Pokarna Limited (POKARNA) Q3 FY23 Earnings Concall Transcript

Pokarna Limited (NSE: POKARNA) Q3 FY23 Earnings Concall dated Feb. 20, 2023

Corporate Participants:

Gavin Desa — Investor Relations, CDR India

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Gautam Chand Jain — Chairman and Managing Director

Analysts:

Dixit Doshi — Whitestone Financial Advisors Pvt. Ltd. — Analyst

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Tushar — Kamakhya Wealth — Analyst

V.P. Rajesh — Banyan Capital Advisors — Analyst

Hemant Zaveri — Private Investor — Analyst

Akash Shubra — Morbus Capital — Analyst

Dhiral Shah — PhillipCapital — Analyst

Abhishek Tandon — Bowhead Investment Advisors — Analyst

Vaibhav Gupta — Bowhead Investment Advisors — Analyst

Anuj Sharma — M3 Investments — Analyst

Muthu Kumar — Fidelity International — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Pokarna Limited’s Q3 and Nine Months FY ’23 Earnings Conference call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you and over to you Mr. Desa.

Gavin Desa — Investor Relations, CDR India

Thank you, Nirav. Good day everyone and a warm welcome to Pokarna Limited Q3 and nine month FY ’23 earnings conference call. We have with us today Mr. Gautam Chand Jain, Chairman and Managing Director; and Mr. Paras Kumar Jain, Chief Executive Officer of Pokarna Engineered Stone Limited.

Before we begin, I would like to mention that some of the statements made in today’s discussions may be forward-looking in nature and may involve risks and uncertainties.

I now invite Paras Jain to open the proceedings and share some perspectives on performance and outlook. Over to you, Paras.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Thank you, Gavin. I’d like to again welcome all of you on this call. To comment, I’d like to put our Q3 FY ’23 performance in perspective and share some news with regard to the business environment and our outlook.

After a strong half year of FY ’23, our revenues and profitability declined in Q3 owing primarily to factors related to the U.S. housing market. Building materials product demand in the U.S. is fraught with uncertainty through FY ’24. In our view, the U.S. housing market has been one of the most significant casualties of the Fed’s aggressive interest rate hike policy to combat rising inflation. This has resulted in a sharp drop in new home sales and renovation, resulting in lower spending on building material products including quartz [Phonetic]. We see significant slowdown in new housing activity and any pullback in residential remodeling spending may only offset modest growth in non-residential end markets.

New home construction is an important factor contributing to building material sales. According to our sources, new home permits in the U.S. are reported to be down by 11.2% in December. This represents about 22.4% year-over-year decrease, owing primarily again to rising mortgage interest rates and price inflation. Further, as per our sources, housing starts in the U.S. fell 0.5% in November after falling 2.1% in October. The most significant drop is in single-family starts, which are down 4.1% in November, and 32.1% [Phonetic] year-on-year.

Housing permits and starts are leading indicators and they are expected to continue to be soft in the coming months. According to reliable economic [Indecipherable] the current U.S. economic situation is largely to blame for the declining housing activity. While the visibility and depth and duration of the cycle is limited, it has a sudden and direct impact on our sales and sales of our customers.

Having said this, I would like to say that Pokarna has demonstrated on several earlier occasions, its ability to manage downturn by leveraging on its strong industry understanding and capabilities. In the face of these recent challenges, we are taking several proactive steps towards enhancing the resilience of our business and creating value.

First and foremost, we will be driving our innovation engine to deliver on our design R&D roadmap. We are pleased with the recent release of a strong portfolio of new exotic designs. Our new portfolio of designs offer a compelling value proposition. While it is still early, customer feedback on the new designs have been very positive with some saying that these are the best products we’ve ever launched. Given the positive response, we believe that these distinct new designs will protect margins in future.

Secondly, we continue to provide an exceptional product and service experience. The scope of our ambition, however necessitates taking a long-term view, which we’ve always done since the company’s inception.

And third, standout area is clearly our infrastructure and team. We have made significant progress on design developments by combining robotic technology with proprietary manufacturing know-how. We are well-positioned to deliver on our long-term value creation strategies, two state-of-the art manufacturing facilities, a talented and motivated workforce and a portfolio of awe inspiring design.

