Kajaria Ceramics Limited (500233) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kajaria Ceramics Limited Q4 FY '21 Earnings Conference Call hosted by UBS Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shaleen Kumar from UBS Securities. Thank you, and over to you, sir.

Thanks, Steven. Good evening, everyone, and thanks for joining this call today. Today, we have with us from management Mr. Ashok Kajaria, Chairman and Managing Director; Mr. Chetan Kajaria, and Mr. Rishi Kajaria, Joint Managing Director; and Mr. Sanjeev Agarwal, Chief Financial Officer. I will hand over the call now to the management for their opening remarks. And following which, we will open the form for Q&A. So over to you, Mr. Kajaria. Thank you so much.

Thank you, Shaleen. Good evening, ladies and gentlemen. First and foremost, I hope and wish that your family, friends and colleagues have been safe from COVID and I pray that all of us get over this crisis safely and quickly. I am with my sons, Chetan and Rishi; and Sanjeev, our CFO; and Pallavi, Investor Relations on this con call. The world is passing through a very difficult time from last 1 year, and India is no different. In these adverse circumstances, I want to thank all our team members, dealers, suppliers for delivering one of the best quarters in this difficult time. At the same time, I want to thank all our investors who have stood by us, putting confidence in the management in this difficult time. In these times, our priority is to take care of the Kajaria family as a whole. We have done our level best to get our staff members vaccinated at the office and at the factories. Also, we are setting up an oxygen plant in the government hospital in Rajasthan, a place called Tijara, to help COVID patients. The tile industry witnessed good recovery pick up post-quarter 3. Along with sustained growth into smaller cities and towns, Q4 also witnessed strong urban recovery in metros, Tier 1 and Tier 2 cities. This led to an impressive volume growth of 39% year-to-year in quarter 4. Our plants have operated at an average capacity utilization of 98% during the quarter. The subsidiaries continue to do well, registering a PBT of INR 17.97 crores in quarter 4 FY '21. Revenue from Bathware business grew by 74% year-to-year from INR 41 crores to INR 71 crores in quarter 4 '21. Revenue from Plywood business grew to INR 15.34 crores in quarter 4 F '21 from INR 5.78 crores in quarter 4 '20. We have obtained the highest ever consolidated turnover at INR 952 crores in quarter 4 F '21. This is the highest ever by Kajaria. Absolute EBITDA operating margin increased to INR 191 crores as compared to INR 93 crores in quarter 4 '20, led by higher capacity utilization, plant efficiency, and improvement in subsidiaries. EBITDA margin for the quarter stood at 20.04% as compared to 14.32% in the corresponding previous quarter. Debt in quarter 4 '21 has increased to INR 127 crores as against INR 49.59 crores in quarter 4 F '20. Working capital cycle as on 31st of March '21 decreased by 5 days as compared to the last quarter, that is 31st December '20. But if you take it in a quarter-to-quarter corresponding, then it has come down from 73 days to 50 days. With this, I take the opportunity. Thank you all for joining us today. Over to you for Q&A, please.

[Operator Instructions] The first question is from the line of Achal Lohade from JM Financial.

My first question is with respect to the volume growth, now last time you had indicated that you're looking at 15%, 20% kind of a growth. Given now we have past FY '21, what is the guidance on the volume growth given the current situation we are in?

You see last quarter results and in January, actually, we had given a 20% to 25% volume growth for the year '21, '22, not 15% to 20%. As you are all aware, first week of April, pandemic hit the country much more strongly than what we did last year. So right now, we are not giving you any volume growth indications as of state. We would like to see how situation goes. Why? You see, June is getting much, much, much better than in -- let me tell you a little information more. In April, we did a sales of 75% based on our projected targets. May, as you are all aware, the states are literally lockdown. Almost 90% of our dealer network was closed. We're still able to do 35%. This month, as things are progressing, we should end up with about 75% of our targeted sales. So at this stage, it's very difficult. COVID is still there. We still have 80,000 cases every day. So it's very difficult. But definitely, I would like to review for July and August. 1st week of September, I think we'll have a much better idea as to how things are. I can only assure you on behalf of the management, 2 things: one, we will do better than competitors, number one; and we are still not touching upon our sales volume growth of 20% to 25%. We would like to do if when situation permits.

Understood. And in terms of the realization, how do you see the current situation given there is an increase in the gas price? So if you could help us, first, with the gas cost for own in the JV plant for the fourth quarter on a rupees per SCM, sir, and also the outlook on the realization.

I will first give you the cost of gas. Gas costs have gone up by almost 20% plus. If you compare apple-to-apple, last year January, March and this year January, March, the gas prices had already gone up by almost 20%. Gas prices are still at the higher side than what it was last year. That's one. And I'm sure that -- and we have already increased the prices of ceramic PVT and GVT by about 2.5% to 3% in January, March. But always, there will be -- I must make a note that always there will be a lag time of 45 days between the cost of increase of gas and our price realization because our gas price don't know why it goes up from 1st of every month. We increased prices, the impact comes, it takes 45 days for the realization to take this. But if you see for the full year, it will magnify whatever the gas cost increases for a simple reason, that if the gas price increase for -- is for everybody, not only for Kajaria. So whatever happens, the industry gases prices, we also do gas prices together. And at the same time, over a period of 12 months, if you look at our horizon, it will be nullified.

