
Debt Service Coverage Ratio	1.21	0.95
Return on Equity Shares	0.01	(0.03)
Inventory Turnover Ratio	1.00	1.15
Trade Recievables Turnover Ratio	2.79	2.44
Trade Payables Turnover Ratio	2.29	3.08
Net Capital Turnover Ratio	1.53	1.62
Net Profit Ratio	0.01	(0.04)
Return on Capital Employed	0.05	0.02

Human Resources

Aro granite industries limited considers its workforce to be the lifeblood of the organisation. Operating in an industry that prioritises efficiency and innovation, AGIL recognises the necessity of maintaining a skilled and motivated team committed to driving the Companys growth. Employees at AGIL not only contribute to the efficiency of processes and management but also foster intellectual advancement within the Company.

As we enter a new fiscal year, our focus remains steadfast on nurturing our human capital while attracting and retaining the top talent in the industry. Our dedication to creating a healthy and positive work environment that promotes personal development and skill enhancement among our employees is unwavering. To achieve this, we continue to conduct regular training workshops aimed at bolstering the capabilities of our workforce.

With a motivated and engaged team, we are confident in our ability to deliver value to all stakeholders and seize the numerous opportunities that lie ahead. As of 31^st March, 2024, the Company proudly employs over 453 individuals.

Internal Control Systems and Their Adequacies

Our vigilant and prudent management ensures that the Companys Internal Control System is robust enough to meet operational requirements. The management holds the overarching responsibility to protect the Companys assets and ensure the accuracy and reliability of its financial records.The Internal Control System guarantees that all transactions are authorised, recorded, and reported accurately, with ongoing efforts to enhance the system. Regular asset protection measures are conducted to prevent unauthorised use. Furthermore, the Audit Committee undertakes a comprehensive review of all financial statements, ensuring the sufficiency of the internal control systems. We have also implemented an extensive CCTV surveillance system that monitors the entire factory premises to prevent material loss and ensure safety. These measures are continuously monitored and assessed by the management, with improvements made as necessary to maintain the effectiveness of the Internal Control System.

Cautionary Statement

Statements in the Management Discussion and Analysis section, outlining the Companys objectives, projections, estimates, and expectations, including those of its direct and indirect subsidiaries and associates, may be ‘forward-looking statements within the meaning of applicable laws and regulations. Actual results may vary significantly from those expressed or implied. Key factors that could influence the Companys operations include economic conditions affecting demand and supply, price conditions in the domestic and international markets where the Company operates, changes in government regulations, tax laws, and other statutes, as well as incidental factors.