Kajaria Ceramics Limited (500233) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '20 Earnings Conference Call of Kajaria Ceramics posted by Spark Capital Advisors India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Girish Choudry from Spark Capital Advisors. Thank you, and over to you, sir.

Yes. Thanks, Stephen. Good evening, everyone. On behalf of Spark Capital Advisors, I welcome you all to the conference call of Kajaria Ceramics to discuss the third quarter FY '20 results. From the management side, we have Mr. Ashok Kajaria, Chairman and Managing Director; Mr. Chetan Kajaria, joint Managing Director; Mr. Rishi Kajaria, Joint Managing Director; and Mr. Sanjeev Agarwal, CFO of the company. I now hand over to the management for opening remarks, which we can open the floor for Q&A. Over to you, sir.

Good evening, everyone. It gives me great pleasure to welcome you all to the quarter 3 '22 earnings call of Kajaria Ceramics Limited. We [indiscernible] hope that you and your family are safe and healthy. As said earlier, I have with me my sons, Chetan and Rishi, Sanjeev, our CFO; and Pali Bala, looking after Investor Relations on this compound. At the outset, I'm very happy to inform you that in quarter 3 22, with a stellar performance across all product verticals supported by a good turnaround in the market sentiments, which hurt the company to achieve its highest quarterly turnover. High market industrial [ ship ] segment has been double A lot of new construction is taking place in Tier 2, Tier 1, Tier 3 and smaller cities and remodeling reconstruction activities in the urban metros -- urban and metros aided by lateral interest per city. Various benefits being given by the authorities to homebuyers as well as builder to give a boost to the real estate sector. Consumers are spending money to improve the appearance of their house, which is a major element for driving tile demand in the restoration market in the coming years. Having said that, we have witnessed a rapid surge in Delhi Omicron cases in the last few weeks. Now down happening in different states has led to some sectors [indiscernible]. Currently, what is hurting the sector is increasing gas cost. Recently, [indiscernible] has tightened the contract terms and conditions, which will impact new manufacturers in Gujarat going forward. For example, they have to sign a contract for a minimum of 15 days with taken pay of 80% of quantities. That is even one -- even one consumes only 50% of the contracted quantity, one has to make the payment of 80% for the consented cost. Secondly, for non-NGO contracts, one has to pay a price of INR 106 per [indiscernible] instead of currently INR 62 per [indiscernible]. Now let me talk about quarterly performance of Kajaria Ceramics. Our business has shown resilience and delivered a good performance. In quarter 3, Consolidated revenue from operations increased by 27% year-on-year to INR 1,067 crores from INR 838 crores in quarter 3 F '21. This is the highest ever sales by the company in the quarter. Revenue from Bathware segment grew from INR 67 crores to INR 82 crores in quarter 3 of '22. Currently, our monthly sales run rate is INR 34 core plus. Revenue from Plywood segment grew from INR 13 crores to INR 25 crores in quarter 3 of '22 year to date. In the quarter, power a cost in absolute number has gone up by INR 92 crores as compared to corresponding quarter of last financial year, which impacted the EBITDA margin. EBITDA margin for this quarter is at 17.21% as compared to 21.68% in the corresponding quarter of previous year and 18.54% in previous quarter of this current financial year. Consolidated PAT in quarter 3 'F 22 has increased to INR 122 crores from INR 121 crores in quarter 3 '21. As on December for December 21. Working capital days have gone up to 58 days as compared to 56 days as on 30th of September. Let me now quickly talk about our ongoing expansion plans. We will commence with commercial production and Jaxx [indiscernible] in March 22 . We were doing 3 expansions, all our brownfield expansions. We'll commence the commercial operation at Jaxx plant in Marina. And the other 2 expansions at [ Gilford and Kalai ] by April 22. The delay was mainly because of nonavailability of containers, and [ in fact ] of COVID other countries. Also, we'll be adding a 5 million square meter [ slam ] manufacturing capacity in Gujarat with a total investment of approximately INR 210 crores, which is expected to be commissioned by March '22. Also in our Bathware segment, we led to new capacities 1 at our existing location at [ Gelfurajisan ] for 7 lakh pieces in faucet with a total investment of INR 5 crores. Second one, agreement project at Gujarat for several pieces of [indiscernible] with a total investment of INR 80 crores. With this, I take this opportunity of thanking you for joining us today. Over to you for Q&A, please.

[Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.

Congratulations for a decent set of numbers given the situation. Sir, 2 questions. One is gas pricing. So Kajaria obviously had an advantage of being lower versus Morbi. And so I just wanted to understand from you how that played out over the past 4 months and how the average prices in [ third ] quarter for different plants? If you could just highlight how is that happening? That's the first question.