Understood. Sir, if you could help us with the absolute number, would that be possible, sir?

Absolute number of gas?

Yes, gas cost in terms of rupees per cubic meter.

Sure. Sure. Sure. You see in our 3 plants -- 2 plants at North Sikandrabad and Gailpur, we are using natural gas. The prices quarter 4 was INR 28.46 per SCM. And the prices for the current quarter is about INR 32, so an increase of roughly, you can say, about 15%. And in Morbi, the prices went up from INR 33.60 to INR 36.13 per SCM, so there also the price increase is close to about 9%.

This is for the fourth quarter Y-o-Y, right, sir, year-on-year?

Yes. For the year, as I said, the gas prices have gone up by 20% if you take it. Quarter 3, it was about INR 26.10. Quarter 1 was literally closed. It was about INR 28. Quarter 2, it was about INR 26.

The next question is from the line of Omkar Garude from Shri Consultancy.

Congrats on a good set of numbers. My question was regarding the guidance which you gave. My question is more to do with the long-term scenario. Do you think the tables have turned for the home improvement industry as a whole? Because last 2, 3 years were very challenging for this industry, so I wanted your view on that.

See the year ahead will be better than what we have seen last year. Two reasons: one, the pent-up demand is not going anywhere because, see, with work from home, one positive thing is, we have a lot of people are staying at home. Earlier, the peak meant for or the lady who was working, left house at morning, she came back, or he came back in the evening. They never bothered about the home. Today, you are spending a lot of time at home. And something is not functioning, this is not functioning, earlier you used to get a message from the other half, you bet, this is not happening. Now you are seeing yourself. So a lot of money will be spent on home improvement, number one. Number two, what we are doing as Kajaria, we are doing 3 expansions in the current year. We are doing one expansion at Gailpur plant, which is about 4.2 million square meters of floor tiles at a cost of INR 60 crores. We are doubling our Kalahasti plant, which is a glaze vitrified plant at a cost of INR 110 crores and where the capacity increase will be about 3.8 million square meters because that will be for big sized tiles. Third, we are doing another expansion at Jaxx, where we are spending about INR 80 crores. And we will be adding about 4.4 million square meters of capacity. So unless we are positive, we won't be doing this expansion, we are super positive that ahead will be very, very positive.

Okay. The second question is on the margins. What kind of margins do you think are sustainable?

Our margins I'll not comment today. I will be able to comment only at the end of the second quarter. And the margins will depend on operating leverage based on the opening of lockdowns, volatility in gas prices. So looking at that, I don't think it will be right for me to make any comments right now. Definitely, at the end of second quarter, the situation will be very, very clear.

I'm not trying to tell you...

And another thing which we have done, we are working and making sure that the costs don't go up because that is 1 area we are working very seriously after last year. If you see our numbers of last year, there is a lot of cost savings. We are sincerely working towards that to make sure that the costs don't go up.

I'm not asking you for a short-term guidance on margins, what would be in the second quarter or third quarter. I just wanted to ask what kind of margin trajectory you are looking at, say, for the next 2, 3 years.

I can't answer that today. The COVID is still there. I will not be able to -- answer to that today to my own satisfaction. But like we have performed in the past, I think we'll continue to have the same vision in the future.

The next question is from the line of Sneha Talreja from Edelweiss Securities.

Congratulations on good set of numbers. Sir, I have 2 questions basically. Firstly, with regards to capacity additions, so we have actually announced capacity addition after a long time. And earlier our outlook was like we would be largely going for outsourcing. So as you rightly said that you are looking at things in a more optimistic way, and things are looking up and because of which capacity expansion. My question would be, is there any challenges that we are seeing at outsourcing front? Or we still continue to see a good amount of outsourcing, and it's easily available despite that we see that the demand will be higher, and we are going full capacity?

See, all these are luckily brownfield expansion side, so outsourcing is also not an issue. We're already outsourcing, but it is always good to expand. And if we can get additional capacity of our own in our own plants, it is definitely through our margins. So that's why it's a calculated call that you are taking and we -- I think we are very bullish about that.

So you mean the own capacity additions will lead to higher margin accretion going forward compared to what we are currently getting out of outsourcing. Or is it a product which requires more of....

Absolutely. Yes. Absolutely, yes.

Okay. Secondly, my question was you actually answered it earlier that you have taken a price increase of about 2.5% to 3% to pass on the raw material -- I mean to pass on the gas prices. So does that mean eventually what all the gas prices have increased has happened, it's all absorbed? Or do you think you'll have to take 1 or 2 further price increase for that gas price to get absorbed?

See, whatever gas prices have gone up, it's already covered. I must add for the benefit of everybody, not only gas, paper prices have also gone up very much to first peak of March, which is our packing cost. So all this has already been taken into account in the price increases. But if gas prices go up further, because we don't know the correct scenario, the Brent oil is at the high peak. It's about $72 as we speak today. If the gas prices go up, definitely, there has to be a price increase further.

