Al Maha Ceramics SAOG (AMCI) Earnings Call Transcript & Summary

[Audio Gap] Yes. So hold on here. So this is the sales revenue and also the gross profit. The highlights of the HY1 performance as compared to year-over-year, the same period, HY 1, 2025. So you can clearly see there is a jump in the sales revenue gross profit by 34%, operating profit, 21%; PBT 7%. There is a slight decrease in the profit after tax and we will explain you why it happened and EBITDA has gone up by 9%. So these are the growth figures. Next. Now the key highlights, if we have to see for HY 1 this year versus last year, the revenue this year was OMR 5.27 million OMR, which is 35% higher GP margin, it stands the same 22% as compared to the last year. There have been some inclusions in that. And due to that, it has remained same. Profit after tax stood OMR 0.300 million, which is a marginal decline. The reason being, in fact, we have gone a little conservative this year for higher provision for receivables. There are interest expense liabilities, which in terms of the revision of lease term. So I think there is a reason of lease term for our factory premise. And due to that, the impact has come in terms of the increased expense on the lease liability, that is 1 part. And higher income tax provision. Last year, there was a slight tannery in terms of H1 projection of income tax. So if I compare apple to apple, so this has impacted in terms of our profitability. Otherwise, if we compare on the same terms, the profits were around OMR 0.75 million, right? And fourth important point is that improvement in Al Hale operations, which we are running since last November, consistently without any stoppage or disruption -- so go ahead, Vikas.

I think you explained it finance figures. So this is the critical ratios we are presenting here the cost of goods sold or cost is nearby the same level maintained. GP margin is same despite of our overall profitability has increased. One factor is that is lease liability impact, it is, in fact, almost 1% the minimum or the gross profit margin. And if we see the general and admin expenditures. These are slightly increased. These factors, certain factors like the incentives as invest -- and IT-related expenses will increase. We are going for certain other part enhancement in terms of there are more real-time availability for the sales team or so that's the impact in increase. Our operating margin is slightly declined by 1% if we see selling expenses, we reduced as compared to not only -- absolutely, we have not reduced. But in terms of percentage because our sales is increased, that the impact is. Otherwise, it is the same. Net profit margin that's in fact we already explained this year bonus is impacted and there were IT-related expenses, we increased and provisioning slightly just because of to maintain our IFRS requirement also and the payments are coming in is a dealer manner due to our situation. That's why we are going for a safer side and compliance with the IFRS also. And we have that EBITDA margin and I think, 16%. It has declined by 4%, just impact, we already explained to. So we can see here clearly in finance charges, that is what we said about this liability and provision for doubtful debt, as we explained to you as well as in the general and expenses. So the income tax expenses last year, we are assuming our previous year losses of associated company will become. That's the reason in FY '25, we have not taken in sufficient provision. That's the assumption. Ultimately, we have taken that in Q4. That's why this year, we are going [ operandmonth-on on. ] That's the effect. Rent and utility expenses and by benefits employee benefits covered that bonus impact what we've given in FY '26.

Rent and utilities.

That's related to lease liability. And rest expenses, if we see that are maintained more or less only office expense slightly increased very slightly. That's a nominal impact. This is backing expenses. It is same, but maybe in future, it will increase due to what it will be impacted. It increased. Somehow we maintained in Q1. But now it at affecting future operations, slightly, not we are expecting managing the alternate sources that are trying to spectral the cost. This is our PPE current projection. This is balance sheet stated edition as asset and [indiscernible]. [Foreign Language] This is our cash flow position.

[Foreign Language] cash flow decreased because of dividend.

This is cash flow decrease just because of certain outflow increase in other investing activities, financing activities, we paid in dividend this year, OMR 220,000, that is a major element. And lease liability, as we said, it was increased and extended into.

I think majority of the differences happen to apple, everything looks same. The cash flow is impacted because of dividend being paid which was not there in last one. So that has impacted. Otherwise, if you see in terms of the activity and generation of cash, I think it is as compared to last year, much better situation.

And 1 more addition, sir, the income tax we paid last year, it was not OMR 97,000.