Lastly, but of no less importance is our thrust on diversifying our geographic presence. This was unfortunately pushed back because of the onset of the pandemic. Our current focus is on penetrating our products in Europe, Canada and other markets. We have identified potential customers and have begun the sampling process with them. While, I don’t have a firm timeline yet for starting business with these customers, we are absolutely committed to penetrating these markets with our offering and we are working very hard to do so.

As we look ahead and separate the signal from the noise, we intend to take material but thoughtful and targeted expense actions throughout FY ’24 to build a stronger and more resilient business that can thrive even in these difficult times. I reiterate that our business is well-positioned to manage the current cycle and to drive future business and growth in line with our long-term vision.

Thank you. We can now move on to Q&A session.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Dixit Doshi from Whitestone Financial. Please go ahead.

Dixit Doshi — Whitestone Financial Advisors Pvt. Ltd. — Analyst

Hello. Yeah, thanks for the opportunity. Couple of questions, firstly on the demand side. So in the last con-call, you mentioned that obviously there was some slowdown due to the inflation and recessionary environment in the U.S., but there was also one reason that you were mentioning that due to the uncertainty over the anti-dumping duty, some of the importers had imported much larger quantity and they were having a much larger inventory. So how do you see that scenario panning out now? I mean, have they started or their inventory level has come down and the reordering has started?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Okay, you have any more question, or this is the only question you have?

Dixit Doshi — Whitestone Financial Advisors Pvt. Ltd. — Analyst

Yeah, so — and second question is on the gross margin this quarter. The gross margin has improved quite a lot. So is it due to the resin prices and how do you see the resin prices moving, going ahead, compared to what we have seen in Q3?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Okay. Thank you, Dixit, for the questions. On the inventory levels, what we are seeing in the U.S., see, as I’ve said in my opening remarks, there is definitely a demand softening. So the inventory in the channel still seems to be high. So I don’t think that the pain of inventory being dumped due to the dumping scenarios with the other quartz players has completely eased out in the industry. It could have probably eased out by this time had the demand factors also being equally good but I think that’s not the case. So we think that there is still pain of inventory left in the channel. So that’s on your inventory side on the reordering level.

Coming to the gross margins, yeah, it’s basically a function of both the parameters. One is definitely the cost of the raw materials and also the product mix. So we’ve seen a little softening of resin prices, that’s also partially being shown in the margins what we have reported on the gross margin side and also with the certain new designs, which we have launched, which got shipped in the last quarter at the end, which is contributing to the product mix is also resulting in a higher gross margin. And that’s the reason, if you look at my opening remarks, I had mentioned that we are happy with the performance so far or the feedback what we have received from our industry on the new products which can, to some extent, help us to insulate the margins in these uncertain times.

Dixit Doshi — Whitestone Financial Advisors Pvt. Ltd. — Analyst

All right. Thanks. Has the prices still coming down — resin prices?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

So it’s like not coming down steeply, it seems to be now finding a level. I don’t see any further down in the immediate term, but it seems to be finding a level — reasonable stable level now.

Dixit Doshi — Whitestone Financial Advisors Pvt. Ltd. — Analyst

Okay. And just one last question. On this expansion to the new geographies like Canada, Europe, Russia, typically, according to your experience, how much time it takes to get the feedback of the distributor, appoint distributors and get the reasonable volume?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

See, basically, typically around six months of time just goes in developing the business to come to a potential where we can start shipping out. So usually the turnaround time or getting the reorder or the second order, it typically takes about anything between nine to 12 months. So we’ve done enough progress in some of the markets where we have crossed initial milestones. So while I don’t have a complete exact timeline, but I think we are working very hard towards it, and we’ll be working more aggressively now with these times and try to crack these markets as soon as we can.