That was helpful. One last question, if at all, I may ask, is with respect to your outlook, given that currently, last quarter, we, of course, were very optimistic that Tier 3, Tier 4 kind of places are doing very well. This time, of course, COVID has gone way more than the interiors compared to even the outsource. So anything that you are getting to hear from your dealer, distributors in terms of offtake? And according to you, will it take more time for sales to pick up compared to last year prospect? Any thoughts there?

See, what happened last year, as you are all aware, Tier 1, Tier 2, Tier 3 supported us very much in the first 3 months after pandemic, that is April, May, June. Then the metros came in from October, things changed. This time, the first 3 months are tough for a simple reason. April, as I said, was 75% of the sales volume that we targeted. May was literally closed. The 90% of the dealers were closed still we get 35%. And June things have started looking up. See, the Tier 1, Tier 2, Tier 3, as we are all aware, pandemic had hit very, very strongly. But because of serious lockdown by all the states, not the national lockdown, serious lockdown by all the states, things have started looking up. Things have started moving. As unlock happens, because unlocking is still has to take place in many of the Southern states, West Bengal and Odisha, as unlocking takes place, things will get back to normal in the month of July. We are sure about it. And you will see a different perspective from July onwards. So the correct answer, if you honestly ask me, will only come at the end of the second quarter.

The next question is from the line of Girish Choudhary from Spark Capital Advisors.

Congrats on a good performance. A couple of questions. Firstly, on the...

[Foreign Language] Can you speak a little louder, a little louder?

Yes. Is this better?

Yes, yes.

Yes. On the Bathware business, last 2 quarters, we have been taking around INR 80 crores to INR 86 crores. For the year, around INR 210 crores. So what is the outlook here both in terms of revenues and margins? And what are the investments being planned in this division? You did announce the CapEx on the tariff division, but anything there, which is on the cards?

So Bathware did about INR 210 crores last year in FY 2021. And our vision for the next 3 years is to touch about INR 500 crores. Even this year, we're looking at an optimistic growth for the Bathware division. And in terms of capacity, right now, we are okay. As the time goes along, we -- see, luckily, whatever we need to do, we have -- the existing plants have the capacity to further expand. So as the time comes, we'll put in the existing plants only. So right now, there's not a major CapEx involved in the Bathware business.

Okay. The reason is because if I see the Faucets capacity, this has been running at 100% for 2 consecutive quarters. So any reason why we are not yet starting the brownfield?

You see the Faucet capacity is currently is at about 10 lakh pieces per annum, right? As Rishi was rightly saying, the last 6 months, the plant has operated at close to 90% to 100% of the capacity, as you rightly said. With little addition, we are going to watch quarter 2 with little additional machines, with probably an investment of about INR 10 crores, INR 15 crores, this plant will take us to about 30 lakh pieces per year.

Yes, existing -- in the existing plant only, we can easily increase the capacity in a space of 4 -- 3 to 4 months.

And the incremental CapEx is going to be very, very less.

Okay. Great. And in terms of margins for this division, if you can give your outlook.

So Girish, as the capacity go up, the margins will continue to go. We have already set our team in place. So any -- the same team will be able to sell for the next 2, 3 years, we don't have to hire any more person that initial setup cost is already done. So as going forward, the margin will only going to be higher than that.

As the top line continues to grow, the margins will be better. Right now base is very low. So as the top line increases, it will only get better. And just to add one more information, in Bathware, we have increased prices by 10% effective from 1st of May because, as you all might be aware, the prices of brass has gone up.

Got it. Sir, on the second question on the CapEx bit, CapEx on a -- if I just to on a per million square meter or per MSM, the AP plant CapEx seems higher at around INR 29 crores versus some of the other plants, Gailpur and also the Morbi one. Any reason for the difference?

Yes. The Tirupati plant, the CapEx is higher because we are taking the latest machinery. There is a weather value addition. So there we want to increase, we're going to make all the big sized tiles. And it's a GVT plant. And even the -- so the realization of that plant will also be better. Yes, the CapEx is more, but the realizations will also be better, because we're making only value-added tiles there, big sizes there. That's why the capacity of 3.8 million square meters less, but your overall turnover and the realization of the plant will be much better.

The next question is from the line of Lavanya from UBS Securities.

So I want to know your view on how the exports overall -- for the whole -- overall industry, how exports have been given that only India has been impacted by this second wave, how the overall market or overall industry is growing.

Exports are still continuing from Morbi. They will continue to do so for a simple reason, they have proximity to the port. India has established its market abroad. And we as India are very, very competitive as a country. So exports are continuing. It is irrespective of COVID except the period of probably lockdown when some production suffered. Because this time, if you are aware, lockdown did not stop -- state lockdown did not affect any transportation, number one. We also allowed the industry to continue as long as you can sell. So as far as the industry was concerned, there was no stoppage from the state, and transportation continued throughout the pandemic. So that was one very positive thing which has happened. So exports continue. At Kajaria, we are doing, as you are aware, hardly [Technical Difficulty] of our production is exports. So Kajaria will be more or less a domestic focused market. But in one of the units, our JV units at Cosa, as we explained last time to all of you, we have put up one line for glaze vitrified which is only for exports.

