Aro Granite Industries Ltd Management Discussions.

Global Economy

Global GDP growth is expected to declined from 3.% in 2018 to 2.7% in 2019, due to the slowdown in international trade driven by trade war between USA and China, Brexit linked uncertainity in Europe and heightened geopolitical tension around the world. In 2020 the global economy has further been impacted by the spread of Covid-19 which is driving the deepest global recession in decades. As per World Bank the global economy is expected shrink by over 5% in FY2020 . Countries across the world have resorted to lockdowns, closure of non-essential businesses and have imposed travel restrictions to contain the spread of Covid-19. The consumption and investment activities have been severely impacted. Global trade, supply chain, travel and tourism are disrupted due to cross border spread of Covid-19.

Indian Economy

Indian GDP growth has slowed down dramatically from a 8.2% in FY2017 to a 11 year low of 4.2% in FY2020. The decline in GDP was caused by fall in private consumption, slowdown in capex, overall contraction in global trade, weak rural demand and lockdowns induced by Covid-19. The GDP slowdown is exasperated further by the stress in financial sector in India. While the government initiated various reforms to revive the economy like reduction of corporate income tax rates, farmer income support to increase rural demand and agri reforms but growth continued on its declining trend. To increase the liquidity in bank channels and drive lending activities in the market government infused Rs. 2 lakh crores in public sector banks but liquidity crunch continued.

Going forward Covid-19 pandemic will severely impact economic activity in India. Government announced nationwide lockdown from last week of March 2020 and suspended all major industrial activities. Most of the sectors were severely hit with a few exceptions like agriculture and essential products and Services. Prolonged shutdowns due to Covid-19 will impact both the demand and the supply chains, and Indian Economy is expected to shrink by 4-6% in the current year as per various projections by the Rating Agencies. The slowdown in economic activities has also impacted government revenuewhich will impact capital spending by the government.

Global Granite Industry

Granite has been one of the most popular natural stone used by humans for thousands of years. It is one of the oldest building material in the world. With the rise of technologies and invention of cutting and polishing tools usage of granite has further increased to bathroom floors and kitchen countertop. Modern machines gives granite mirror like polish and adds value to its inherent qualities like high compressive strength, aesthetics and longevity. Granite finds applications in many areas like funerary industry for tombstones and building industry for external flooring, internal flooring, stairs and structure work. The industry is mainly divided among two types of players, one who sell raw granite blocks and others who process granite blocks into slabs & tiles and other customized items. Granite processing commands a premium over raw blocks, as the polishing & finishing adds value to the raw product.

Major consumers of granite stone are USA, Europe and Asia Pacific region. Rapid urbanisation, building renovation & remodeling of existing homrss and rising prosperity in emerging economies has fueled the growth of the global natural stone market. USA has been biggest market for processed stone industry and has seen ti Iht of growth in last decride. Major driver of demand for stones has been residential market where the trend for granite countertop in the kitchens and bathrooms has fueled the overall demand. On the supply side global granite industry is controlled by China, Brazil, India, Saudi Arabia and Italy which together contribute to 90% of global production.Brazil has been largest exporter of processed granite in USA. Due to proximity to USA and favourable currency market share of Brazil has been more than 50% in UsA.

China has been largest importer of raw granite blocks and largest exporter of processed granite slabs and tiles in the World, It imports raw granite blocks from Turkey, India, Brazil, Italy and other countries to process and re-export, China has dominated global granite exports market due to its lower cost export friendly government policies and huge subsidies by government, Since 2018 after imposition of anti dumping duty by USA, ChinaS exports to USA is declining continuously and India has been able to capture part of the market share in USA and its exports is increasing in terms of volumes, However the overall dollar value of the imports from India have stagnated due to falling realisations,

Engineered Stones

Engineered stone is manmade stone and manufactured from mix of crushed quartz, resin binder, pigments and additives, Quartz is one of the hardest and abundant mineral on the earth, One advantage that engineered stone has over granite and other natural stones, is the consistency in colors and designs, Engineered stone can be across various colors and designs since pigments are added in the manufacturing, Engineered stone are becoming very popular choice for Kitchen countertop, Facades, Flooring and Bathroom and capturing market of natural stones, Consumption for engineered stone has grown by 12,3% cAgR from 2013 to 2019,

