Al Anwar Ceramic Tiles Company SAOG (AACT) Earnings Call Transcript & Summary

Good afternoon, gentlemen. I think we have waited for the 2 minutes, as I suggested earlier. And welcome to all. [Foreign Language] and Ramadan Kareem to all present here. As usual, I mean, we do not have a presentation as such because most of you must have already done the -- what we call -- number crunching as well as a detailed analysis of the published disclosed accounts. So I will just briefly give you outline of the 2024 performance of the company. The company had a very challenging year in 2024 where from the accounts, you can see that our revenue has dropped by about 12% from about OMR 20.85 million to about OMR 18.285 million of money. And consequently, the gross profit also came down from about OMR 5.4 million to about OMR 3.554 million and the net profit also has substantially come down to about [ OMR 172,000 ] from almost OMR 3.799 million last year. Last year, of course, we had a very substantial other income or the investment income of in excess of OMR 3.3 million -- almost OMR 3 million , OMR 3.8 million. So considering that, the operational profit also was down considerably this year from almost a little over OMR 1 million last year at OMR 100,000 this year. And the main reasons have been explained in our management report or the Chairman's report, where just to highlight a few, the growing competition from the low-cost imports from India has impacted quite significantly on our -- has impacted our revenue significantly. And also the, what do you call, antidumping from has -- been imposed by EU and then U.S.A and then some of the other GCC countries because of which the dumping is happening in the non-antidumping countries like Oman, Oman is one of the countries, which is close by to India. So the low-cost tiles coming into the country has, in fact, increased, which is also what you call one of the reasons for our lower revenues. And also the customs duty in KSA is still on. We have not been able to take it away. And also that is also has contributed to a significant drop in the revenue there and also the volumes there. And also the geopolitical disturbance in the region has disturbed quite a bit on the movement of the materials, especially into some parts of KSA via the sea route, the Red Sea route and then Jordan and other things, which has also impacted. Jordan market has been totally cut off for us last year because of the geopolitical disturbance. So these are some of the reasons for which -- because of which we had a downward performance. But having said that, coming to our balance sheet side, if you see, we are still -- we have been able to manage our cash flows pretty well. We are still debt-free company and then our book value of share is at about OMR 135, which you would have already seen. And this is in spite of the inflationary pressures, which we are having because of all the reasons which I mentioned earlier. And also, this is -- last year, in fact, we have been able to completely foreclose our term loan, which we had taken for our expansion a couple of years back. And also, we had paid last year's dividend of about OMR 4.4 million. In spite of that, we have managed our cash flow quite well, and then we are -- we continue to be a debt-free company now. So having said that, going forward, we see that we should be able to do a little better than what we have done in the last 3 quarters because we feel that the last 3 quarters was one of the lowest ebbs in the last few years of our performance. Now I leave the floor to the room to have any queries or any questions, which I'll be too happy to clarify and we can take it forward from that. I would like to have this meeting a more interactive than one way where we need -- just keep presenting and then -- so I leave the floor to the room now.

Mr. Shaoor, please go ahead.

My question is regarding your operating level. As you saw this year, the company barely managed to just remain positive on an operating level at a capacity utilization of 65%. Now what I'm trying to ask is what is the increase in capacity utilization that would cause a corresponding increase in operating level? If you could give us a percentage of a high-level number.

Okay. See, in the current capacity of, say, what we are operating at, I'd say, 65% is -- or rather I would go back to previous year, we operated at about 65%. And then we made a profit of about a little over OMR 100,000 even operationally. There, if you see it, we have been extremely -- we have focused on our cost and our efforts on cost reduction has considerably -- has resulted in a considerable significant benefit. And that was only for the part of the year or I would say that the which benefit we will -- it will accrue on an annualized basis this year to the full extent. So considering that even at a 65% capacity utilization and at current realization level, we should be able to marginally improve upon our bottom line. So we are above the breakeven point as of time very comfortably. And anything further -- any further increase in our capacity utilization and sale in the market will further improve our bottom line.

Will you be able to indicate what is the current capacity utilization?

We are in the same range of about 65% to 70%. Current -- the current utilization is in the same range of 65% to 70%.