Next. Yes, OMR 97,000 income tax paid. Now if I have to talk about what are the present challenges, you all are aware that the reason is going through a very disturbed geopolitical situation. So while it has given us a lot of challenges, it has also given us opportunity to list down the challenges. I think shipment getting your raw material or the freight charges logistic cost. Everything has gone really 3 to 4x up. And the impact is to the tune of around 40% increase in your batting increase of around 2x to 3x in your logistic costs, the shipment cost is so high that we have to literally stop or drop our business in countries like Qatar, Bahrain, Saudi Arabia, and these places, the cost of shipment is even costlier than the cost of goods. So this is not a viable situation. So I think that is something where in raw material is impacted in flow of raw material and also finished goods logistics. That is the major impact which has come even the vessels which are coming from Spain or Italy or from China, there is no surety or certainty that it will come on a certain day, date and you are paying very high demurrage charges and also storage and other war charges and surcharge what the shipment companies are charging to us. So this is the challenge what we are facing. And also, as we explained in the first part of our presentation, the money rotation is poor in the market wherein -- while the receivables are slow. I think the suppliers because of this urgency and also scarcity of material, they are insisting for faster payment or shorter credit terms because there is no material of packing or the other. So if you're really looking for getting those material, you have to pay extra and also pay a little faster, not like earlier, we were taking 120 days or 150 days of credit. So this way, these are the challenges for the present situation. Next slide. If I go opportunity, opportunity also has come a long way in terms of -- because the same shipment charges are very high for the Indian tile companies or Chinese or that way, Iranian or any other importing companies which were there in Oman. So this area has really got benefited by cheap imports not coming from these countries. This has given a lot of opportunity to local manufacturing players to strengthen their market -- and the same impact is UE because UAE is fully covered by road from Oman, and that's not a place where the shipment is required. And that's why 2 Line movement from UAE market is very good. And presently, most of the consumption happening in these 2 markets because there is a scarcity of material, which is not coming from other markets. But nevertheless, we are also having impact of the giants like RAK ceramics and than very cheap producing company from Saudi Arabia that even after paying a very high freight their landing cost is cheaper. So these challenges will continue. But opportunity-wise, I think, majorly, if China and India are not coming complemented by anti-damping tariff, which was implemented by Oman government and also we have yet to see the quality mark, which has been made mandatory by Oman government for any titles which are getting imported in Oman because as soon as these implementation came, the war situation started. So we really don't know whether -- how is the implementation part. But these are also some barriers, which is positive. And even if in future, if there is normalization, this will help us in strengthening our local market. Now internal market. Internal factors, which -- if I have to list down is the value-added items what we have been launching in Al Maha, we have been targeting the mid-premium and premium segment of customers. and really replacing all Italian and Spanish tiles in that segment. Now New and innovative product is that we have gone one step further from R11, we have gone the top best quality and certified R12 we are promoting more of our antibacterial antimicrobial tile and cool tile is also getting popular very much in the region because of very high temperature, and it is also giving us a good brand image and also penetration in this market. Now most importantly, if I have to tell like how we are looking at this market is the operation of -- as you all know, that the market is having a high potential of porcelain tile, and it is a highly -- highest growing segment in the ceramic tile market. Now porcelain products coming from Al Maha not only giving us an extra market or additional market, but also complementing sales of our red body tile, which is a low demand and also where you have to push the product to -- in the market to sell. So there also, we have not remained on the lower strata of the market where competition is really pushing everyone with the base products of 60 by 120 or just 60 by 60. You can see that rail has gone ahead and introduced products like 60 by 120 mm thick, which is -- we are the only company in Oman to produce this and also 60 by 60 20mm, with 11 type of surfaces, which is not available with any of the company. So why we are target going on a premium segment or a mid-premium segment because we know the future is going -- again, it will be going to be a lot about in the base category segment. So unless you create a market from today in terms of your value-added segment, you will not be able to survive with also the fact that Al Maha is going for expansion at Sohar as well. So going forward, end of this quarter, we are hopeful to start our line 2, which will double our capacity of line will not only give us these products what we are already producing, but also -- it will give us some of the products which I think very selected companies in the region have like RAK, which is technical or full body porcelain. Now full body porcelain is very highly in demand in Oman by Ministry because most of their requirement and specifications are full-body porcelain, which they are presently importing from India because there is no median product. Now proudly, we can say that made in Oman, we are the best in terms of our product basket, and we have all the products what any site will beat. Next. So this was a small brief. Can you just start the camera -- so this was a brief on our business operations for the last 6 months as compared to the last year. I'm sure you all will be having a lot of questions. So you can raise your hand and start asking questions 1 by one, and we'll be happy to answer all of you. So you all are in mute. So whoever is asking questions, please raise the hand and then we can start a question answer.