Dixit Doshi — Whitestone Financial Advisors Pvt. Ltd. — Analyst

Okay, I’ll join back in the queue. Thanks.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sonaal Kohli from Bowhead Investment Advisors. Please go ahead.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Thank you, sir, for this opportunity. I have three questions. Firstly, the freight rates have collapsed, whether it’s 80 or 90 is debatable, but it’s collapsed and that was one of the key reasons for your lower margins. Have you seen the full benefit of that in Q4 or are you likely to — sorry, in Q3 or are you likely to see it in Q4, Q1 or Q2 going forward? That’s my first question. Secondly, you referred to product mix improvement, obviously, that’s come — that has happened to a sharp increase in gross margin, but also happened because your revenues have fallen. So in case your revenues were to revert back, to what extent this kind of margins will be sustainable? And you’re launching lot of new products as you mentioned, you’ve been experimenting with lot of products, so when do we see benefit of that and whether this gross margin, plus/minus 2% range, could be sustainable on such a level [Phonetic]?

Third question regarding the inventory levels. You mentioned that the inventory levels remain very high. But at some point of time, the impact of this anti-dumping is going to go away. Once it goes away, do you see a better traction of revenues, whether that takes one month, two months, three months is not what I am trying to ask, trying to ask whenever at some point of time, the anti-dumping inventory levels will obviously normalize and U.S. housing sales have remained on the same lines now for last seven, eight months, correct, they’ve been improving on a relative basis. So if your sales then falls at that point of time, maybe there was some impact of this excess inventory and if it normalizes, would that help you improve your revenues from your current run rate? Thank you.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Okay. Thank you, Sonaal, for your three questions. So let me start with your freight rate impact. See, in fact, depleted freight rate has been a double-edged sword. So if you recall — remember what I spoke on the last call, the freight rate first is definitely is a pass-on item. We don’t actually benefit from the freight rate significantly, because it’s something which we pass on to the customer or it can be a positive or a negative, whatever it is passed on. So the negative impact of the dramatic fall down in the freight rates is actually happening at the customers’ end, because all of a sudden they are seeing that the inventory which is actually on water is more expensive than the inventory which is about to be shipped. So that’s where they have taken little cautious approach and also had to put on certain orders on hold so that they’re able to liquidate the materials which they have in hand or they’re about to be receiving them. That is one side of it.

And secondly, when the anti-dumping scenario happened, lot of trade channel had imported materials at a very high freight rate. And then coupled with the other congestion problems, they had ended up paying lot of demurrages on the containers also. So, that also created a little stress in the system. So overall, the freight rate impact typically has been more on the trade side than on exporters like us. So that is one part of it. But the good part is that once the freight rate typically normalizes and all this pain which has got developed in the system eases out, it typically would give confidence to the trade to come back as soon as the demand factors normalizes. So that’s on the freight rate impact.

Now coming to the product mix improvement on revenue, definitely if the product mix improves as we are expecting or targeting, definitely, the margins would be in the range which we normally enjoy unless otherwise like high raw material scenarios, which we had in the recent past where everything was climbing up significantly. So if product mix stabilizes as we plan to stabilize it in the near future, I think the margins would more or less be in the range-bound and probably will have a positive impact if there are no other challenges coming out from the uncertainties what is wavering currently.

Now coming to the inventory level impact, definitely, once the hangover of inventory is eased out from the system, there would be impetus to the demand at least from the ordering side of it and that will largely, to some extent, impact our revenues also positively. But I think there is a question which is like a crystal gaze today is to when will this inventory hangover be complete when the demand is little softening. So I think this is something which we’ll have to see in next one quarter before we can comment with certainty as to when will it happen and what impact will it bring on the revenues.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sir, just a follow-up on your answer, sir. On the freight side, in some of the past calls you had mentioned that you could take a hit on margins because you could not pass on the freight to the customers. So weren’t you get at least some benefit on your orders where you were taking and you hit on your margins because of freight rates and those having normalized you may benefit at least to some extent? I understand the demand is soft so you may not benefit fully, at least to some extent you’ll be able to retain. And secondly on the, sir, product mix side, did you say more of high-quality product mix and that sales decline was more on the lower margin product mix and that explains your gross margin?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Yeah. So, now coming to the first question first. In fact, your first question is interesting and a good one. See, basically, the freight rate impact which we have on the imported items which we buy from other countries, typically, there are some raw materials, which come from certain parts of Europe in bulk. So to that extent, whatever normalization of freight rate has happened, that would positively add to our margins. Now, how much of that is a lot again depends upon the product mix, because not every product has that particular ingredient coming into it, but definitely whatever savings we have on the freight rates on the import side of it will definitely add to our margins. That is one. And on the product mix, yes, in the quarter under consideration, we had a — not a majority of high-margin products being sold. But we had a good volume which got sold. So if this volume typically improves, then to that extent, positively it will impact and it can be other way around also, if it does not.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Thank you, sir, for answering this. If you may allow me, I can ask you one more question?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

I think everybody is in the queue, so I have no issues unless others have some.

