Kajaria Ceramics Limited (500233) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kajaria Ceramics Limited Q1 FY '22 Conference Call, hosted by Investec India. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ritesh Shah, Head, Mid-Market Coverage and ESG. Thank you, and over to you.

Thanks, Stanford. Welcome all to Kajaria Ceramics Q1 FY '22 Conference Call. We have with us the entire management team, including Sri Ashok Kajaria, Chairman and Managing Director; Along with them, we have Sri Chetan Kajaria and Sri Rishi Kajaria, Joint Managing Directors. Also, we have Sri Sanjeev Agarwal, our CFO of the company. I'll request Mr. Kajaria for initial remarks, post which we will open the session for Q&A. Over to you, Ashok Ji.

Thank you. Good evening, everyone. It gives me great pleasure to welcome all of you to the quarter 1 F'22 earnings call of Kajaria Ceramics Limited. We sincerely hope that you and your family are safe and healthy. I have with me my sons, Chetan and Rishi, Sanjeev, our CFO; and Pallavi Bhalla looking after Investor Relations on this con call. Our nation has been quite adversely hit by the second wave of COVID, and our priority has always been and will always be the safety of all our stakeholders, particularly our employees. We pray for their safety and good health of each individual and hope that our country and the entire world are able to beat the pandemic very soon. The offtake of tiles tapered off in quarter 1 FY'22 due to the ongoing second wave. After witnessing a decent up rail till 20th of April, May was largely impacted due to lockdowns, witnessed in several parts of the country. This time, the lockdown was not nationwide, it was statewide, as we are aware. However, with the gradual unlocking happening, post May, June was better than May, and July has witnessed significant traction compared to June. I'm happy to report that in July, we have met our sales target to the 100%. Our plants have operated at an average capacity utilization of 75% during the quarter of April, June, and sales have been to the extent of about 66%. We expect quarter to be much better, much, much better than quarter 1 with expectations of faster unlocking across all parts of India. As of today, what the market indications are except Kerala, most of India has come back to normal. We continue to believe in a long-term growth story of India as the government's focus on infrastructure spending, including investment in roads, railways, ports and low-cost housing. For Kajaria, the positive momentum is further accelerated with an upgrade in India's GDP expectations and a strong recovery of the domestic infrastructure and real estate sectors, driven by pent-up demand and resurgence of activity in metro and urban areas. Despite COVID restrictions and lockdowns continuing in several states, our business once again has shown resilience and successfully delivered satisfactory performance. In quarter 1 F'22, consolidated revenue from operations increased by 102% year-on-year to INR 562 crores from INR 278 crores in quarter 1 F'21. The increase is mainly due to lower base as of June 2020 quarter, which was severely hit by the COVID-19 and a national lockdown led disruptions. Revenue from Bathware sector grew from INR 17 crores to INR 37 crores in quarter 1. Revenue from Plywood segment grew from INR 2 crores to INR 5 crores in quarter 1. Absolute EBITDA margins, operating margin increased to INR 80.42 crores as compared to a loss of INR 7.57 crores in quarter 1 FY'21. The EBITDA margin for the quarter stood at 14.32% as compared to minus 2.73% in the corresponding quarter of the previous year. Consolidated PAT in quarter has increased to INR 43 crores -- INR 43.06 crores as against a loss of INR 27.10 crores in quarter 1 '21. Working capital days end on June 30, '21 have gone up mainly due to lower sales and higher production and lower sales in quarter 1. For the year 2021 -- for the year '21, '22, if the current situation is maintained in the country related to pandemic, we are looking at 15% to 16% volume growth for the full year and approximately 20% revenue growth for the full year. With this, I take this opportunity of thanking you for joining us today. Over to you for Q&A, please. Thank you.

[Operator Instructions] The first question is from the line of Sonali Salgaonkar from Jefferies India.

Sir, my first question is about margins. So if you could share what is the quantum of price hikes on a YTD basis and also in Q1 that we have taken in both tile and Bathware for passing on the rising cost? And secondly, how should we look at margins from here on going forward? So what is the band of margins that we should look at in FY '20?

Two things, should have asked -- I answer the first question first. As far as the price increases is -- first of all, the gas prices have gone through the roof. The gas prices have really went up. For the last quarter of 2021, the gas prices were around INR 28 per SCM. Today, this is mainly for our Gailpur and Sikandrabad plants. As of today, the gas prices have gone up to INR 35 per SCM for these 2 plants, number one. Number two, we have taken a small price hike in the month of April for about 1% and 1.5% on all the divisions, and we have taken another 3% price hike for all the dividends on first of July. And that's why I said when I said we are looking at a volume growth of 15% to 16% and revenue growth of 20%. So it basically covers that part. As far as the margins for the year is concerned, I don't think it will be appropriate at this time because, as we all know, first quarter was affected due to pandemic. Actual indications will come at the end of the second quarter. So at this stage, it will not be prudent for me to answer what will be the margin would be, but I'm sure that with the economy coming back to normal, second quarter will give us a better picture of what the margins would look like.

Got it, sir. Sir, and secondly, on the current situation, you mentioned that July, you were able to achieve your internal sales targets. But what about the inventory levels both in the channel? And also if you could give us any flavor of rural versus urban in terms of demand?

See 2 things happened in July, we have produced at 95% of our capacity and outsourcing, both included, and we have sold that 100%. So inventory will gradually come down by end of September, I think the inventory will be more or less normal. That's one. As far as rule is concerned, we are all aware, this pandemic hit the Tier 1, Tier 2, Tier 3 very hard in the month of May. But what happened, after having hit in May, second half of May things improve because their immunity is better than what we have at Delhi and Bombay. And the entire May wasn't the lockdown at various states, so it didn't have much impact because the sales were as it is very low. So basically, they have come back to normal from the month of June. And right now, they are at full steam what they were before.