Yes. So there are show reason capital. So let's start with the Shaoor from Bison Capital followed by San -- she -- so yes, so, go ahead, please.

Good morning, Mr. Singh. Thank you for the presentation and for the brief of the industry and presentation congratulations on a good set of numbers. I had a couple of questions and to begin with. The provision for doubtful debts for OMR 128,000 that you recorded this quarter. or in the first half of this year, how recurring is this number? Because we have seen there's a significant increase in your receivables year-over-year and quarter-over-quarter as well. So the receivables are piling up. With the provision for doubtful debts increasing, is there a reason to be concerned about the high receivables.

I will answer to this first. See, if I -- we are talking about high value of receivables, I think this is very obvious that when you're starting porcine and from 1 line, which is a capacity of 200,000 and a consistent sale of around 100,000, 150,000. And the value of those quantities is much higher than a ceramic tile, which is average being sold at OMR 1.5 or OMR 1.6 plus OMR. And as compared to that, the average price of posoline is OMR 2.8 to OMR 3.2 million -- so their impact is double. So when you're increasing your business, your receivables are going up. But nevertheless, if we see our comparison days of sales have come down drastically. -- in terms of our collection. Quarter-over-quarter, the days of sales have not only because of high revenue, but also because of good collections, what we are getting. Now doubtful debt is something like -- there was a discussion with our auditors that like if we really see the peers in our industry, you will have a very clear study of that, that there is hardly any doubtful debt even though the customers are paying very late or customers are they have money they stock for more than 1 year. So that way, analysis was more on customer-based risk analysis. And based on that, the risk provision was being done. Now following IFRS and also the geopolitical situation, we decided that it is always better to go a little conservative whatever the numbers you are seeing is 100% collectible and money is coming. For example, there is a disruption of business supposed in Saudi Arabia. The customer is not ready or able to pay in 1 go, is paying like 25,000 Saudi Riyal every month. So even if we know that we have got a certain payment, which is so short, but since it is crossing by 6 months or 270 days, which is our internal policy, or 1 year, we have to take it as an out hold them. So keeping -- I think going a little conservative was something if you see industry-wise apple-to-apple comparison with the peer analysis, we are the, I think, most conservative in terms of taking that. So there's nothing in terms of the concern -- and I'm sure when you see the cycle completion because last 4 months, our porcelain sales have gone double fold because the line, which was 50% utilized we have gone for 100% utilization. So the cycle of revenue collection will be completed in 90 to 120 days. So you will see the cycle completion in the coming quarter. So that will answer your queries and other things.

Perfect. Makes a lot of sense now. My second question is on the porcelain line front. So -- all is obviously now operational, and you said that the Line 2 will be operational this quarter, if I'm not wrong. So how much contribution should we be expecting from this? If you could give us a ballpark number in terms of how much increase in sales as a percentage.

I think revenue-wise, while the revenue is showing very high, our share of profit in terms of management agreement is 3%, which is like Whatever we are selling, we are getting 3% out of it as a net profit, which is appearing in our book. So I suppose we are doing OMR 100,000 business. We are getting OMR 3,000 as our profit in that. So this is a very -- arrangement rest of the money is going back to Al Hael because they also require money to stand up and also clear the old issues so that the plant runs successfully. So while Al Maha is sacrificing a lot of its share of profit -- but present, the challenge is that penetration of the market, sustaining the market and also making Al Hael run successfully. So that way, I think this is the -- I think it's a clear your question, if I'm not wrong.

Yes, sir.. And just in terms of quantity, if I'm not wrong, you had mentioned previously that after the Line 2 is contribution in terms of first lien quantity should be around 300,000 to 350,000 per month if that's ...