Operator

May I request you to come back and join the queue.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sure, thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Tushar [Phonetic] From Kamakhya Wealth. Please go ahead.

Tushar — Kamakhya Wealth — Analyst

Yeah, good morning, sir, and thank you for the opportunity. Sir, just in your working on new designs, I just want to understand the — with these new designs, what would be the improvement in our margin and the boost to our revenue? That would be my first question. And second would be, sir, what is the average realization in Unit I, Unit II — the current utilization in Unit I, Unit II? And combining this Unit I, Unit II capacity, what would be the peak revenue from this capacity? That would be my second question, sir.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Yeah. So coming to the new designs, see, basically, again as we have mentioned that new designs definitely have a higher gross margins for the simple reason that these designs come with a very high level of design detailing and esthetics, and of course, it also impacts and gives a higher production cycle a little [Phonetic] time. But I think in these times, when capacities are relatively less absorbed, that typically does not completely create a negative factor, but at the same time, that is a factor which has to be considered. So the average realizations can be very varying. There can be a difference of between the — like the sale prices can differ between anything between 50% to 100% also between a lower-end design to a higher-end design. But not everything is getting translated in terms of cost and the consequence. But at the same time, both cost and consequences are also equally impact — important from realizing the full potential.

But it’s very difficult to predict what will be the total peak revenue with new designs because, see, the new designs, there’s only a portion of the business, they are not the complete business. And it is not practical to say that overnight or over a period — or a limited period we’ll be able to replace entire product portfolio with higher designs and only not have any other designs. So in a best-case scenario, we have seen that the revenues can hover anywhere between INR650 crores to INR850 crores depending upon how the product mix and the demand scenarios taper out. So this broadly answers your questions on how the new designs and what the average realizations can be. So as I said, the demand is little soft. So, the capacity utilization at both the units is not at the optimum. We are definitely having a good amount of spare capacity, which will get used as the demand improves. Thank you.

Tushar — Kamakhya Wealth — Analyst

Yeah, sir. Sir, any capex plans for these new designs you’re having for FY ’24?

Gautam Chand Jain — Chairman and Managing Director

Not any large capex, but depending on new equipment, we may add for some more new innovations that are possible. So not a major capex on the anvil right now at least.

Tushar — Kamakhya Wealth — Analyst

Fair enough, sir. Thank you and all the best.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Thank you.

Operator

Thank you. The next question is from the line of Viraj Mehta from Equirus Portfolio. Please go ahead. We move to the next participant. The next follow-up question is from the line of Dixit Doshi from Whitestone Financial. Please go ahead.

Dixit Doshi — Whitestone Financial Advisors Pvt. Ltd. — Analyst

Yeah, thanks for the opportunity again. Now once the China has opened up, how do you see the granite business outlook? I know it’s a small part, but it has started making losses. So do you see it turn around and getting reasonable business?

Gautam Chand Jain — Chairman and Managing Director

I don’t think that though they talk about China opening, but no customers are yet coming into the quarries to mark the material. So we’ll have to wait. I don’t think China is opened as what we see in newspapers. There is also still — market is not so good in China. Apart from the COVID effect, the market is still slow In China. So I think probably that is the reason that Chinese buyers have not started coming yet. So we hope that this kind of limited opening also in next one or two months, people should start coming in. But right now the market is still as good as closed in China for granite business.

Dixit Doshi — Whitestone Financial Advisors Pvt. Ltd. — Analyst

Okay. Okay, that’s it from my side. Thanks.