Got it. Sir, and my last question, anything about the CapEx you would like to highlight in terms of CapEx outlay? And sir, also, just 1 clarification this 3% price hike that you mentioned for all divisions, does it include only ceramics -- only tiles or Bathware as well?

I may have missed out. It only talks about tiles. Bathware we have taken 2 hikes. One was in the month of the December, where we increased our prices by 5%. Because the brass prices -- there are 2 divisions in Bathware. One is Sanitaryware, 1 is Sanitary fittings. Sanitary fittings, the basic raw material is brass as we are aware. We took 2 price hikes. One was 5% in the month of December and another 10% on first of May because the brass prices have gone up from INR 320 in May last year to INR 480 now. The prices have gone up by 50%. In Sanitaryware, we have taken a price hike of approximately 7% in the last 6 months because the gas prices have gone up, Sanitaryware is -- the plant is in Morbi, where the gas has an impact on the cost structure.

Got it. And then the CapEx?

CapEx. CapEx, we are doing 3 CapExes. And I think roughly, it is -- how much it is costing?

INR 250 crore.

INR 250 crores, it will cost, 3 CapExes, all our brownfield expansion, Sonali, and they will all be in place in the first -- in the last quarter of FY'22.

The next question is from the line of Achal from JM Financial. Achal from JM Financial, your line is unmuted.

Sorry. My first question is, if you could help us in terms of the average gas cost for us in the first quarter of FY '22, you did point out the gas. But broadly, what would have been the cost for us in UP out plants for 1Q FY '22?

You see we have many plants, as you know. The Morbi prices, you are aware because they have changed. Last one wan on, I think, first of April, or first of May. For our 2 plants, Gailpur and Sikandrabad, the average gas price for the first quarter was around INR 31.5 to INR 32 per SCM.

And what would that have been in the fourth quarter, sir?

It has, again, gone up steeply to INR 35 on first of July.

Okay. And what would that be in fourth quarter, sir.

I won't know. Fourth quarter. Sorry, fourth quarter was about INR 28.5 average.

Sorry, I couldn't follow that number. Could you please repeat that one?

The fourth quarter was INR 28.5 average.

INR 28.5. Okay, okay. Understood. And in terms of the -- in the last quarter, you did talk about the cost savings. Just sort of taking, if you could give any flavor as to what kind of cost reductions are we looking at in FY '22 as a whole? And how much of that is realized in first quarter?

There is no such one as cost reduction. What we are -- you see, 2 things we are going to act upon. One, we are looking at a volume growth of 15% to 16% for the full year. In spite of the pandemic in quarter 1, we are looking at 15% to 16% volume growth, number one. Two, our -- whatever is our headcount is on first of April. The headcount will not increase for the next 3 years, in spite of the growth we are looking at -- Kajaria is looking at a volume growth of 15% plus every year for the next 3 years. But I can only tell you that the head count in Kajaria will not increase for the next 3 years. Whatever we have on first of April will remain the same. So that's what we are looking at. Other than that, there is no cost cut. We had no incremental salary in the year '19/'20. 2021 we cut salary for the first 6 months. We have increased the salary of ours -- all the people across the board on first of April this year.

Right. And what about the A&P part? Sir, what kind of spending are we looking at? We have talked about INR 70 crores for FY '22. Are we looking at the same number? Or is there any change in that?

No. You see, right, last year, we spent close to INR 46 point somewhat crores, INR 46 crores last year. We will definitely like to spend more. But as the things -- you see, first quarter because of pandemic, everything got slowed down. As the economy picks up, we'll definitely like to spend more. For a simple reason, this is what you spend today gives you a result next year onwards. It's not that the same year results come. So it's basically a brand building. Exact amount, we will see as we go along because things improve, we will like to spend more.

Fair point. And just last question, if I may, sir. You have talked about a 3% price increase from July. Does that cover the entire fuel cost inflation for us or the gas cost inflation? Or is there any more price increase required to offset the same.

See, 2 things have increased. Let me very honest about it. On 15th of March, the cost of boxes increase, substantial increase of cost, which has never happened in the history of the last 32 years. Partly as it rolled back on first of July, but that's 1 cost; and secondly, the cost of gas. I won't say that fully, we have recovered. But as we go along, we will see how we can -- see 2 things we are trying to do. How to optimize the plant production also it is happening because there is no other way than optimize the plant production and which we are trying to do. As the market opens up, we try to increase production also if possible. And partly, we increase the prices, which we have already done on first of July. Exact things you will get to know as we go along because gas prices are very [ retik ] right now, as we all know. You are monitoring a lot of other companies. It's happening. The gas is just not available in the international market. China is lapping up all the gas as I understand from rail. So as the situation develops, we will see. Because not necessary that we pass on the entire benefit at 1 go because of the market situation. We have to see how the market behaves and then we take that call.

And is that the reason why you are kind of refraining from giving the margin guidance, the fuel cost is the main reason or because we are talking about the kind of volume growth.

Well cost is only 1 thing. You have to understand 1 thing. April, May, June, everybody has suffered because of pandemic. Now July as I said, been able to do 100% of sales. Let us work out at least for the have that patients are let us have that we work in July, August, September and give you very fair ideas how the year is going to look like because July, August, September will only tell you how the year will look like. It's too early to talk, to be very honest. If you agree with me.