Okay. Got it. Got it. So as we see that even Morbi players are planning to expand the capacity, so do you think that export and the domestic demand going ahead will be able to absorb the whole -- I mean the whole capacity will be addressed? Or do we see the pressure because of the demand issues again? So capacity is being increased everywhere. So how do you see that going ahead?

I would say a good question. Two things. One, all the expansions have been delayed by a minimum of 6 months, one; two, exports will further go up from India as anti-China sentiment, where lot of antidumping duties on China. Exports will continue to grow. And when it comes to the market to go to expand, right now, as you are all aware, 15 months of pandemic has a lot of damage to the country as an economy. But as markets come back to normal, be normal, the markets will grow, and the additional capacity should be absorbed in the domestic as well as export, I would say.

Okay. Okay. If I may ask one last question. Do we see any change in the product mix going ahead or more or less that product mix will be the same as in how it has been now? Any change in the products that we are seeing?

See, product mix will more or less be the same. I mean, any new product will come, it's a matter of time, but there's no major product change.

I think...

Yes. If you talk about Kajaria, our revenue mixes are 40% is ceramic tiles. For us, 32% is PVT, and 28% is GVT. As we discussed, we are expanding in all the 3 divisions, so I think more or less, our mix to be the same going forward as well.

Okay. Okay. Got it.

And in South, as we discussed, we are having the value-added tiles, the big size, so that will further included to our product portfolio.

Yes. Yes. That's the reason I was asking this question with the South, which we are expecting, if you are expecting any change in our product mix higher towards the value added...

We are going to continue making glazed vitrified tiles. But in that only we're going to introduce some bigger sizes. That's why our CapEx is high, and the overall volume is less. And sales realization will be much higher.

The next question is from the line of Sonali Salgaonkar from Jefferies India.

Congratulations on a great set of numbers. My first question is a little bit more broader bank. What is the key differences -- what are the key differences that you are experiencing right now between the first wave of COVID last year and the second wave? For example, last year, there was, as we understand, the complete shutdown on construction activities. But is it correct in understanding that this time many states allowed construction activities with on-site accommodation and a middle-limited labor, but the construction really did not stop as completely as it was in the last COVID wave? Is that right?

You're right. Construction is still going on. That is why in spite of a major lockdown, we still did about 35% in May, and some projects are still also going on. So yes, construction work is still going on, maybe in a slow mode, but yes, construction work is going up. See, another thing which happened, last pandemic, although there was a total lockdown, the dealers operated -- they're closed on the front and operated from the back door because there was less fear. This time, as you are all aware, it hit us very hard in April, May, June. The fear was so much that even when it was allowed, they said we will not open right now. We will open after a while. The dealer also didn't want to go to the shop and open. And secondly, they said there are no customers coming because the fear was very much. As it starts easing down, things are getting back to normal, as I said, and we are hoping to do 75% because things are getting back to normal. And unless the dealer opens, you can't sell. Everything was open. Transportation as open. Plants were allowed to open. But who do you sell? 90% or 95% of the dealer shops are closed in the local lockdowns, state lockdowns. So that was a scenario. This time that people really got scared because somebody or the other relations or the family members died, and COVID thing was so serious that people were very scared. Now they are trying to get off the ground.

Understand, sir. Sir, and what about the urban versus rural mix in the sense that last year, as we mentioned some time back, in the conversation that the rural was quite strong? But this time, as we understand the urban is expected to rebound back better. Is it correct?

I don't agree. I think metro will be whatever it was last year, Tier 1, 2, 3 will do better. It's a question of other few days. The moment life gets back to normal there, they will definitely perform because there is a lot of work happening in those areas.

Understand, sir. Sir, my second question is regarding the distribution. I mean the company has penetrated deeper across cities and down shifts over the past 2, 3 years. Could you help us understand what is your current distribution and how much of your sales are being contributed by exclusive dealership and where do you envisage that going, say, in the current 2, 3 years?

See, Kajaria has 1,700 dealers. Our vision was, which we have shared, I think, a couple of times to people, that to have a dealer in every Lok Sabha area, which is 542 . Right now, almost 150 Lok Sabha constituencies are still left out. And Kajaria has a vision in April '20 to get into it and have a dealer everywhere. That is -- that was only possible because of the introduction of GST on 1st of July 2017. Because of pandemic, this didn't work like that, but I'm sure that as soon as things become normal, Kajaria would like to have a dealer in every single Lok Sabha constituency across the country, which means another 150. But also, I would like to add, last year, in spite of pandemic, we have added about 200 plus dealers, which -- these are normal dealers, of course. Because when you get exclusive dealers, you have to get their showrooms done and all that just by your standards, which was literally not possible because of the movement of the people, display people and all that, even the dealer didn't want that. So once things get back to normal, I think this exclusive dealer process will continue further.

Understand. Sir, and what about the market share gains? I mean exports are still going strong, so we continue to be quite strong in the domestic front. But market share from the smaller, unbranded marginal players, are you continuing to see market share gains for the products of Kajaria all across the product mix? And lastly, what are our YTD price hike? So you mentioned 2.5% to 3% ceramic price hikes and about 10% Bathware price hikes since 1st of May. But year-to-date from Jan, what would be our cumulative price hikes across both the segment? That's it from my side.