USA has been biggest importer of Engineered stone and imported $1,17 billion worth of engineered stone in 2019, China due to its large scale manufacturing and lower cost was largest exporter of engineered stone in USA, Chinese players have advantage over other countries as its government provide more than 20 subsidy programs including grants, loans, tax breaks, the provision of land, electricity and raw material inputs at below-market prices, Due to lower costs and support of government heavy exports from China have impacted Quartz manufacturers in USA, and the prices have substantially declined in past few years, In 2018 USA levied anti-dumping duty on China for engineered stone which created an opportunity for manufacturers in other countries. India, Spain and Vietnam has been biggest beneficiary of the Chinese players exit from the market, IndiaS Quartz exports have increased many fold from $38,7 million in 2017 to $243,3 million in 2019,

Indian Granite Industry

India is endowed with abundant resources with arcund 20% of worldS Garanite reserves.inidia has a wide variety of granite reserves and has over 200 shades out of around 300 shades spread all over the world. As per Indian mineral year book 2019 India has 46,320 million cubic meters of granite reserves. Of these resources around 1% fall under reserves category and rest 99% fall under resources categories. Furthermore India has 7% of Black granite reserves which has huge demand globally.

In India granite is classified as a Minor Mineral under the MMDR Act 1957 and its reserves and leasing regulations are governed by state governments. Historically state governments used their discretion to allot quarries, which in turn promoted illegal granite mining. Since last few years Indian granite industry is facing challenges from raw material shortage due to shut down of granite quarries on large scale. Furthermore crackdown on granite quarries lacking environmental clearance (EC) aggravated the problem of raw material shortage.

In Tamil Nadu and Karnataka large number of quarries were shut down due to lack of EC. Rules for EC historically have been quite subjective and opaque so quarry owners have taken different interpretations of the same. The closure of the quarries has impacted granite production in Tamil Nadu and Karnataka quite significantly. Granite processors in Tamil Nadu and Karnataka have to source granite block from other states and other countries which have increased their transportation cost and impacted their competitiveness in the international markets.

Rajasthan which has huge granite reserves and better mining policies, along with shades that are in demand globally, is becoming a preferred state for sourcing of granite blocks.

Exports of natural stones out of India grew by 10.10% from Rs. 12,521 Cr In FY2017-18 to Rs. 13,786 Cr In FY2018-19. Export of granite from India also increased by 10.30% from Rs.9,248 Cr in FY2017-18 to Rs.10,201 Cr in FY2018-19.

China has been biggest consumer of Indian granite followed by USA, UK, Vietnam, Bangladesh and Germany. India exported largely raw blocks of natural stones to China and exports amounted to Rs. 3,093 Cr to China in FY2018-19. USA on the other hand is largest market for processed natural stones and products from India, in FY2018-19 exports amounted to Rs.2,386 Cr of natural stones to USA.

Impact of COVID-19

The Indian granite industry has been impacted badly by Covid-19. India exports granite in raw blocks as well as in form of tiles and slabs after processing. China being the largest importer of raw granite blocks from India has seen a big demand contraction as a result of the outbreak of the disease. While there are orders for processed granite, the local transportation issues and inability of buyers to travel to India, is impacting the future order pipeline.

Raw material availability has even worsened due to spread of Covid-19. Indian government imposed nationwide lockdown which stopped production at the granite quarries. Furthermore due to uncertainty over duration of lockdown migrant labour from Bihar, Uttar Pradesh and Jharkhand moved back to their native places which has created huge shortage of manpower especially in south India states like Tamil Nadu and Andhra Pradesh.

Overall the situation in stone industry is quite challenging and both the demand & supply will remain muted. The situation is expected to return to normal once a vaccine is found and social distancing and travel restrictions are removed.