Operator

Thank you.[Operator Instructions] The next question is from the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Yeah, hi, thanks for the opportunity. My first question is, if you can break down the improvement in your gross margin between the raw material and [Indecipherable] we bought versus the new products which are higher value added, what would that split be?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Yeah, so basically the majority of improvement what you see in the gross margin is primarily coming from the product mix side of it and not completely from the raw material side of it.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Okay. And then the second question is, as you’re going into these newer geographies, how is the competitive scenario there, because in the U.S., you have the anti-dumping on the Chinese [Indecipherable] and I know you just said that the Chinese guys are not coming back from the market, but in the other markets in Canada and Europe, what is the situation on the GP [Phonetic] side?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Okay. So I think the comment which Mr. Jain made, the Chinese are not coming back, that is more related to India market and granite part of it, not quartz. So anyways, now coming and answering your question on the new geographies, see, basically after the dumping happened, Chinese influx into other markets has definitely increased so whether it is Canada, Europe or any other Southeast Asian countries or Africa. But having said that, as I said that our forte is basically a differentiated distinctive design. So we are looking at marketing those designs in the new geographies and not compete at the lower pyramid level. So we do have competition, but then the only way to fight the competition is to be innovative and give them distinct designs which will help us to keep our margins intact and also get some wallet share from the client.

V.P. Rajesh — Banyan Capital Advisors — Analyst

On the debt side, if you can just give us a number for the debt at the end of this quarter and what is the promoter debt in that and what is the rest of the debt.

Unidentified Speaker —

So the debt is actually reduced by actually INR26 crores in last nine months. The outstanding debt — long-term debt is outstanding is actually INR366 crores. Promoters’ is actually close to INR90 crores.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Okay, thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Abhishek Tandon — sorry, Hemant Zaveri [Phonetic], an Individual Investor. Please go ahead.

Hemant Zaveri — Private Investor — Analyst

Hello?

Operator

Go ahead, sir.

Hemant Zaveri — Private Investor — Analyst

My question is, the Industrial [Phonetic] countertops are classified into low, mid and high range. Where we fit and do we — and what is our market share? And my next question is, any plan for venturing into domestic market?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

See, basically. We are in medium to high range of the pyramid. We don’t compete aggressively at the low end, but we have to be at the low end because we have to complete the offering and take more wallet share from the customers. Now coming to the domestic market, yes, as a retail brand, as a consumer-focused brand, we are already present in over 120 dealers in India. We are also working on aggressive institutional selling policies. So I think as the year progresses much, we’ll be able to give you more insight as to how we cater to the Indian market in the times to come.

Hemant Zaveri — Private Investor — Analyst

Sure, so just to follow up with this — I mean, do we have any exclusive video [Phonetic] or something within our 120 or we are just focused with the dealers?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

See, we do not have any flagship stores because our product profile is little different from — and standalone product profile or having a flagship store on just one product typically will not be able to give you that return on investment. But we have different types of dealers, we have preferred dealer, premier dealers. So premier dealer is one who predominantly carries our product and does not carry a large basket of our competition product. Preferred dealers are the ones who are carrying multiple products from multiple product lines and also from multiple manufacturers. But of course, the focus is to capture more and more of premier dealer market where we get a higher shelf space and also the visibility at the store.

Hemant Zaveri — Private Investor — Analyst

Sir, one last question, is there any plan for entering into [Indecipherable] countertop market?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Yeah. I don’t know what makes you ask that question, but as of now, we have no other plans. We want to stay very close to our niche and focus on our existing businesses of quartz.

Hemant Zaveri — Private Investor — Analyst

Thank you.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Thank you.

Operator

Thank you. The next question is from the line of Akash Shubra [Phonetic] from Morbus [Phonetic] Capital. Please go ahead.

Akash Shubra — Morbus Capital — Analyst

Yeah, hi, thanks for the opportunity. Couple of questions, one, so, basically if I look at the imports data, and if I compare Pokarna’s performance, there seems to be some higher or intense impact on Pokarna’s numbers. Just wanted to understand if there was some sort of a loss of market share for you guys?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

See, basically — I don’t know on what basis you say that we have been significantly impacted. If you look at the entire industry — but, say, like in the U.S., almost 30%, 35% month-on-month there is a decline of quartz and which is largely in line with what has happened to us and to others also. But if you look at our numbers, which we have access to in terms of the realizations and all, we think we are better placed than what competition is doing. And as I said at the beginning of the call, our focus is to work largely on the differentiated design and not just work towards getting the market share where you largely have to drive your numbers at very low-margin products.