There are many moving parts like we have taken a price increase. So we have to see the sustainability. And there is a possibility that there could be a further hike. Suppose the Morbi is planning to take a hike of the fuel price. So that will depend on that. And we -- as Mr. Kajaria said, that there was a reduction in paper price. So if the more reduction comes, that will also impact positively on the margin, higher capacity utilization will give operating leverage. So it will be a combination of 2, 3 factors, so which will be over by this quarter end. So we'll be in a clearer position to guide. We ourselves don't know what will be the margin is going to be going forward.

The next question is from the line of Madhav Marda from FIL.

I just wanted to understand a couple of things for you. Firstly, on the Morbi side, what is the demand supply situation currently? And how is the export momentum proceeding? Just to understand how the impact is on the domestic demand side?

So this is Chetan here. On the Morbi side. They are exporting a lot. Exports have substantially increased. Also the expansion have been delayed due to the pandemic and the COVID, that's been delayed by another 6 months and exports have substantially increased. That's the current situation out there.

And what would your best guess be in terms of the capacity utilization at Morbi right now? Maybe for July or -- I understand [indiscernible] is on the rise.

Yes, they are definitely making more than 80%, 85% of the production. But 80% ,85% of the production is capacity -- of the capacity.

Okay. Understood. And second question was, Kajaria has a very strong balance sheet, and we'll have very good cash generation even in the next 2 to 3 years. What are we planning to do with the cash? Are we planning to like increase the payout ratio at some point? Because even if we grow at 15%, I don't think we require that much of CapEx, right, going ahead?

You are right. We have a lot of cash balance on the balance sheet. And every year, we'll be accumulating more cash. You may have -- may not remember, last time, we have revised our dividend policy. So rather than paying 15%, 20% in the earlier policy, now the revised policy, the defined the payout ratio to between 40% to 50%. So last year, we paid more than 50% dividend, which has [indiscernible] money will go in the dividend payout. And some money...

I missed the number, how much, sir? 40% payout ratio, was it?

40% to 50%.

40% to 50%. Okay.

The next question is from the line of Ritesh Shah from Investec.

Sir, first, I just wanted to carry Madhav's question. Sir, is it possible to quantify the monthly export numbers? Earlier, you had indicated that the number could increase from INR 11,000 crores to INR 30,000 crores on an annualized basis. Some sense over here. And if you could put that in context with how the container issues are actually playing out? Is it helping the Indian ceramic industry, specifically looking at the differential in freight charges from India to East and West Coast, U.S. versus China to U.S.? Can you help put these 2 variables in context, please?

I will answer that point. You see last year, the industry size was close to INR 30,000 crores, INR 20,000 crores was domestic and INR 10,000 crores was exports. In spite of the pandemic, when all plants were closed in Morbi for the first 3 months of 2021 against INR 7,700 crores of exports in '19/'20, they were able to export of INR 10,000 crores. So their focus is very much on exports because India is the second most competitive producer after China. This year, we are looking at a size, the industry per say will not grow in domestic market. The domestic market, we are looking at a scenario, again, because of pandemic should be around INR 18,000 crores. the exports will grow at INR 12,000 crores plus because there is a lot of focus on exports. And the new plants, although they have been delayed, otherwise, they were targeting for a much better export. So looking at that scenario. Fortunately, when you talk about the container rates in India, still the container freights are lower. Like I'll give you an example for Saudi Arabia. We have a lot of -- in spite of antidumping duty by Saudi Arabia to India. A lot of exports are going to Saudi Arabia. The freight from Morbi to Saudi Arabia for a 20-foot container is about $1,100. The freight from Schengen in China to Saudi Arabia is $4,000. So that is a difference. So India has become, from that point of view, also has very competitive there. When I say the American market, the freight was $4,000 of freight rates from China to East Coast of America is about $6,000, $6,500. So we are in exports, very, very competitive Indians. So exports, per se, will grow, that is also putting a lot of less pressure on the organized players. They are less in the market. And once you lose out on the customer, it's not easy to take it back. Like today, if you ask me to start exporting much, I can't do it because they have already had their customer base. Similarly, I have a domestic-based customer base here. So money is about domestic. We have an edge there. That's a difference.

Sir, just to take this forward, given the freight differential is so much, is the export pricing different for different regions? Like are the Indian companies pricing their cargo at a higher price, taking benefit of this short-term phenomenon? And what would it mean to profitability on exports versus local sales?

Say it again, please.

Sir, given there is a differential in freight cost or container tariffs, from China to U.S. versus India to U.S. or Morbi to Saudi or China to Saudi what you indicated, $1,100 versus $4,000. Does it mean that the Indian companies are pricing their end product at a higher price as compared to China or at par? Or is it that the Chinese mills are taking a hit on the cost?

This is the unfortunate part of Gujarat, they don't know how to take the prices. Today, they have an advantage of container takes about 1,100 square meters of vitrified tiles. The difference is close to about $2.5, at least $1.5 they could have kept for themselves, which they are not keeping. They are still fighting on a cut through pricing, that's all problem. But the markets have opened up like anything for them. That's a difference.

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

Three quick questions. Sir, firstly, on the secular demand turnaround you're seeing from July. I just wanted to ask you from your dealer feedback. Is it possible to understand where the demand essentially coming from? If we have to bifurcate between end customer usage, let's say, residential, commercial, real estate or industrial CapEx, something like that. Could you add some color on this, please?