About the Company

Aro granite is the largest processed granite exporter from India. The Company has an experience of more than 35 years in processed granite exports. It has a 100% EOU plant located in Hosur, Tamil Nadu and set up a new 100% EOU unit in Jaipur, Rajasthan last year. It currently exports to more than 50 Countries. It has received "Star export House" certification from Ministry of Commerce and Industry. The Company uses the latest machinery for cutting & polishing and has developed a reputation of supplying quality products over the years.

In Hosur, the Company has a facility to process granite blocks into slabs, tiles and Cut-to-Size blocks. It has installed capacity of 7,35,000 sq. mtr. for granite slabs and 3,60,000 sq. mtr. for granite tiles. For Cut-to-Size segment it has 2 CNC machines and 1 edge policing machine. It also diversified its product portfolio and launched new product Quartzite in 2018, for which it has a processing capacity of

50.000 sq. mtr. For Quartzite processing it uses multi wire cutting machine with latest technology which uses diamond to cut raw blocks. In Jaipur it has an installed capacity of 150,000 sq. mtr. for granite slabs

Over the years natural stone has been facing stiff competition from engineered stones globally. Quartz is substitute product for natural stone and taking market share from natural granite stone. Due to the rising popularity of engineered stone, the Company decided to start a manufacturing line for Quartz engineered stone. The quartz plant will have a capacity of 1,80,000 sq. mtr. per year and is step up in the existing plant in Hosur. The common infrastructure around cutting and polishing has helped reduce the setup cost of the quartz plant. The commissioning of the plant has been delayed due to unavailability of technicians from China. The plant is expected to start later this year, as international travel is allowed once again in India.

Jaipur Plant

The company has set up plant in Jaipur, Rajasthan which accounts for 20% of the granite reserves in India. The plant has a capacity of

1.50.000 sq. mtr. granite slabs per year. Construction of Jaipur plant has completed and production was started from August 2019. It is now processing raw material procured from North India in its Jaipur plant rather than transporting to Hosur plant which is saving upto 15% of cost of raw material.

Jaipur plant was operational for 8 months in FY2020 and inspite of operational challenges in the beginning it contributed 8% of total sales during the year. Company is using Mundra port for the exports from Jaipur unit and even during the lockdown, the Jaipur unit was able to ship regularly. Rajasthan has abundant resources and colors which are popular in North American market. We are hopeful of business scaling up in the Jaipur unit and its contribution to overall sales will grow in the years ahead.

Company Performance

During FY2019-20 revenue of the company increased by 3% from Rs. 172 Cr in FY2018-19 to Rs. 177 Cr in FY2019-20. The increase in sales was largely on account of increase in sales volume which increased by 6.2% from 4.68 lakh sq. mtr. in FY2018-19 to 4.98 lakh sq. mtr. in FY2019-20. PAT declined by 62.87% from Rs.9.71 Cr in FY2018-19 to Rs.3.6 Cr in FY2019-20. Profitability of company mainly declined due to currency fluctuation during the year which is merely a book entry. Company has availed working capital loan in foreign currency so it is largely hedged against the risk of currency fluctuation.

Domestic sales of the company accounts for 6% of the total revenue. The sales in domestic market is lower due to high tax rates, lower realisations and unhealthy competition from the unorganised sector in India. Furthermore company deals in premium products with high cost and high quality which has a very limited market in India.


Aro granite is largest processed granite exporter from India, It exports to more than 50 countries across the world. It has been awarded with "Special Export Award" by CAPEXIL for 7 years in a row. Exports accounted for 94% of revenue in FY2020. Its major exports markets are Poland, USA, Germany, Italy, Australia and Libya.

Segment performance

Company reports its financial in 2 segments, granite slabs and tiles. Cut-to-size segment is accounted under tiles segment and quartzite segment under slabs segment.


Slabs are major part of AroS business and contributed 82% of its revenue in FY2019-20. Company has an installed capacity of 7,35,000 square meter for Granite slabs in Hosur plant and 1,50,000 sq. mtr. in Jaipur plant. The sales in slabs segment is expected to increase over time with higher contribution from Jaipur plant.


Tiles segment has a smaller contribution to AroS business. It accounted for 18% of its revenue in the year. Aro has installed capacity of

3,60,000 square meter for this segment.