So now my question circles back to the thing that I was alluding to earlier, at 65% to 70% capacity utilization. These numbers we saw in the third and fourth quarter of last year as well. And if I'm looking at the numbers correctly, the company was not able to generate profit at an operating level at this utilization. So what changes now? Why is it so that presumably this quarter or the next quarter at 65% to 70% capacity, you expect an operating profit, sir?

Okay. Yes. Shaoor, to answer your question, one is when we said last year, we operated at 65%, it was the average for the entire year, which means that it was marginally lower than that in the last couple of quarters. Whereas we have started this -- I mean, this year, currently, I'm saying is we are operating at 65% now. Okay. So which means it should be better than the last 2, 3 quarters is what we anticipate. And there is one. As I said earlier also, our costs, which we have been able to optimize over the entire year was only averaged out in 2024 whereas the full benefit of that, we will be able to appropriate in the current year. So with that in mind, we feel that our performance should be much -- at least better than what we did in the last few quarters. Any other questions? [ Richa ], please go ahead. I think you have raised your hand.

Could you please give any insight on the KSA demand?

Sorry, on the?

On the Saudi demands.

On the Saudi demand. Okay, fine. Coming to the Saudi demand as such, the overall demand there, the footfall also has come down significantly because the Saudi government has taken up a view where they have already -- a couple of cities like Jeddah and their capital Riyadh has been 40%, 50% has been demolished and then they want to come up with a new skyline there. So they are in that process because of it, there is a temporary decrease in the demand. So once this activity of rebuilding starts, I think probably the demand should pick up. At that point of time, we should be able to participate in that demand. But having said, there has been very huge capacity increases in the manufacturing units in Saudi, which are also facing, to some extent, some issues in terms of utilizing their full capacity is what we understand. So we would need to wait and see how it is going to pan out once the reconstruction starts, which should happen in the next year or a couple of years.

And what about the custom duty?

Custom duty, still they are charging the customs duty on any imports coming into Saudi. And whereas we have now, what you call -- we know the trick as to how to get the refunds back or rather the documentation required for it. And then we have been successful in the last 1 year to ensure that none of our customers have to forego the customs duty, which they are paying. So to that extent, we have been proving that we are a GCC company with adequate value addition. Whatever is the conditions that they have imposed. We are ensuring that we are meeting that and we are also documentary-wise proving that and then they are getting it back. But having said that, but it is still not a free movement of trade between the countries. So this is still a niggling issue, which we need to see how to overcome it. We have been in discussions with the ministries and with the government here to see how we can be -- there can be a seamless flow of materials between the 2 countries.

Good afternoon, Mr. Suresh. This is Abbas Muslemi from Vision Capital. I apologize I joined the call a little late. I was on another MSX call today in there is like 4 calls in a day. I may make you repeat something. I apologize for that, something you must have already spoken about. Can you speak about the situation of the ceramic sector in Oman specifically because it is your biggest market? And one trend that we've seen for the last few years is obviously the imports from India. Are there any talks with the Ministry of -- and now India and Oman are actually negotiating an FPA, so that might make your life a little more challenging. Are there any standards that could -- quality standards, I mean, quality checks? I don't know, are there any initiatives of such that are being discussed at the ministry level that could help you guys to keep away subpar products coming in from India? That's my first question, sir.

I think Abbas, you hit the bull's eye actually there. In fact, we have -- as -- we have all manufacturers together from Oman have made a representation to the ministry. And then it is in a very advanced of the government implementing the quality standards for the tiles coming in. The cheaper tiles and the low-quality tiles coming in, they are in a very advanced stage. And then we expect that it should be implemented anytime now. That is what we are given to understand. So once it comes in that to some extent, it will mitigate our issues here, where at least the low quality and very cheap tiles into the country will be restricted and then there will be some uptick for the quality tiles we are manufacturing. So there is a possibility that it should be implemented anytime soon. So that is what we are given to understand.

Could you give us some sort of data points on the Omani market, how many spare meters is it? What percentage of that is being serviced by you and Al Maha? How much of the imports from Spain, for example, at the high premium level? And how much is India? And I'm sure not all Indian quality is subpar, right? There's a lot of quality producers in India as well. So basically, I'm just trying to understand a little more industry data, right? Because -- I mean, let me conceive that Anwar Ceramic as a company has been lean, has been mean and has been a fantastic operator, right? But at the end of the day, you are a price taker, it's a commodity in that sense. So that's the reason most of my discussion is actually focused on the industrial market dynamic because there's really not much to come at anything at your level because you've proven yourself time and again to be a very low cost-efficient operator. So that's the reason I'm not focusing so much on your own operations.