So basically, demand is coming overall. There is no such specific clarification or demarcation between the residential and the industrial, but mainly Kajaria is a more retail focused company. Our 70%, 35% mix is retail remaining is projects. So we are seeing an upsurge in the residential demand more basically right now. And a very cautious from the [indiscernible] segment because of the credit policy.

Kajaria, especially from the work-from-home concept, I think people are renovating their homes a lot. So we're getting a lot of primary demand from the residential sector.

Correct. Correct.

Got it, sir. Secondly, on the channel inventory, obviously, there is some kind of inventory buildup which happened for Kajaria. Is it normalized in July? And how does the channel inventory look like?

No, the dealer have less stocks because they have not bought much. You are forgetting they have not bought much. Kajaria's inventory is at the higher side because we produce 75% and sold 66%. It will not just go away in July. By end of September, it will come back to normal. In spite of the fact that plants will be producing at 95% to 100%.

Got it. Sir, at dealer level, sir, what would be the inventory like? Is it possible to quantify that?

No, they are keeping lesser inventory. You see what has happened, the credit flow to the customer, they have reduced drastically since April last year. And as a result, they are keeping lesser inventory for themselves. They are paying us much better, and that's why you see these numbers of -- even you asked this question to Mr. Sanjeev Agarwal, your cash has gone up because the money is coming faster. And they are also not giving much credit, neither we are giving much credit to the dealers.

Got it, sir. And lastly, you gave a guidance of 20% on the value terms in terms of growth this year. Could you help understand something on the Sanitary and Plywood overall, last year, you did INR 250 crores. Any guidance on that, please? That's my last question.

Ply will -- let's Chetan talk, Ply?

So we did a tender of INR 39 crores in Plywood last year, and our target this year is INR 80 crore top line. This will also be helped by the introduction of laminates, which we have launched in the last week of July. So the sales of laminate should start coming in from August onwards. From INR 39 crores, you're looking at doubling it to INR 80 crores in this financial year in Plywood.

In Bathware and Sanitaryware, we are looking at we did INR 200 crores last year. We are looking at a 50% jump there. We are looking at crossing INR 300 crores this year in Sanitaryware, the Kajaria Bathware division.

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

Most of the questions are answered. Just 2 questions from my end. What Morbi gas prices today versus our own in-house gas prices. For our own plant, you said it is around INR 32, and it has increased to INR 35. What would it be for Morbi? And second question related to it, is -- has Morbi plays also part on the entire cost increase and what is the competitive scenario in the domestic market as of now?

Morbi gas prices are currently at about INR 35.

INR 36.

INR 36. Ours is about INR 35 plus -- close to that. As far as the passing of prices are concerned, Morbi also increased prices. But as I said earlier, Morbi is more focus on exports. And other bigger players like Somany, Johnson, Asian Granito, they have already increased some prices because the cost has gone up for everybody.

So you mean the pricing gap between Morbi or your any other top-branded players would be largely the same as of now, and there is no change in the competitive intensity by those players?

Yes, yes, yes. I would say this.

The next question is from the line of Rajesh Ravi from HDFC Securities.

I have 3 questions. First, if you could share the product mix, revenue mix between Ceramics, PVT and GVT for financial year '21?

For '21, it is -- ceramics is about 40%. Polished vitrified is about 29% and GVT, glazed vitrified is about 31%.

Okay. And sir, if I see the quarterly realization trend for this quarter sequence on a Q-on-Q basis, I am seeing these numbers all about 3, your own manufacturing JVs and also all of them have come off sequentially. Could you explain this?

what?

Sir, moderated Q-on-Q realization?

Realization is not moderated. Imagine that realization has gone up for -- or same. Like first quarter, the realization of ceramics have slightly gone up, but -- basically maintain the same for 2 reasons. It is not 1 product that tells you what is realization is going. It is a product mix. I said 2 things earlier. One, that sometime around first week of April, we have taken a price hike of 1% to 1.5% for all products. And secondly, on first of July, we have taken 3%, that may tail. But sometimes, it also depends on what products you are making and what is the end realization coming.

Right, right. And on the JVT, how is the pricing trend, sir? Has it already bottomed out, and you are seeing a positive traction in terms of [indiscernible].

We have already taken a price hike, which is an indication that all that is right.

Yes. So it is across all the 3 product categories that been able to take similar increase.

All the 3 product.

Okay. And on the -- you mentioned that this year, domestic -- total market price could remain flattish at INR 30,000 crores. And domestic, you're looking at 10% dip, right, from INR 20,000 crores to INR 18,000.

As of now, that's a scenario.

Yes. So in that other scenario, a 15% volume growth...

Could be better, both domestic and exports also.

Sorry?

As of today, the situation looks like that domestic will be around INR 18,000 crores and exports will be INR 12,000 crores. If the situation becomes better, both numbers can change.

Right. No, no, I'm saying in this context of the remained flattish or decline of 14%, 15% growth outlook that you're targeting and this I would include even you're looking for other national players. So how would that pan out? Are you -- which sort of companies are looking to lose market share?