You're talking about quantity in terms of square meter, yes. Value-wise, it will go per month approximately OMR 700,000 to OMR 800,000.

Great. Okay. That helps a lot. And is Al Hael actually breaking even on -- or will it break even after the operational line to.

So this is like a long way to go, Shaoor, as last meeting also the same question property, you know the liabilities are very high. Now bank is also waiting and watching us like how the plant operations are happening because this is the first time ever since this plant was commissioned in 2018 that it is being run successfully, consistently for almost like 9 to 10 months, despite challenges like we are getting it from Ministry of Manpower our old cases, very low cooperation from authorities in terms of recruitment. But still, we are able to run the plant beating all challenges. And I think making breakeven, I think let the plant run for 1 year or so and Line 2 because -- this plant has 4 lines shower. And you are presently in terms of capacity utilization is only 25% -- so unless you go 50%, there will not be a money to pay back to the bank and start clearing your debt, which are there. And then we think about having a road map in terms of when are we going to make the breakeven.

Right. And on the ceramic side, what is your capacity utilization currently? Current in first half and this quarter.

Yes. Last 3 months, our capacity utilization has gone up to -- from last year, around 58%, 60%, it is now 90% to 95% approximately.

Right. And because of the increased costs of raw materials or increased logistics, has there been any increase in the selling price of ceramic You foresee?

Of course. Of course, in fact, we were the only company to push the sales increase. See, there are 2 attitude in the market. One is that prices are going up, so you book as much order as you can and get it at the old price, which competition has done. -- rather, we were the only player who have gone very broadly in the market and tell that our cost is going up. So we are increasing prices, taking a challenge even if we are taking a beat in terms of customers getting diluted to competition. we will hold on because we cannot take this cost into our profit loss. So that way, we have increased our -- revised our prices twice, both in ceramic and porcine. -- and well accepted by the market as well.

Right. I'm sorry, I'm taking a lot of your time. I know that other

A lot of questions what others also have in mind because you are very specific in your questions.

My last question is regarding the product mix of the industry, and that's on the industry as also. You mentioned that ports priced almost twice as much as Ceramic. My 2 questions are: one, are there any local competitors, local manufacturers of parceling other than you or Al Hael? And secondly, how do customers value porcine over ceramic tiles, the market share between the 2.

Okay. So coming to your second question first. The porcine is the fastest-growing segment in the ceramic because ceramic and porcelain both comes under the family of ceramic. One is red body, 1 is white body. And porcelain, which is like an impervious material and porcelain is something which is a very low water absorption. So I think if I have to talk about market, the demand is extremely high on porcelain. So there is a pull from the market in terms of porcelain where customers are coming and asking proposal because of high strength, high durability, larger size, better surfaces. But I think potential-wise, if you have to see 70% of the market is porcelain and 30% ceramic. And if we talk about commercial projects, 80% is -- 85% is porcelain and around 15% is your ceramic. So that's the mix of the market. And it is like every year, the pie is growing by around 7% to 8% of the total potential but at the same time, the growth or the demand potential of porcelain is much higher as compared to ceramic because while ceramic volume is going down, porcelain, demand is going up. So this is your second question. I'm sorry, what was your first question in terms of local competition, okay? There is 1 company which is there, which has got 1 line only. And they are into the base products, and they are also in the market and complementing the demand of the porcelain in the local market.

Great. And just a small follow-up. So the competition for ceramic because of the antidumping and the quality standards has reduced quite a lot. Is it the same in the porcelain as well or no.

Come again, I didn't get you. So the thing is for all products, ceramic personally in everything. Now also to answer 1 of the things like even though the demand of ceramic is going down, -- what we have done at Al Maha is that we are not into commodity products where the products are being sold just based on the prices because in ceramic, there is also 1 company called Eagle Ceramics in so hard that they are bringing in material or something from India and selling at a very cheap price. So if we really want to survive, we cannot have those prices. So we have gone ahead and introduce products with the surplus effect with R11 tires with ticktile, very innovative services, which is adding value to our products -- also antibacterial and barite. So in ceramic also, a lot of product innovations are happening just to beat the competition and keep us a float in terms of premium segment. later. So I will request Mr. Sanjay Shetty to please ask whatever questions he has.