Okay. Fine. So coming to the market overall demand in Oman, we reckon that it is anywhere between about 15 million or 18 million to about 25 million square meters because it has been stagnant. It is not -- I don't think so there has been any growth over the last couple of years. Whereas this year, we foresee that there has to be significant -- at least 10% growth in the market is what we foresee because of the huge -- the Haitham City being already declared and then there's a lot of developers are working on that. And also opening up of the housing loans, basically, where about 50,000 housing loans is what we understand is being looked at now and that also being dispersed through the commercial banks and the subsidy of the government directly going to the bank so that the general public are benefited out of that. So with all these things, we feel that there is going to be increase in the -- there's going to be a demand increase for sure. And your other question was on how -- what is the market share of Al Anwar and Al Maha put together. So out of this, I feel that we are anywhere between both put together or at least Al Anwar should be in the range of about 40% market share, 35% to 40% of market share is what we reckon we are having. Al Maha numbers, I wouldn't know because I haven't seen what their local -- what the Oman volumes are. So to that extent, we continue to be the market leaders. And one more thing is that from India, what is coming in also is predominantly the so-called porcelain. So though some of real porcelain, they are still vitrified between 0.5% to 3% water absorption kind of thing. But still, that is the major thing, which is coming into the market here, whereas the wall tile segment and then the thick tile segment and all still are predominantly with the local manufacturers. And with the quality standards coming in, we feel that we can further have our footprint increased in the local market with a little more volumes getting in here.

But are those porcelain tiles, I mean, supposed porcelain, like you said, are they competing with your ceramic tiles in terms of pricing? Because even if you come up with quality standards for ceramic tiles, could be a switch to porcelain if pricing-wise, they are as competitive as you, right? Because porcelain obviously is considered more premium. So how do you tackle that?

Yes. See, when the standards is coming, it is not coming only for ceramics. It is coming for porcelain too. So when they have to bring in the porcelain -- the real correct porcelain, then the cost is not going to be the same, the low cost, which they are trying to get in now. There is a cost attached to a quality product even in the porcelain. So that gap is going to be certainly beneficial to us. When the quality porcelain has to come in, it is going to be substantially at -- if not substantially, at least at a decently higher price than what is coming in today.

Okay. Clear, sir. And in terms of Saudi, you spoke about the challenges. I mean, one is, of course, customs duty, even though you're getting refund is not business as usual, so it's not seamless. And you said that -- the second thing you said is there's a lot of capacity that's come on in Saudi itself. Are you looking at other markets? Because Saudi used to rely on -- Saudi is a pretty big export market for yourself. And not just for yourself, everyone else in the region as well. Are there any viable other markets where you can maintain margins because there's a freight component to it as well. So how close are you to finding viable alternate markets, sir?

It's a very fair point because we also reckon that it's not -- Saudi is not going to be the same what it used to be for us a few years back. So we are also diversifying into a little other markets. For example, the Yemen market, we are consolidating quite well. And apart from that, with the antidumping being imposed in Qatar and Bahrain and all, there also, we are now consolidating quite very well. And then we are looking at -- we also participated in a very big exhibition in the Iraq market and then which was promoted by the Ministry of Commerce here and then we participated. And then that market also is looking promising. So we are already trying to make inroads there and then probably we should -- if we did the right things, then partially, it can replace what we have lost out in Saudi Arabia.

And how are you seeing prices behave this year? Your realization prices on average for the year? And what sort of utilization levels are you seeing for your capacity for 2025?

2025, if the -- what we are looking at the standards, the quality standards being implemented by Oman. So if that is going to kick in, in the next few weeks or in the next couple of months, then I think it should be a little better for us. Certainly, it will augur well for our volumes where we can increase our capacity at least by about 10%, 15%. And also -- it can also give us a little more leverage in terms of the realizations also where we will be able to appropriate that once that kicks in. Okay. But even if that doesn't kick in, like I said, we are looking at other markets more seriously consolidating other markets, which is very visible. So with that also, we should be -- even if our realizations are not going to substantially go up. but still we will be able to at least increase our capacities to a little higher level than what we are doing now. And apart from that, one thing before you ask me, I want to add is that we have also -- what we introduced a little large format tiles by the end of last year is picking up quite well. We are getting good traction on that. And then probably that should also give us some benefit in terms of the realizations going forward.