See, it is happening already. It is happening already. GST has played an important role there. See, if you remember, before the GST came in, the tax structure was close to about 28% to 31%. It was a central sale tax, and it was a state tax and it was an excise. The combination was 28% to 31%. Today, GST has come to 18% as far as the industry is concerned, and the net impact of GST because you get some odd way, the net impact of GST is close to 13%. Now there's a very simple thing. If somebody wants to play around, it has cost also -- the gap has minimized. So what has happened, the organized players have taken a bigger market -- will take a bigger market share and already started taking a bigger market share, number one. Secondly, when you talk about industry, you forget the dealers who have made showrooms in the last 2 years are also taking a bigger market share than the smaller players. Earlier, the people used to go to the smaller player, they used to say, go and take a picture out there, and I will give you cheaper. That thing is over. Now you are going, you are seeing a product, you are seeing how to display it and you take a decision in 10 minutes that I want to buy this kind of a product, whether it's a ceramic tile or polished vitrified tile or glazed vitrified tiles. So that change has happened. So ultimately, what will happen, 2 things will happen. In the trade who have made bigger showrooms, they will have a bigger sale and they will have a bigger share of the market. Secondly, those who have made -- who are in part of GST will have a bigger -- we will take over some of the market share because that's what we have spent a lot of money in making the showrooms in the last 4 years since GST has come.

Okay. So it's more about the distribution -- stronger distribution, which is helping you gain market share.

Absolutely.

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

Firstly, on the growth guidance, just to clarify, so the guidance of 15%, 16% volume growth for FY '22, is it for the rest of the year or for the entire FY '22?

Full year, sir. Full year 15 % to 16% volume growth. Full year 20% value growth, close to that.

Okay. Okay. Okay, because that sort of implies a 5% growth only for the remainder of the year. So considering the expectation of pent up demand and...

I can only give you a picture for the whole year. What it implies, I don't know. What I can tell you is that this is the scenario we are looking at.

Got it. Got it. Second, on the, again, clarity on price hikes and also the gas prices. So considering the current gas price scenario, which you had commented earlier, how much is the quantum of price hike required to maintain margins roughly?

See, you are getting confused. I said 2 things. One, cost of packing boxes have gone up on 15th of March, gas prices have gone up also in the last 6 months. We have taken this price hike. It's not in our hands to absolutely calculate to the pie that how much price hike I have to do. It all depends on market conditions, number one. Number two, as the market progresses. We are always forgetting 1 thing. We have just passed to a very severe pandemic number 2. Nobody talks about it. So you expect me to do miracles, I'm sorry, I cannot. As the situation develops, I also said that July has been more than normal, we have done 100% of sales as situation development, we will take that call. Not possible to quantify how much has taken place, how much cost has gone up and how much we have to do. It all depends on market conditions, how the market behaves.

The next question is from the line of Shanti Patel from Shanti Patel Investment Advisors.

My first question is our market share in respect of various verticals in which we operate? And the second question is from -- after GST, things are moving from unorganized sector to the organized sector. And what you -- if it is moving, then what will be scenario over a period of 5 years?

Sir, can you repeat the question?

Can you repeat both the questions, please?

Are you getting my voice?

Yes, yes. Very loud, very loud.

Yes. First question is, what is our market sale in respect of various verticals in which we operate? And second question is do you see it from unorganized sector to organized sector after GST has come into picture? And if so...

Let me answer your second question first. There is no such thing as unorganized sector after GST. After GST there are national players and they are regional players. Kajaria, Somany, Johnson, Asian Granito, Simpolo, Varmora, although Simpolo, Varmora is based in Morbi, Asian Granito is based in Himatnagar. All national players. Then there are regional players who are based in Morbi and otherwise. So there is no such thing inorganised or organized. Those who are able to spend more, they can get a bigger market share. It all depends on what kind of money you are -- what kind of effort you are doing because they have to -- they cannot be regional players only. Because if they are located in Morbi to come to north and go to Southeast stuff, so they have to be regional players. We are located -- what is the advantage of Kajaria, let's talk about that. We have part of the plants here in North and we are feeding North and East, then we have plants in Western South, we are feeding West and South. So this is how we're able to be a national player. So there is a difference between a national player and a regional player. But there is no such thing as organized or unorganized, they are paying GST, we are paying GST.

Now coming to first question. What is our market in respect to various verticals in...

See, currently the -- as I said, the industry size is INR 20,000 crores. We last year did, as far as times are concerned, about INR 2,508 crores, roughly, out of which we would take out INR 70 crores of exports that domestic should be about INR 2,430, something like that, which is about 12%. 12% of the total domestic industry is Kajaria market share. Kajaria's vision is in the next 2 to 3 years, Kajaria should have a 15% market -- domestic market. That's the vision of Kajaria. If we grow at 15% plus for the next 3 years, I think this is where we should reach.

The next question is from the line of Achal from JM Financial.

Sorry, I'm hopping on the industry question. In terms of the volumes, what would be the total capacity in the country? And of that, how much will be based in Morbi and outside Morbi, sir?

See the total capacity is around 1,150 million square meters, roughly. And Morbi should be about 70% of the total production in India. Then there is some capacity in Himatnagar, then there are individual plants like Kajaria, Somany and all that located rest of India. But Morbi should be about 70% of the total capacity in India.

And what is the increase, are we looking at when we hear that 60, 70 plants are expected to come into action over the next 6 to 8 months. What is the incremental capacity that you go by from, let's say, 11...?

Indication to what Chetan said, all the expansions are delayed by 6 months due to 2 reasons: one, the pandemic; and secondly, nonavailability and high cost of containers from China. So they are all delayed. Let the capacity come. As I said earlier, the exports will also go up, some will also go to domestic. So as the scenario develops, we'll talk about it. Right now, that capacity is yet to come. So let's wait for a quarter before that capacity starts coming in shape.

Understood. And is it fair to say that most of the plants in Morbi have already moved to gas? Or is there any element of coal usage still there?