Akash Shubra — Morbus Capital — Analyst

Right. Got it. And second, a clarification on, you commented that INR650 crores to INR850 crores is on the optimal utilizations. Was that largely towards premium products optimally utilized on both plants or a general mix of products with optimal utilization of both plants?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Basically when I say INR650 crores, it typically largely means that the product portfolio remains largely very close to what we currently operate and INR850 crores is when we say that when we are able to bring in some products at the higher-margin levels and replace that. So while the capacity utilization, more or less will be at the same level, but the numbers can change positively if we are able to add high-margin products to the basket.

Akash Shubra — Morbus Capital — Analyst

Got it. And last two questions, one, so basically, can you give us utilization levels of the units and share of premium products in both the plants?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Basically, as I said, both the units are now below the optimum levels of capacity utilization. Because of the market demand getting softened, we had to also plan our productions accordingly. So we have an ample capacity to offer as soon as the market improves. So largely our Unit I facility has mid to higher end products and our Unit II facility has largely low-end products.

Akash Shubra — Morbus Capital — Analyst

Got it. Last one, you spoke about Europe — exploring Europe and Canada, and initial things happening over there, just trying to understand how different would be these markets with respect to the margin, size and the share of Indian players, which can be fetched in these markets.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

So definitely, the markets are competitive as I said at the beginning of the call while answering questions from the other participants. But again, as I said that when you try to enter any new market, you have to go with a strategy which is completely aligned to meet the market needs. So we have a portfolio of mid –low and high-level products. When we get into these markets, we’ll have to go with that strategy. And once we establish the foothold, then we can play the strategy of putting our medium to high end products also in that basket. But then there are some markets where the markets are very price-conscious and also equally quality-conscious. So there are — these are the markets where you are able to put your differentiated designs also aggressively. But then there are certain markets where the price becomes a large factor. Those markets we’ll play it differently. We have a strategy for that also in place.

Akash Shubra — Morbus Capital — Analyst

Okay. Sure, that’s it from me. Thanks and all the best, guys.

Operator

Thank you. Next question is from the line of Dhiral Shah from PhillipCapital. Please go ahead.

Dhiral Shah — PhillipCapital — Analyst

Yeah, good morning, sir. Thanks for the opportunity. Sir, as we are looking to tap in newer geographies, likes of Canada, Russia and parts of Europe, I wanted to understand how big is the opportunity or market size over there, if you can quantify? And in next two to three years, sir, what kind of market share or revenue contribution we like to generate from these newer markets?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Okay. So basically the markets what we are talking in terms of tapping beyond the U.S., especially the markets of Europe, Russia, Canada, these are all highly matured markets where quartz has been in place for a long time, but then it’s also gaining market share and also taking market share from other categories of countertops. Market share there for the category quartz is actually growing. And we believe that quartz as a category has got a very long run to come in even in U.S. and the non-U.S. markets. So at the moment, I don’t have the exact numbers to say because not all the mass market actively get tracked with these statistics. But I think those markets will definitely not be as big as the U.S. markets are, but then it would be fair enough to say that they’ll be at least of 20%, 25% of the size of U.S. combined all the other markets. And our idea is to at least get a double-digit share from this 25%. I suppose I’m talking about 10% of 25% plus in next [Technical Issues].

Dhiral Shah — PhillipCapital — Analyst

Okay, so we are targeting around 10% of the incremental market.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Yeah.

Dhiral Shah — PhillipCapital — Analyst

Okay, okay. Thank you so much.

Operator

Thank you. Next question is from the line of Abhishek Tandon from Bowhead Investment Advisors. Please go ahead.

Abhishek Tandon — Bowhead Investment Advisors — Analyst

Thank you for this opportunity.

Operator

Abhishek, you’re sounding very distant from the phone. May I request you to speak through the handset?

Abhishek Tandon — Bowhead Investment Advisors — Analyst

Sure, sir. Am I audible now?

Operator

Yes.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Yeah, yeah.