Okay. So can we say that the worst is behind you in terms of both realization and utilization?

Yes. For sure, it is -- in terms of utilization, it is behind us. And in terms of realization, it can be behind us if the quality standards comes in and also when we are going to consolidate in terms of the other markets, probably we should be able to do better there.

Okay. But you're not just relying on the quality standards coming in because in the English, there's a saying, right, there's many years slip between the cup and the lip. So even if you think it might come soon, you never know, right? Because a similar conversation we were having with cement producers in Oman. And that never materialized or at least that doesn't seem to be the case. So it's not the only thing you're pinning your hopes on, right?

No, no, absolutely not. It is not the only thing because I was just only trying to underplay the other markets which we are exploring and also the new sizes, the large formats, which we have introduced, which is getting traction. So all those things are there for us to exploit and then ensure that we are able to do better. And apart from that, before you joined in, in fact, I was also explaining about the -- our rationalization of our costs, where we have done pretty well in terms of the rationalization, which we should be able to appropriate fully this year. Last year was an average route advantage, which we had. Whereas this year, we should have that advantage, whatever we have been able to benefit out of the rationalization, we will be getting it -- getting the full benefit throughout the year right from day 1.

Did you quantify the rationalization expense? How much was it total in terms of...

It is there -- I think if you see my -- the numbers, I'm sure you will be able to look at. Any other questions? Yes, Richa?

So with this cost optimization, what sort of margin do you expect in this 2025?

I don't want to put a number to it. Okay, it's too early because there is -- because it all depends on the volumes. It depends on your realizations. There are so many factors that goes along with that. I will not be able to put a number to it. Anyway, we will be disclosing every quarter, our numbers and then you will be seeing it for yourselves. Any other questions? Any other clarifications required? Or maybe we will wait for a couple of minutes and then maybe we can conclude the meeting.

Good afternoon Mr. Suresh.

Yes. Good afternoon who is this?

Yaqoob. You have mentioned that this quarter would be much better than the last 3 quarters. But I didn't get like what's your strategies for this year and the beyond this year?

Yes. As I said, as I already explained earlier, this year, we have now trying to consolidate on a few other markets. Okay. That is one. Like we are now consolidating on the Yemen market. We are getting for a little more into the Iraq market and also in the other GCC markets, we are looking pretty good there. Apart from that, also, as I said, the cost -- on the cost front also, we have done extremely well. So that also will contribute to the bottom line. Okay. So these are the areas where we are looking at and where we will be able to do well, and we are confident that it will be better than what we did in the last 3 quarters.

Brilliant. But may I know how much like from exports, how much you are taking like from Saudi Arabia, UAE, or [indiscernible]? You have mentioned like in this meeting as well, like last year, it was cut off. So would you expect like to return this year to come this year, I mean?

It all depends to the geopolitical -- if the disturbances in the region, if the war is concluded early and then the peace returns to the region, then we can look at servicing those markets again, okay? So that option is open for us always.

Okay. Apart from the antidumping measures, I say in Oman, like is there a lot of news about it?

Antidumping, we have been discussing with the government, but then we do not have a firm reply from them saying that yes, we will do it. It has always been that we will look at it. We will have to look at it and things like that. But then there is no firm reply as such. Like what Shaoor, Mr. Abbas said that there has been a talk between India and Oman on a freight rate agreement and things like that. So with that in the background, I'm not sure how quickly or whether they will be able to implement antidumping as of now.

Would you think that would be last for like years or like within 2 months or within 2 weeks? Because last year, I think it was applied, but it was like about for 2 weeks.

That's right.

Not last year, before.

Before last year, for 2 weeks, they had applied. You are right. You are right. So we will not know. As I told you with the -- what you call -- the fleet rate agreement being negotiated between the 2 countries, whether it will be applied or even if it is applied, whether -- how they are going to apply, whether there is going to be a quota system, we have no idea on that. We'll have to wait for the government to reply on that.