No, no. There are 2 things. I think you are not fully informed. On 6 of March '19, '20, the NGT came with a decision that you cannot take -- used coal. So all the kilns have been converted to gas fire, and they are not using coal. The chain store, which is non-polluted is still on coal. And kilns, which was -- a lot of pollution comes out of that coal has been switched over to gas. And they went to Supreme -- they were to High Court, they went to Supreme Court, everything was rejected. Every single industry is on -- but they are -- they can use gas, they can use LPG. They can use propane, but no coal.

The next question is from the line of Marat Shah from ASK Investment Managers.

Just 1 question. Given resounding success of the Morbi players, which are many and each individual players, per se, fairly small. The kind of success in exports that Morbi has notched up is remarkable. What are our thoughts in building up that as the second growth driver over the long term? And do we see that as an important opportunity? And if so, then what are the plans?

I remind like 2 things. One, exports, they're doing an excellent job, no doubt about it. And from, as I said earlier, from INR 7,700 in '19, '20 crores to INR 10,000 crores in 2021, with 3 months of lockdown, believe me, they have done a great job. This year, the target is around INR 12,000 crores. They may end up doing better because if markets global scenario is good, they will do better. As far as Kajaria is concerned, your 2 -- understand 2 things. One, we are the #1 brand in the country. We also have a premium as far as the domestic sales are concerned, that's number one. Number two, the moment you go to exports, you are 1 of the players. Number 3, we -- what is the disadvantage of Kajaria and the Morbi players. The owners are sitting in Morbi. Most of the customers, they don't come to Kajaria, they don't go to Somany, they go to -- don't go here and there. They straightaway go to Morbi. They know there are so many plants. I will get what I want. The owners are there. They have an advantage and will continue to have an advantage because that's the base we have created for themselves. When it comes to domestic, we have a right because we have dealer network out there. Now Morbi is very much -- not as far as domestic market is concerned, then the margins are also concerned. You see in export, the margins are much less. When you talk about Kajaria, you are expecting a much better margin. Now both cannot take place. So looking at that, I think exports will leave it as a distinct opportunity. We are doing some exports because we converted 1 line of Cosa of exports of glazed vitrified, but exports will always be less than 5% of what Kajaria will be giving.

But with the interest subsidy and other export benefits that they get, what I...

Sir, on export, no interest subsidy there, number one, let me tell you. I'm -- My background is of exports, for hefty number of years I did exports, number one. Number two, you might be aware, MEIS was withdrawn, a lot of money stuck. They were supposed to come out with a new policy on first of January this year by the [indiscernible] Ply Committee. It has not taken a this year ,last you see is [Foreign Language] Whatever margin, small margins they had, they have taken away. [Foreign Language] The policies there. It will be coming any day, the money I'm releasing, nothing is happening. Nothing is happening. I'm telling you from the a lot of friends that I have, and I'm aware of exports, nothing is there.

Which means our focus rightly so would remain on the domestic market into building [indiscernible] and to create a more profitable activity.

Yes, sir. And as I said earlier, we are only about 12%. Believe me, we have a lot of room to grow. As you are aware, we had a lot of discussions. The bigger player in pay station, pay at a 40%, 45% market share. Kajaria has to do a lot of work to get into that league to have a market share of at least 15%, 17%, 18% of the domestic market. I think that's what we at Kajaria should look at, if you agree.

In fact, Asian Paint and Mazal segment, the home paint segment is 57%, 58%.

You have answered my point. We have a lot of work to do, sir, together.

While it would be a cash for and some kind of a conjecture. But if assuming that hopefully the impact of disease will keep on kind of diminishing from here on. And at some stage, it will be behind us. Looking at overall picture of the consumption trends and everything, what do you think the industry growth rate in the domestic market would look like over next 3 to 5 years?

The industry should grow 10%, sir. If things become normal, the pandemic is over, industry per se, the domestic market should grow at 10% and exports should grow at 20%. Whatever our figures are 2021, '21, '22, sorry, whatever the figure will be, '22, '23 onwards, the industry should go at 10% is domestic and 20% in exports.

The next question is from the line of Binod Modi from Reliance Securities.

Sir, I just have 1 small question. You indicated that FY '22 domestic revenue for the industry should be in the range of INR 18,000 crores or so. So what is the comparable number, sir, for FY '21, FY '20 -- FY '22 guidance.

So the comparable number was '19, '20 was INR 21,000 crores. '20,'21 was INR 20,000 crores, and we are projecting INR 18,000 crores in '21, '22 for domestic market.

Okay. So that is what I wanted to understand, sir. You were saying that domestic industries should grow at a rate of 10% and whereas, I think, for overall in terms of revenue we are expecting some sort of deep growth trend [indiscernible].

I said '22, '23 onwards -- Going forward, next 3 years, he asked me this question, I said it -- Bharat asks question, I said it should grow at 10% for domestic and 20% for exports starting from '22 to '23.

Okay. Got it. And last, in previous con call, you indicated that you will be adding around 150 dealers in this year. So have you added any -- I mean, any number of dealers so far in this quarter, sir? That's all.

So dealers are added regularly. What I said at that time was that we had to have exclusive dealers more, which has not been added because of pandemic. But going forward, as things become normal. October, March, we plan to add at least 50 to 70 dealers exclusive. Otherwise, dealers are added every year, almost 200 dealers are added to Kajaria every year.

The next question is from the line of Onkar Ghugardare from Shree Consultancy.

Yes. What would be the broad range of margin you will be working on? Taking into account the commodity prices rise, which has happened as well as when the things improve taking into account the operating leverage.

I already answered that question.

This would be for a 2, 3-year phenomenon I'm asking, not a recent.

No, no, I can't answer that for 2, 3 years. I can't answer that. I said for the year '21, '22, I'll be able to give a better indication at the end of the second quarter, 2, 3 years, it's very difficult to do it. Not possible.