Abhishek Tandon — Bowhead Investment Advisors — Analyst

Sir, as far as replacement versus new home demand is concerned, what was the mix pre-COVID when U.S. housing sales were not moving? Sir, my second question is, how much of your sales pre-COVID used to come from commercial, such as hotels, offices, etc.? And where is that mix, is there a scope of improvement in that? Thirdly, would either anti-dumping duty on Malaysia or Vietnam, as and when if it materializes, impact us in any positive way? And fourthly, what would be your market share in the U.S. market at a rough level? Would it be like 1%, 5%? Some broad range would also really help us understand. And you also mentioned that in Europe, you’re targeting a 10% market share. I just wanted to reclarify, were you trying to say that you will get 10% of your revenues from Europe or were you saying that you will gain 10% of market share of total sales in Europe? Thank you.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Okay, let me come to your last question first. When I say 10%, it is 10% of our revenue and not those markets because if you look at, I said, I don’t know exactly what those markets typically in terms of numbers look like. So that’s one. So now coming to the hospitality, I think amongst all the segments, whether it is residential or commercial — within again commercial, within office space, hospitality and other things, we see the silver line is still the hospitality because after a long time, the hotels have not been in renovation but now we see that renovation activity is slightly picking up. So we see that hospitality is one positive side of the entire demand side softening, but then how quickly the renovations will happen because now the inquiry funnel is good, but everything has to be finally get funneled down and to the ordering and business. So that is something which we will have to track and see. But if hospitality goes well, probably at least 5% to 10% of the business which we are targeting on our total portfolio would come from the hospitality part of it and that can positively impact our numbers.

And the overall — see, basically as I said that we do not directly sell to commercial or residential projects all the time, it’s our customers who would typically directly go and cater to these markets. So what we now understand is that our customers have a large portfolio towards commercial side of it, which can be the builder account to office account or any other construction account. So I think with the new homes getting little tied up and the office space and the other markets also being little soft, the renovation market, which is another important segment, where the high-end material gets used is the only opportunity. But then that has still not picked up completely yet. So, I think the only two areas where positive numbers or at least numbers at where they currently exist would come would be the new home renovation on the high-end side of the designs and from the hospitality side of it.

Abhishek Tandon — Bowhead Investment Advisors — Analyst

[Indecipherable] Malaysia and Vietnam impact and our market share, a broad range over the — at the…

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Okay, sorry. Yeah, yeah, I missed that. So, like with any other business, if there is a trade-related barrier established on one particular country, the demand spillover can happen to any other country. So whether it would be India or whether it would be Philippines or Indonesia, you and I, we cannot really comment on it. But then, as I said, we have capacity which we can use if there is a spillover of demand, if it comes because of any trade barrier. But I think we are not actively pursuing the opportunities which flow from the trade barriers. Our business model has been different. We try to focus on delivering what we can and other things, if they come, we just try to see if we can monetize those opportunities. Now coming to the market share, so we believe that our market share in Europe — in U.S. is between 7% to 9% of the total imports what we — what are happening into the U.S. market.

Abhishek Tandon — Bowhead Investment Advisors — Analyst

By 7% to 9%, you mean 7% to 9% from India or do you mean overall U.S. market [Speech Overlap].

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

No. From India, we will be over 20%. I’m talking about into the U.S.

Abhishek Tandon — Bowhead Investment Advisors — Analyst

Regarding the imports, and what would be this — and bulk of the business in U.S. would be imports or there’ll be a large domestic business as well — onshore businesses?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

There will be a domestic business as such also there, but it is not as bulk as the import business.

Abhishek Tandon — Bowhead Investment Advisors — Analyst

Thank you so much.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Vaibhav Gupta from Bowhead Investment Advisors. Please go ahead.

Vaibhav Gupta — Bowhead Investment Advisors — Analyst

Hello. Thank you. My question has been answered.

Operator

Thank you. The next question is from the line of Anuj Sharma from M3 Investments. Please go ahead.

Anuj Sharma — M3 Investments — Analyst

Yeah, thank you. I have a couple of questions. One is regarding the challenges you have highlighted…

Operator

Sorry to interrupt you, but your audio is not coming very clear. May I request you to speak through the handset, please?