The annual report noted some regulatory improvements in Saudi Arabia, and we have mentioned as well that there is improvements. But see, you have mentioned as well in the reports challenges remain, but I didn't give the challenges.

Sorry?

You have mentioned the challenges in the custom duties or antidumping in Saudi Arabia, but there is improvements in the [indiscernible] reports and from your discussions. But you mentioned as well in the reports that's still changes in that -- that is a...

That is right. This is exactly what I had also mentioned a little earlier where I had said that it is -- though there has been some improvement in terms of getting the refunds and things like that but it is still not a seamless trade between the 2 countries. Still every time you send it, there has to be a prepayment of 12%. You have to submit some papers. So it is not a seamless thing which, as a GCC country we should be enjoying. So that is what we meant that those challenges still continue.

One last question. For the cost control and optimization, as you have mentioned earlier, it would be a good idea and a good start. But is that reflected to the raw material and sublet chain or just for the operations?

It is for the overall operations, in fact, including the fixed cost and see, there are -- in terms of the input costs, material costs and things like that, there are inflationary pressures because of the situation in the region. Where the sea freight has considerably gone up and things like that. So we have optimized more on the fixed cost side where you will see the numbers. If you see the numbers, you will see that we have been fairly successful in optimizing our fixed costs. And then when we increase our capacities on that, automatically, it will get a better leverage over a higher volume. I think Abbas, I think you raised your hand once again.

Yes, just a couple of follow-up questions. A few years ago, we should talk about dumping from China. And the last couple of years, obviously, we're only talking about Indian market. So what happened in China? Where are those guys supplying to?

See, China has not been able to supply in the region because, again, the antidumping is still on, on the Chinese products. It is only on the Indian product that has been taken out. Added to that, the main -- other main issue for the Chinese not to supply here is the very high sea freight cost still, which has not still come down. Whereas from the Indian sector, it has come down significantly, though it had gone up in between to a higher level. But again, it has started reducing. So these are the main reasons for the Chinese players not coming into the market. And added to that is China is now having a different strategy of establishing their own plants in different parts of the world itself. For example, in KSA, they have come out with a large plant. And then in a few African countries, also, they are coming out with the plants instead of shipping it all the way from China, their strategy has been now a little more different.

Yes, this was my second question, which you preempted. But I was wondering if there are any big ceramic manufacturers coming up in Saudi. I heard about the Chinese guys coming in there. But is that a trend that you're going to see more and more of? And would you see that out of India as well? Or like Indians coming to the GCC and setting up plants or you don't see that?

That is going to be difficult because they cannot replicate the cost effectiveness of what they do there. Because when there is a cluster of 1,200, 1,400 companies in 1 cluster, the advantages -- the same advantages they cannot have when they have a one-off plant elsewhere. They will be in the same footing as what we are.

Yes, very clear. But okay, understood. And this Chinese antidumping duty is applied across all GCC countries?

Yes. That's what we understand.

Okay. And when you spoke about the Yemen market, are there any payment, like how do you work on is it in LC, do you take 100% advanced payments, you have a direct -- what's the model of supply and demand?

In which market are you referring to?

Only Yemen.

Yemen, we are working on some credit because we are working with a dealer who has been with us for the last 25, 26 years. So we know and then our people also visit there, and then we are very -- we know and with what limits we work with them and things like that. Yaqoob?

But I have 1 question. Like how would you compare this quarter, quarter 1 to the previous year quarter 1 in terms of revenue?

We need to wait and see. We are not still completed the quarter. So I don't want to comment on this, which is not right until the quarter is over. I hope you appreciate that.

But what do you think like it would be higher?

I will not be able to comment on that because that's not right. Because we have not still completed the quarter, so we need to wait for that to happen. Anyway, it's a matter of a couple of -- a few more weeks before we were going to give our initial numbers once the month is over. Any other questions? If there are no more questions, I think we can conclude the meeting. Maybe we can give a minute more. Okay. So we assume that there are no more questions and queries regarding the performance for 2024. So thank you, gentlemen. Thank you very much for attending this, and then posing your queries and then hope I have answered all your queries to your satisfaction. Thank you very much and then see you next time when we meet up again. Thank you.