Okay. That's too many questions at one time, so I try to answer. See, as far as the price hikes are concerned -- I go from the last [ 10 months. ] As price hikes are concerned, as gas prices went up, as I said, from January to the extent of about 20% -- 15% to 20%. We had to hike the prices, so we started out at first poly certified, then we did ceramic, and then we did GVT. And the APAC was 3%, 3% for ceramic and poly certified, and 2.5% for glazed vitrified. But here what has happened, just to tell you, the raw material prices of brass has gone up by close to about 30% -- sorry, close to about 50% in the last 1 year. We had 2 price hikes. First was on 1st of January, where we increased the prices by about 6% for this Sanitary fittings and now by another 10% from 1st of May. As far as Sanitaryware is concerned, we also had a price hike from 1st of May by about 6% because there are 2 things happened. One, the cost of transportation has gone up recently. And secondly, the cost of gas has gone up with Morbi. So these are the 2 factors, and the cost of paper has gone up. So these are the 3 factors which allowed us -- asked us to make sure that the cost goes up. And coming to market share, your point was that see the market didn't grew last year. It was probably a negative growth last year. We still did our same turnover, almost same turnover as last, INR 2,780 crores as compared to INR 2,800 crores. So yes, the market share is being improved gradually.

And we don't have the number of Q4 of all our organized shares, so we can't comment. See, every quarter, we have done gradually at least better than the last -- previous quarter. And in the fourth quarter, it is not year-on-year but sequentially, we have grown 10% -- 12%.

Right. Sir, so you are hopeful that the trend will continue.

Trend should continue barring this first 3 months where there is some uncertainties. So Mr. Kajaria also guided that we will be able to guide you only after the things settle down. By not giving guidance, that doesn't mean that we are not positive about.

The next question is from the line of Himesh from Sequent Investments.

Congratulations for the great set of numbers. So my question is what is the maximum turnover that you are expecting from the CapEx that we have planned.

You see, I give you one by one. Like this Gailpur expansion, we are spending about INR 60 crores. And we should be getting a turnover of roughly about INR 135 crores, INR 140 crores. As far as Malutana, we are expanding -- sorry, as far as Jaxx, we are expanding the capacity of 4.4 million square meters of poly vitrified tile and which should give a turnover of roughly about INR 160 crores, INR 165 crores, 175 crores. As far as Kalahasti, where we are expanding with a CapEx of INR 110 crores with a capacity of -- increase of 3.8 million square meters, that should give a turnover of about INR 200 crores. As Rishi said earlier, all are brownfield expansions.

Okay. Okay. And like how many -- like in the percentage terms, how many dealers are open as of today?

How many dealers we have? We have currently 1,700 dealers across India, out of which 1,500 are, you can see, operative dealers. On an average, I just said a few minutes back, we have added last year about 400 dealers. But at the same time, those will not perform, we also throw them out and/or ease them out, whatever word you can say. So we have already literally eased out about 150 dealers so. Net addition last year was only 50 dealers. As the economy opens up on an average now with the capacities we are talking about, we should add about 150 dealers a year.

[Operator Instructions] Next question is from the line of Rajesh Ravi from HDFC Securities.

Congrats on great set of numbers. If you could just throw some more light on the demand trends that you have seen in FY '21 both for domestic as well as export market.

See, I already said, I think this question has already been answered, but still for the sake of replying, I will reply. In '21 -- FY 2021, we all know that first 3 years was a washout. Then as situation grow every quarter sequentially, the number went up, sales number went up. First 3 months, it was supported by Tier 1, Tier 2, Tier 3. And after that, from 1st of October, the metros also joined in. The numbers, as you can see, has been better and better and better. In spite of 3-month lockdown, we could achieve a sale of INR 2,780 crores, which is only 2% less than what we did in '19, '20. Bottom line has been much, much stronger. So looking forward, I think we'll come back to the same. Demand will be very positive. Last year, it was a total lockdown. But this year, since a state wise lockdown was there and started around 15th or 20th of April, we don't see that kind of demand happening what happened in the first quarter last year.

Okay. I was talking more on front of the industry, what is your expectations of the demand number for the industry in FY '21, both domestic and export markets?

See, last year, if you look at it, the exports grew from close to about INR 9,000 crores to INR 11,000 crores. The domestic industry was down by close to about 20% because in Morbi, we are all aware, they do nothing work, and then they started gradually opening from July '20. So the local market was down about 20%, and exports grew there. This year, in the scenario exports, as I said earlier, will definitely grow, it should grow from another INR 11,000 crores to INR 13,000 crores, INR 14,000 crores, INR 15,000 crores because they are seriously working on it. And as far as the local is concerned, because of pandemic, it started off in April, continues to date, it's very difficult to assess what will be the scenario overall for the industry as a whole, too early. Second quarter, I would like to address all and say that second quarter will be more informative because, if you ask the same question, again, I won't have the answer because the simple reason that second quarter will be more informative.