I have a couple of questions. With respect to the market right now, you mentioned that the porcelain is 70% -- 85% of the total market. Am I right in this? So this is the local market you're talking about, right?

No, I will -- in fact, what I said that the total potential of porcelain is 70% in the region whereas if we talk about projects, which is institution, commercial buildings. So there, the requirement is 80% to 85% porcelain, 15% ceramic. But our market primarily comes from in Oman refurbishment segment, which is like people making their own houses. There's hardly any high investment coming up in terms of the big malls or something like Dubai, where like real estate is booming. So if I talk about UAE, especially Dubai, 80%, 85% is porcelain 15% is ceramic. If I talk Oman, 65%, 70% is porcelain, 30% still remains ceramic. I hope it peers.

Yes, yes. Second question is on your revenue mix, like how much of your total revenues from exports, like you mentioned there are some issues with like their current issues with Qatar, Bahrin and KCL. I just wanted to understand your export mix, like what percentage is from these regions.

So I will -- I think I tried to explain that since this was erupted in the month of March. So January and February, we were able to supply to countries like Qatar, Saudi Arabia, Bahrain and all these places through the shipments. Now after this word has started, the business has come down drastically. Now our consumption of material or the sales presently are happening in only 2 countries, mainly One is Oman, which is around 60% to 70% -- 60% and 40% from UAE with a small quantity going to sometimes to Yemen or to the countries which are able to utilize Alala port or something because the port or wherever shipment comes, it becomes a totally nonviable. So if you have to understand, since March to date, our market is mainly 2 markets, 1 is Oman and second is UAE, and our consumption is coming out out of these 2 markets.

Okay. Okay. Got it. Also, you mentioned on the expansion at your Sohar plant, like can you shed some light on like your CapEx, what would be the CapEx and what the capacity would be like --

so I think this was announced in SM 6, 7 months back. We are going with the expansion of porcelain tile in Sohar. This will be to sustain our business of Al Maha ceramics as a company. And this will be on a latest technologies in terms of the porcine wherein we will be targeting the bigger sizes and also the sizes which are not so common along with the normal sizes. So it will double our capacity of Sohar plant. CapEx and all, we will announce soon in terms of how much is going to be the CapEx investment. But this is already in, and I think we are working to get it -- things move very fast on this.

Okay. Okay. Just 1 last question on the new innovative products like the antibacterial and the coal tile just wanted to understand the margin and compared to the normal time, like, how would be the margins for these new products, like it will be better or

See I will tell you this, R11, R12, which are anti-scale, very, very popular in the markets of Europe or in matured markets like Dubai, in matured markets like Jordan the people are coming and asking that what is the grade of anti-slip property of the tile. But I think Oman has got a long way to go in terms of customer understanding, but slowly it is coming up. So these products are futuristic product, if I have to talk about our market. But at the same time, we are creating an image in our market or in mind of the customer that it is Al Maha, which is giving you generation next product. Anti bacterial tile was launched before COVID. We never knew COVID is coming, but this gets rid of your antibacterial your bacteria micros even wires to the extent of 99.9% for the lifetime. Now slowly, we are pushing it to Ministry of Health, schools. They are understanding and taking. So if you talk about these are not a very high volume product, even Barren,which is a cool time. it is not giving you volume, but it is giving you revenue, high revenue and also high margin and also a huge impact in terms of premium brand positioning in the market. So these are -- when you're creating a product to market, there are certain commodity or fast moving volume in a product and they are a mid-level and then there are niche products, which are not sold in terms of volume, but in terms of value and also to make the customer aware that if they are looking for anything which is the next generation, it is only Al Maha where they can approach. And can request Mr. Ali he can ask questions.

Thank you very much for your -- for the presentation and your responses. Regarding ELA, since you're saying things are getting better. Do we expect any reversal of the provisions that have been taking place for the past few years?

Can you speak louder, Mr. Ali

Yes. Sorry. So I'm talking about the laprovisions that have been made in the past for the past 2 years. Are we expecting any reversal for those provisions, especially that it was mentioned that the production has been good and sales are also good. So do we expect that Mr. Rajiv?

Provision in Al Hael?