What would be the broad range of margin, I'm just asking.

I can't say. I can't say. I'm sorry.

Okay. What would be the asset turnover ratio you are expecting on the INR 250 crores of CapEx?

yes, about INR 500 crores.

The next question is from the line of Sumit Jain from ASK Investment Managers.

Ashok, to a previous question, like you mentioned in exports markets will be 1 of the players where you have premium here in India. I just wanted to check with you how you calculate or just the ROI on the A&P advertisement promotion spend that you do. I mean, do you aspire for a position where a customer walks into a market after do Kajaria?

We don't any ROI. First of all, we don't do any ROI.

We don't do it in every segment.

Yes, yes. Number one. Number two, you see, why you spend? Why Coca-Cola spend, why Pepsi spends to make their brand known, in spite of the fact all of us grow what is Pepsi, what is Coca-Cola. If I remember correctly, a few years back, I read an article, Pepsi is spending about $3 billion advertisement and Coca-Cola is also spending about $1.5 billion to $2 billion. The basic idea is to let people remember it, right? There is no direct linkage to what you are advertising and what result it gives you. It leaves a footprint in the minds for the person [Foreign Language] Kajaria is there. I think that's good enough. Rest of the job is done by the dealer. Because you see, if you are giving the right product to the dealer and he is making money, he will ensure that it sells that ad doesn't give me any ROI or anything calculate. Basically, in the mind that the customer should be there [Foreign Language] I think that's what -- And what we are also spending a lot is on making up of the dealer showroom. Because that's an important thing. [Foreign Language] If I do an ad and I don't do upgrade the dealer showrooms to international level a good level. Believe me that ad has no meaning. So basically, it's a mix of ad, publicity and also upgrading the dealer showroom. That's where the results come.

Got you. And the other question is that the power cost went down to 15% in FY '21. On a steady state basis, in a normalized year or a normalized quarter, assuming the increase in gas prices is passed on, what kind of power costs you can foresee?

See, power and gas are 2 different things. Power rates have not changed in India for the last couple of years. So power is more or less constant. Gas prices are roughly about 20% to 25% of the cost of production of -- for the tile plant. So it depends. Last year, as I said, the average price of 2021 was about INR 28. This year already has gone up to INR 32 to INR 35. Now I don't know what the scenario would look like. So everything will depend on how the gas prices shape up.

The next question is from the line of Rajesh Ravi from HDFC Securities.

On the Morbi prices, alone, when you mentioned that currently we are at INR 36, could you share the same number for Q1? What was the pricing at Morbi? Gas prices.

Gas? Gas is about INR 36.

No, no, this is currently, right? In 2Q, it is around INR 36. How was the prices in Q1?

No, no, no. My price right now is INR 35 for Sikandrabad and Gailpur. For Morbi, the prices have not changed in the last 3 months. The last increase was about 3, 3.5 months back. The first quarter prices were only at INR 35.

Okay. And it is at similar level even currently.

It is a similar level currently, but let me tell you off the record, it should go up any day. It's a certainty to go up any day, it's a question of when.

Understood. Understood. Until or unless...

I tell you that -- GAIL is the biggest player in -- GAIL is the biggest player as far as gas is concerned. GSPC buys 50% of the gas from GAIL, right? If the gas -- GAIL is not getting the gas, they have increased prices. So ultimately, they will also be selling at that price. GSPC has to increase the price.

Okay. Okay. And secondly, when you talked about your aspiration to gain market share and from 12% and you're seeing 15% to year end. Given the market contraction that you're looking at any strong growth that you yourself are looking at, I believe you'll be crossing 15% this year itself.

No, no, no. I didn't say that. See, what I said was when Bharat Bhai asked his question, I said if situation remain normalized with no impact of pandemic. '22, '23, we should look at 10% growth of the domestic industry, 20% growth exports. And we at Kajaria should grow at 15% plus. That's our vision. So 14%, 17% will be the outcome of that. Our vision next 2, 3 years down the line, we should be 15% to 17% of the industry. That's what we are aiming at. And that's what the effort of Chetan is , I have to get that market share. That's what they are looking at.

The next question is from the line of Ronald Siyoni from Sharekhan.

I just had 1 question with respect to the power. Solar power you are setting up. So an SPV is being formed. So what is the backdrop of this, are you -- you want to go towards more of solar power because you would be having a good amount of cash flows. So are you -- you will be upcoming with new solar opportunities.

Yes, let me explain See, we have done 2 kinds of solar so far. One is a rooftop solar. We have installed at Gailpur, we have installed at Sikandrabad, we have installed at Malutana. The total capacity of all the 3 areas is about 6 megawatts of solar power, where we did to incur any cost at all. The supplier put up the plant, everything and it gets depreciation, we get power at a fixed rate of 25% to 30% less than either Rajasthan prices or UP prices depending on where the plant is put up. In this particular case, they are putting up 8-megawatt power plant. We have agreed to buy about 1.5 megawatts. And there is a condition when you put up a plant, you have to have 26% equity. This equity will be recovered back in 14 months in this particular case because it's not a rooftop. It's a normal solar where the prices will be about 30% less than what the UP government is charging to the Sikandrabad plant.

Right. So do we want to have a further such kind of -- so that our power and fuel cost remain contained or there is some alternate?

It should depend. Depends on my requirement. If my minimum supply, I have to take it from those boards and any balances I can go for this kind of contract because minimum supply has to be from those boards.

The next question is from the line of Madhav Marda from FIL.