Yes. Okay. Okay. And sir, on the CapEx which you look at the Gailpur project and the [indiscernible], what is the timeline you're looking at? Or all of these CapEx would be spent in FY '22? Or it will be split over to...

All the expansions will be completed in this financial year, number one.

Last quarter.

And last quarter of this financial year, number one. Number two, overall CapEx this year, we are looking at about INR 250 crores to INR 275 crores because some of the import payments go to next year. But all the expansions will definitely be completed by end of this year.

Okay. Great. So FY '23, the contribution will start kicking in from the expansion.

Yes. Yes. It will start happening.

Yes, absolutely.

Definitely. Definitely.

Yes. Yes. So your revenue growth target of like -- could remain in the higher side.

We have already said that.

The next question is from the line of Aadesh Mehta from Motilal Oswal.

Congratulations on a good set of numbers. Sir, just wanted to understand directionally, will we continue investing in new businesses like Plywood's? I'm seeing that there is some resolution to increase your capital allocation towards that kind of business. So just wanted to get some sense on that, sir.

See, Plywood last year will take a turnover of about 39 point some crores. And I would like -- Chetan is here. I would like him to talk about it.

Yes. So basically, in 2021, we did INR 39 crores of turnover in the Plywood segment. This way, we're targeting more than between INR 80 crores to INR 90 crores, reason being we're also adding laminate as a vertical outsourcing from Morbi. So the extra capital required is the working capital requirements are jumping the turnover from INR 40 crores to INR 85 crores, INR 90 crores. And going forward, we also see it increasing more. As the GST coming in, more unorganized players are getting squeezed, and the share of the organized sector is increasing rapidly. So yes, we've seen a very positive outlook going forward in this vertical.

The next question is from the line of Saurabh Jain from HSBC.

Most of my questions have been answered. Again, I wanted some clarity on the CapEx front. Like you announced this CapEx for FY '22. Does the management already have a midterm plan in their mind where more of new announcement on the capacity side for, say, in FY '23 or FY '24?

No, no, at this stage, no. Let this be done. Let me come back. You see, we have to grow every year, right, in volume terms. Same question probably you asked me at the end of the second quarter or third quarter, that's how you are going, Mr. Kajaria. So as we process things, as the market opens up or, as you said, pandemic is still on, so we will plan everything for '23 -- '22, '23 at the end of the second quarter or third quarter. And you'll appreciate there's already a bold move. What we are doing is 3 expansions, it's already a very bold move because we are very positive and very confident that, yes, we are able to absorb this production. And we have a very positive outlook towards it. So as the time progresses, in future, when we need to, we'll expand more after these concludes. But I think our first target is to get this all completed in this financial year.

Sure. Yes. Definitely we will appreciate the CapEx plans. And secondly, taking from previous participant, what we would want to understand is that you highlighted 90% of the dealerships were closed during the month of May. How much of these are already back in the market now? And how has been the response from these dealership that have opened? Are they just stocking up the products very aggressively? Or is it only a slow kind of a response from the dealers that have reopened now?

It's -- wherever the economy is opening up, it's a very positive response. Let me give you a data where things have not opened up. One is Tamil Nadu, Kerala, where once a week they are operating. Karnataka, they have started working only from today till 2 o' clock. Then Andhra and then Maharashtra, which is totally opening up, these sites still locked -- lockdown. They will open only from 18. And West Bengal, it is slowly opening up. Other than that, you can say most of the sales have already opened, maybe for limited hours, things have started moving well. I already made a statement in my earlier remarks that we are looking at a scenario where Kajaria should bring 75% of the target. And July, we are looking at a near-normal scenario as the economy opens up.

Sorry, July, what you're looking at?

Near normal. Near normal.

Near normal, okay. Okay. Understood. And one more question, how much was your advertising spend for FY '21? And what would be your expectation in FY '22?

So last year, let me tell you about '19, '20 also, we spent close to INR 90 crores. In FY 2021, because of pandemic, we really cut it down, and we spent about INR 46 crores total. This year, we are looking at a scenario where we could spend about INR 70 crores.

INR 70 crores.

Yes.

Okay. And how much would have been your increase in your freight and forwarding costs and other admin expenses?

That we don't do freight. We pay freight on raw materials. But as things -- you see, you can't generalize, just make one statement. We're all seeing that the prices of freight is going up every day. It started at INR 60 diesel. Today, it is at INR 100 in 9 months or 10 months. How can you calculate that toady, tell me? So as all this impact happens, as I said earlier, 3 major impacts are there: one is the gas price; second is the paper price, which has gone up; and third is internal freight on raw materials. On external, we pay extra freight. So the freight is to the dealer. As the scenario changes -- happening, we will work on the prices. So it's very difficult to quantify at this stage what will be the freight, what will be this, very difficult.

Okay, sir. Understood. One macro question, if I would be allowed to ask. What is your... so what could be your sense of what -- where the industry is really heading towards? Because we are seeing the prices are getting increased and is also being absorbed by the end consumer. So is the industry in this crisis time moving more towards extensive products and more of value-added products as the bank propensity or propensity to spend has really increased?