Anuj Sharma — M3 Investments — Analyst

Yeah, I am on the handset. I will try speaking a bit louder. So we’ve talked about challenges on the demand front, but if you could also share your thoughts on what could be the challenges in the next three, five years, both from a production and basic raw material sourcing front, that’ll be helpful.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Yeah. Just one question or anymore questions, Anuj?

Anuj Sharma — M3 Investments — Analyst

Yeah, my second question is, post the determination on final duty structure, could you just talk a little bit about the competitive landscape, both from India and non-exports perspective? These are my two questions. Thank you.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Okay. See, basically, definitely challenge on demand side once things improve probably. I don’t see major challenges for the product demand side in the U.S. or the other markets because quartz is a product which is actually gaining market share from other natural and engineered surfaces. And three to five years, we think only the category of quartz will grow more and more, and it’s only a matter of the demand scenario being little low now for the reasons which I explained, whether it is Fed’s aggressive interest rate hike, quality of mortgage rates, inflations and all that. So, I think once we normalize all those factors, we see that demand is developing [Phonetic].

And the raw material side, we don’t see major challenges because I think the raw materials are abundantly available. It’s only the focus on quality of raw material, which will definitely be one of the prime areas where we would be focusing and also developing the raw materials, which typically, the markets in next three to five years will require because as the product matures I think there are several aspects on the raw material side, which one has to take care, also look at some regulatory aspects of silicosis and all that, which is coming up in different markets. So we are also looking closely on how we can work towards addressing the concerns which market may have today or may have in future. So our R&D is also focused on developing new raw materials. And we see there is an ample scope for improvement and there is also an ample opportunity to tap the available resources in the market.

The competitive landscape, yes, the competitive landscape is getting little aggressive, both in India and outside of India also. In India, with the dumping duties being not in the range of what the Chinese impacted and, of course, Pokarna doesn’t have a anti-dumping duty. We are at 0% from — in the POR 1, while others have some duties. So that has given a little boost for other manufacturers to set up their production facilities in India. At the same time, with the market being good for the product, manufacturers in other countries are also setting up their plants. So I think, as the market matures, the competition will also get aggressive. But having said that, I think, it is common for every product, once you — once the industry starts doing well, you see lot of manufacturers coming up, but then every manufacturer has their strategy and has their execution game plan. So anybody who has a right strategy and right execution [Phonetic] plan will only be able to survive, and that’s when the Charles Darwin theory of survival of fittest will again be proven right. That’s what is on the competitive landscape side of it.

Anuj Sharma — M3 Investments — Analyst

Sure, sure. That’s helpful. If I can, just a follow-up on the second question on the supply. So how do you — if let’s suppose we were to look at data five years ago and today, how would have supply expanded in the country, let’s suppose, from India itself? And how easy is it for you to track this data?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

See, basically today I think India exports could be anywhere between around $450 million to $500 million to the U.S. So if you look at five years back, probably these were, I think, a fraction of it. That answers the question.

Anuj Sharma — M3 Investments — Analyst

All right, thank you so much for the answers. Thank you.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Thank you.

Operator

Thank you. Next question is from the line of Muthu Kumar from Fidelity International. Please go ahead.

Muthu Kumar — Fidelity International — Analyst

Hello?

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Yeah, please go ahead.

Muthu Kumar — Fidelity International — Analyst

Good morning, sir. Thanks for the opportunity. I have two questions. First, what is the capex that can be envisaged in next one to two years? And second question will be, is there any idea to focus more on apparel business, an augment that apparel business?

Gautam Chand Jain — Chairman and Managing Director

I’ve already answered that right now we don’t have any large capex on the radar. Of course, from time to time, whatever needs to be done to improve the product, we will be always doing that. So right now we don’t have any large capex on the plant. Regarding apparel also, we don’t think we would like to pursue that business right now because our focus is primarily only on quartz business and we don’t see any big future for apparel to focus to grow that business more.

Muthu Kumar — Fidelity International — Analyst

Okay sir, thank you. That’s it. All the best.

Operator

Thank you very much. I now hand the conference over to the management for closing comments.

Paras Kumar Jain — Chief Executive Officer, Pokarna Engineered Stone Limited

Thank you so much for having us on the call today and I look-forward to catching up again in the next quarter. Thank you.

Operator

[Operator Closing Remarks]