I actually did not understand why the industry will decline by 10%, considering that last year, I think pandemic impact was much higher, and we went in from '21 to INR 20,000 crores. In FY '22, why should it come down by another 10%? I couldn't get my head around that.

See, you couldn't because you're not part of the industry. The unfortunate part is demand is very sluggish. That demand is just coming back. As I said earlier in my -- somebody put a question to me why it should be like that. I said as of today, this scenario looks like that. If the situation improves on the ground level, the economy picks up. There is no third wave. Definitely, the numbers will go up. It may from INR 18,000, it may be INR 22,000 crores, INR 21,000 crores. The exports that stood at INR 12,000 crores will be INR 15,000. It all depends on how the scenario plays out. We were hit very hard by the second pandemic in the month of April, May and June, a lot of states have not even opened sometime in June, right? Now July is the first month where we got normalcy. Let's wait for a couple of months by end of second quarter. That means by end of September. A lot of things will come out. A lot of things will come out.

Okay. Okay. Because I completely take your point of view, so that we need more clarity, but I'd be -- I got in to the segment...

You see, you will agree with me. It's too early to talk about it. These numbers are projections. Now we don't know what will happen in '22. The simple thing is if the market improves, the government expense -- government has been promising a lot of money on infrastructure. If the money comes in infrastructure. These numbers will go up. [Foreign Language]. Right now, let me also tell you, the housing, the builders are not in good shape. So if somebody thinks they are in very good shape, no, it is not correct. They are not in good shape from financially. So everything that depends on how the government comes in infrastructure.

Because the reason I ask that question is that generally, the news flow that we get, of course, this is all media articles, but they say that India housing cycle is expected to pick up and it seems like we are in a good situation. That's what we hear and -- yes.

What I said was FY '21, the industry came down from INR 20,000 crores to INR 18,000 crores in domestic exports went up from INR 10,000 crores to INR 12,000 crores. And going forward, things become good, become better. This number will have to go because you see -- if Kajaria talks about 15% volume growth. There are others who are also aiming for that kind of growth. There is no reason why it should be low, and we all hope and sincerely hope that it should be further better and better.

[Operator Instructions] We take 1 last question that's from the line of Milind Suresh Raginwar from Centrum.

Very basic question to understand is for Morbi, is there a replacement from domestic to export? Or are there dedicated EOUs in Morbi catering to the export market and domestic side is therefore unaffected in that?

Two things. One, there are almost 600 units operating at Morbi number one. Out of which about 62 units, which we last collected data are exclusively for exports. But then there are others who are supplying to bigger manufacturers or JVs or feeding the export market as well as local market. Now that scenario will keep on changing depending on the solution. Export, per se, will go up and the reason being we are -- as I said, we are the second most competitive player after China. This freight scenario has also put India in a big advantageous position compared to China. Second, pandemic, as you know, a lot of people -- a lot of countries have become anti-China. So looking at that, the export scenario is positive for India. More exports will take place. It will leave and the domestic market much more better because there was a lot of pressure in the domestic markets in '19, '20, as you know. So with this, I think things have started changing. 2021 have been better. Beyond our expectation despite of pandemic. I'm hoping -- we are hoping that '21, '20 will be -- '21, '22 will be even better.

Two, I'm very well with you on saying that on the growth part. But as and very experienced players, what would be the early signs for us to look at the reversal of the current situation and things going back to normal, what would be the early signs that we as experienced player would look for to change our view on this?

See, 2 things the country can't see has to watch out for, one, a lot of vaccination, no third wave or a mild third wave, believe me, the economy is not going to look back. The interest rates are low in the country as we are all aware. And as Rishi said in 1 of the earlier talks, work from home, a lot of people are going for bigger places. Somebody had a 2-bedroom flat, he's looking for a 4-bedroom. Somebody has a 4-bedroom flat, he's looking for a bigger house, to make himself and family comfortable. More such construction is happening in smaller towns, please go to smaller towns, you will know what is happening -- really happening in this country.

Okay. And any economic indicators apart from the social and the health indicators, any staff -- economic indicators that we look for?

[Foreign Language]

I'm working this, sir, on the other businesses, that is Sanitaryware and Ply, we gave the top line guidance. Anything we are looking at from an EBITDA perspective, will there be anything that we can put some color on?

Yes, Bathware -- Bath fitting and Sanitary both will be positive. And they are already positive for the last 4 months of the year 2021. They will be further positive for the whole year. Ply last year lost about INR 11 crores, this year should lose about maximum of INR 5 crores. And going forward, it will be neutral in '22, '23 because they have added laminates as the turnover increases from INR 40 crores to INR 80 crores. And they have a bigger vision next year. I think Ply will also be -- at least will not make any loss next year. This year, it will lose about INR 5 crores.

Okay. And in the Sanitary ware, we are factoring the cost inflation of the...

Yes, yes. Already the prices have gone up. Already the prices have gone up. All, by Jaguar, by Hindware, by Cera everybody has increased prices because the raw material costs have gone up.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Ritesh Shah for closing comments.

Thanks, Sanford. I'll hand over the call to Ashok Ji for -- if any final remarks. Thank you.

Thanks a lot. I think a lot of interesting questions came. And I think we have tried to answer to the best of our ability. We'll continue doing so. And anything -- any information further is needed. I think Sanjeev is here, Pallavi is here. They're always on call whenever any more information is required. Thanks a lot once again for organizing this. I thank on behalf of myself, Chetan and Rishi for organizing this. Thank you.

Thank you.

Thank you very much. Ladies and gentlemen, on behalf of Investec Capital Services, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.