Let me give you a few -- and you will have the answer yourself. Steel prices May '20 to May '21 has gone up by 50% to 100%. Nonferrous metals from May '20 to May '21 has gone up by 50% to 70%. Plastic has gone up from 50% to 70% in money. Paper prices have gone up from 50% to 100%. All the industries are doing well. [Technical Difficulty] the pricing gone up by 2.5% to 3%, maybe another 3%, 4%, 5%. We are thinking can we -- can the market has dropped. The market absorption prices of 50% to 100%, the market has dropped with ferrous prices, how can you say that 2.5%, 3% is a much price. I'm not able to understand. All costs are going up everywhere in the country. As the situation demands , the prices have to go up, simple.

Yes. That is why I was asking because the cost of constructing a house is now escalating a lot. So would there be a breaking point wherein there's demand...

We don't have to say anything. I have given you all the answers. You have all the answers. Cement prices have gone up by 50% in 1 year.

Yes. Sure. All the best for the future quarters.

The next question is from the line of Rahul Agarwal from Incred Capital.

Congratulations for a good result. I joined the call about 30 minutes late, so please pardon me if the question is repetitive. My first question was on the CapEx side. So if the overall CapEx of INR 250 crores for a 12.4 million square meter capacity, just wanted to know the CapEx per plant defers on 1 million square meter unit basis, if I look at amounts in...

We have already give the detail in our presentation. You can check that.

Yes, Rahul don't miss that. All the 3 plants are making different products, as said by Rishi earlier. Ceramic tile have a different CapEx. Poly certified have a different CapEx. And glazed vitrified tile have a different CapEx. And in this case of glazed vitrified tiles, we are moving towards bigger products, which are more value-added. So looking at that, this is how the CapEx is planned. They will both club the CapEx and the value and then divide, you will have your own answers.

Perfect. Perfect. That's what I was wondering, sir. Thank you so much for the clarification. And one thing was when I look at the CapEx, is it also including land cost here in any of these plants?

No land cost.

They are all brownfield expansion.

They are all brownfield expansions. As you joined late, no issue. But they are all brownfield expansions.

Okay. Perfect. And just one last question on the gas pricing side. So just wanted to know if you could throw light. Last quarter, you discussed this, that the gas pricing you have at different plants have long-term and short-term both. But broadly speaking, is the volume predecided and the pricing changes quarterly? Is that how it works?

No, no, no, my dear. You are aware, gas prices are -- you see, as far as GAIL is concerned, gas prices are determined every month. As far as Morbi are concerned, they decide the price as and when they like, which is affecting all the people. And that is nothing in our hands. We have things in quantities, but pricing is not in our hands.

Okay. So the quantities are predecided as per plant basis, is it?

Yes, yes. They are flexible. We are flexible. But prices every 1st of the month, they decide based on the various factors of Brent and all that.

The next question is from the line of Jigar Shah from ICICI Securities.

Congratulations for the good set of numbers. My question was more to do with Plywood and Laminate. So I wanted to understand the rationale behind entering the Laminate segment before we are breakeven in Plywood and reaching at some particular levels. So would you like to highlight whether it will be complementary to our Plywood sales or it will give us more revenue in Wood Panel segment? How do we look at that?

Chetan, will you answer that?

Okay. Yes, please. So basically, laminate is a complementary product, and they're outsourcing this from Morbi with 0 CapEx. Also, the gross margins in laminate will be much higher than Plywood, and this would additionally add to our top line and bottom line and help us increase the turnover and the breakeven much faster. Also, this is a INR 6,000 crores market. INR 4,500 crores is domestic, INR 1,500 crores is exports. Or the INR 4,500 crores domestic market, INR 1,500 crores is unorganized. So there is not a scope to grow in this vertical especially with the GST coming in. And the cash which is unorganized there has been tightened up. There is a lot of scope for new players to get more market share in this vertical, which is again part of the wood paneling industry, Plywood, Laminates, and MBS.

So are we expecting breakeven in Plywood this year?

No. This -- last year, we had a loss of INR 10 crores in the Plywood division. This year, we should come down to around INR 5 crores, INR 5.5 crores. And next year, which is '22, '23, we'll start making money, a little bit breakeven/making a little bit of money next year.

Right. Right. And my next question would be the increasing capacity across the industry, all the top players are increasing the capacity.

I have already answered that point. I have already answered that point to one of the earlier speakers.

Next question is a follow-up from the line of Achal Lohade from JM Financial.

Just one question in terms of the working capital. So how do we see -- I mean we have done a great commendable job on the working capital. Do we see this stabilizing here? Or is there further scope to reduce? And is there any element of channel financing for us? Or are you seeing channel financing equivalent in the industry now?

First of all, we have no channel financing, number one. Number two, if you look at March '20, it was 73 days, December '20, it was 55 days. And now it's at 50 days. I think it will vary between 50 to 55 days. Sometimes when a couple of time is there like in pandemic, this time, it will go up at the end of June because some stocks going up. But normal quarter working it will be between 50 to 55 days.

Understood. Understood. And with respect to cost reductions, you did highlight about the A&P. But what kind of cost reductions did we see in FY '21 put together, all excluding A&P, what is the extent of cost reductions we have seen in like travel -- traveling and conventions, et cetera? How much of that you think is more permanent or how much would come back?