The outlook for granite industry in India in the current environment remains challenging. Raw material shortage remained the biggest concern for the industry, which is further aggravated due to Covid-19. Quarries across the country are operating at lower capacities and are only expected to reach the Pre Covid levels by next year, once things normalise.

Aro has regularly invested in its business and has strived to remain competitive in the industry. Its investments in warehouse in Hosur, Cut- to-size processing unit and new Slab plant Jaipur have helped it maintain its market share over time.

Investment in Quartz plant, which is yet to be commissioned, will add significant value to its business over time. USA has imposed dumping duty on granite & engineered stone from China and that has opened a window of opportunities for manufacturers from other countries like India. AroS engineered quartz stone plant is expected to be operational once the travel ban is lifted, allowing the technicians to complete the pre production stage.

Aro has faced many cycles over the years and has managed to stay competitive in the changing industry. It will continue to adapt to change by upgrading its machinery and venturing into new business lines and stay competitive in the stone industry.

Opportunities & Threats


• Quartz plant shall help in increasing sales and profits of the company in coming years

• The new Jaipur plant will help the Company stay competitive in the industry

• Cut-to-size business with higher margins, will improve the overall margins of the Company

• Opening of closed quarries in Tamil Nadu and Karnataka, can improve utilisation of the Hosur plant.


• Limited availability of raw material can impact the volumes of granite business

• Covid-19 impact on global economy can in turn have negative impact on the demand for granite stones

• Increasing protectionism by countries can impact exports of Granite out of India.

Risk & Concern Shortage of Raw Material

Closure of many mines has caused big shortage in raw material. This can have a big impact on the overall competitiveness of Indian exports.

To counter the shortage of raw material the Company has started sourcing from new mines in other geographical regions like Rajasthan and Andhra Pradesh. The company has also started importing raw blocks

Adverse Regulatory Policies

Many granite mines and quarries have closed down over the last few years due to illegal mining, lack of Environmental Clearances or irregularity in the allotment process. This has resulted in reduced availability of raw blocks.

The closure of mines is resulting in revenue loss to the government and they are keen to have transparent and well defined mining policies, so that the mines can be reopened at the earliest.

Currency Appreciation

The relative currency appreciation of Indian currency vis-a-vis competing nations like Brazil or China can impact the business negatively.

The company is constantly working to find new export markets for its products and currently exports to over 50 countries. This helps in diversification of risks and any adverse currency movement in one country will have a minimal impact on Companys business.

Some shades are only found in India and their demand is not impacted by the currency movements.

Change in Consumer Preference

Over the last couple of years, the demand for engineered stone has increased at the expense of natural stones, which includes granite. While this change is more pronounced in certain countries, this trend could further accelerate in the coming years and impact the long term demand for processed granite.

The Company is aware of the trend and has tried to diversify its product line. It has entered the cut-to-size segment. It has also started a brownfield project for manufacturing engineered stone at its Hosur Unit.

Internal financial control and their adequacy

A Companys Internal Financial Control is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company has in place adequate internal financial controls with reference to financial statements and no material reportable weakness is there in the system. Further, the Company has in place adequate internal financial controls commensurate with the size and nature of its operations. The Company also has robust Budgetary Control System and Management Information System (MIS) which are backbone of the Company for ensuring that your Companys assets and interests are safeguarded.

Financial Ratio

S.No Ratio 2019 2020 Change Remarks
1 Debt Equity 0.68 0.83 22% Debt equity ratio of company increased due to increase in borrowing because of funding of ongoing capital expenditure
2 Debtor turnover 2.71 3.05 13% NA
3 Inventory Turnover 1.52 1.43 -6% NA
4 Interest coverage ratio 3.47 1.87 -46% Interest coverage ratio declined due to decrease in profitability of company
5 Current Ratio 1.50 1.26 -16% NA
6 Operating Profit margin 15.03% 11.50% -24% Operating margins of company decreased due to currency fluctuation loss
7 Net Profit Margin 5.65% 2.04% -64% Net Profit margins of company decreased due to currency fluctuation loss
8 Return on net worth 5.54% 2% -64% Return on net worth decreased due to decrease in profits of the company