See, cost reduction will be there. 2, 3 things are going to happen. Once we -- as we are saying, that will increase our turnover by 15%, 20%, 25%, what about the volume growth. The manpower cost will not go up. In this sense, proportionate will not go up. Some increase on cost will be there in manpower. Manpower cost say not go up.

Headcount will not go up.

Yes. Headcount will not go up.

The increase will be due to increments only.

Yes, number one. Number two, as we said just now a few minutes back that '19-'20, it was INR 90 crores. The year which went by was INR 46 crores. This year looking at INR 70 crores. Third, traveling will also come down. Traveling will also come down because now most of the business is being done by phone. And with the pandemic still there, here and there, people are afraid of traveling themselves. So traveling overall in 2021 had come down drastically this year. Also, I feel that it will not go up much because people would like to -- even the dealers are -- or our people are used to getting over phone or Zoom whatever it is, so the traveling costs will also come down. And I think by and large, with this we are working on...

I think, yes, all fronts, yes.

Understood. And just 1 more question, sir, with respect to the gas cost. You did highlight that fourth quarter, it's about INR 32 for our plants outside Gujarat. What is it already now as we speak in the month of June?

Same, INR 32. April, May, June, it is around INR 32.

And given the current crude price, how much do you think it will go up at the current crude, assuming current crude price?

At current crude also, it will be INR 32. I'll tell you why. Current crude is not going to change much difference, but unfortunately, what has happened, a lot of gas capacity abroad has been shut down because of the lower volumes earlier. So that -- the spot gas prices have also gone up very high. That was about $6, $7 about 6 months back. It has gone up close to about $8.5 to $9. So that will probably impact, but we don't know at this stage today. It's early. Brent is not making much difference right now. Brent, taken into account at $70.

Understood, sir. And just one more question, sir, if I may. With respect to -- if I -- this is more from longer term and not really, I'm looking at the current year, sir. Given the way the capacity additions are happening in Morbi or otherwise, and the kind of demand improvement we are looking at, is it fair to say that we are -- the pricing behavior or ability to take -- pass on the cost inflation is much higher this time around compared to, say, 2, 3, 5 years ago? Would that be a fair assessment?

Yes. Yes. Yes. It is fair assessment. Why? Because earlier, the gas prices in Morbi were not moving. Now they're higher because of single reason that GSPC is buying a lot of spot gas, spot gas prices go up. Their gas prices will go up for the Morbi players. And earlier, they were full, they were all full. If you look back 2 years back, they weren't full, so it was a different story. Now everybody is on gas, whether it's Morbi or Kajaria or anybody, we are -- so many all are on gas. So the moment where prices go up, they will also increase prices, so will we. So that flexibility has come now, which was not there before 2 years.

Understood. And sir, just last question, again, in terms of the demand...

Yes, I have to go also. Please, I have a lot of meetings, so I think we have enough discussions. Let's have the last question from another -- someone else. Yes. Please, if you don't mind.

We take the last question from the line of Aasim Bharde from DAM Capital Advisors.

So just wanted to understand that would Morbi as your hubs continue to largely focus on exports? Or would they also want to target the domestic market? Because I would assume margins in the domestic market will be higher for Morbi as well. And if they do want to have a mix of domestic exports, if Morbi wants to have a mix of domestic and exports, how do you expect ground level dealers to react? Would they look to Morbi as well or would they speak with larger brands? So I presume Morbi's balance sheets have strengthened over FY '21, and perhaps they can be more competitive in the domestic market. So what -- any sense how dealers would react, that would be great.

See, as far as your question is concerned, let me be very honest. Morbi is catering to exports and also domestic. You can literally say, as of now, literally 40% to 50% is for exports and 40% to 50% continues to be in the domestic market. It will also be like that in future. Whatever capacities are being added on, let us say 50% will go to exports, and 50% will be catering to the domestic market. See, there are certain areas, even if we want an organized manufacturer like Kajaria or Somany, Johnson, we cannot reach -- we are able to reach whatever the reason may be because of cheaper or whatever it is. So looking at that that balance will always be there. And also, that keeps us on our toes.

Okay. So I mean on the dealer level front, there would still be -- there's -- even at the current juncture, there is a healthy mix of Morbi and the organized players, and that balance will still continue going forward.

Yes, yes. But secondly, what we at Kajaria are doing, we are trying to get more exclusive dealers in the last 2 to 3 years that process started. Because of pandemic it slowed down, the moment this thing utilizes to a certain extent, we'll have more exclusive stores. Like out of 1,700 dealers, I said 1,500 are operative. Out of that, about 300 to 350 are exclusive Kajaria showrooms, which in 3 years, we would like to take it to 600. That's the vision of Kajaria.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for closing comments. Over to you, sir.

Thank you very much for organizing this conference. I want to thank you all the people who are there today, listened to us with a lot of patience, gave us an opportunity to talk about Kajaria. I thank each and every one of the investor who is there today on behalf of myself, Chetan and Rishi. And I thank you all.

Thank you.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, on behalf of UBS Securities, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.