See, 2 things have happened. I guess said the gas prices have gone through the roof in the last 3, 4 months. Right from fourth of October, our prices not have been relating steadily every month for 2% to 3%. And now between -- if you compare from October to January, it is up by almost close to 10%. In Morbi everything went have, the prices went up from 40 to 50 on fourth of October and then from 50 to 62 or 63 because of the change, it went up from first of November. And the current scenario where they have tightened the base. So as a result, cumulatively, our gas cost, if you take the entire figure is about INR 46.5 for the quarter we just ended. But it's been tough. And as I just said, quarter 3 last year and quarter 3 this year. The impact is huge. It's about INR 92 crores. But since we have taken price hikes right from April because our prices in north went up every month from every [indiscernible]. And we took price hike in April and July, as I shared in the last call also. April, July then October and on 15th of November, we have been able to absorb close to about 650 to 700 basis points. And rest as the prices went up still by state. So in January, you will see the full impact of that.

Got it, sir. And second question, sir, from other consumer discretionary product companies, we have seen, there are some slack in demand post Diwali, somebody talking about delayed winter and also COVID wave scare during the last week of December had begun. In some channel destocking happened. What was your experience, sir, across in Plywood [indiscernible] would be share that.

See, October, the summer as you from the numbers, all the plans are at that 100% capacity. The demand has been very positive. The markets have been positive. In January, we are facing some impact of Omicron because, as you know, but as you are aware, things, but [indiscernible] getting all right in about 4, 5, 6 days. Spain has already said that it's a flu. U.K. has said yesterday, the minister of U.K. in a parliament that no more marks from today and no more [ RT-PCR ] tests. So I think in India, also in the next 7 to 10 days, it should start coming down. Certain areas have started coming down. Bombay has come down. Delhi has come down. But areas like [indiscernible] they are peak. So I think it's a question of time. Things otherwise are okay. But no impact on the demand side, except this Omicron, because of the [indiscernible].

Got it, sir. And lastly, on the Sanitaryware, the INR 80 crore CapEx, how much revenue potential does the plant have on this investment? .

Sanitaryware, with the investor by INR 80 crores, the revenue for the -- once it is commissioned fully, it should be about INR 150 crores to INR 160 crores.

Next question is from the line of Achal Lohade from JM Financial.

Just wanted to get your sense in terms of the guidance. In the last call, you had mentioned 15% volume growth, 20% revenue growth. Now given the third quarter performance, would you want to revise that? And also any color assuming that things get normalized or with respect to this COVID wave, how would you look at FY '23 given our significant capacities coming up -- getting commission in March, April?

See if you recall in our last meeting, we had said that for the next 3 years, Kajaria is looking at 13% volume growth. And we'll definitely like to maintain that. That's why we are in -- adding currently about 12 million square meters because every year, you have to add about 13.5 million to 4 million square meters to meet the demand. 12 million is added by brownfield plant, some is outsource. Similarly for next year, we are already talking about putting up a vinified plant, a large lab with 5 million square meters, similar exercise will be done in ceramics as well. So going forward, our vision is the next 3 years, it to be 15% volume growth. And next year, because of this price increase, the revenue growth should be close to about 20%, 21%.

Right. Okay. Okay. And what about what kind of CapEx we should work with for FY '22, '23 and possibly '24 as well?

See, every year, we have to add INR 250 crores to INR 300 crores on an average. I would say about INR 300 crores when we are talking about next year, again, the capacity expansion will be more than 14 million square meters if you look at the numbers of growth. So it would be partly by manufacturing, partly a little bit by outsourcing. So every year, we should look at a CapEx of INR 300 crores plus, then we are also expanding in Sanitaryware, which I just shared. So definitely be close to INR 350 crores looking at all the digits. If you have to grow 15% volume, that capacity has to -- has to come from [ the government ].

Understood. Understood. Another question, if you could help us with -- just like you had talked about the gas cost -- the gas cost for the quarter for the North plant, south plant and the West plants, what has been the actual cost, the average cost for third quarter? And how is it currently trending at this point in time? How do...

The 46.5 as I just shared and there is no change after that. The only thing is not, the prices have gone up by about 3% to 4%. And in this -- more there is no change is how we are expecting real relief of about 5%, 10%. So average you take it, it will be about INR 46.5 to as we go forward. This is for the entire company's sales, including Morbi.

Understood. Okay. And in terms of the manufacturing, if we look at own manufacturing, we seem to have operated at 115% utilization for the quarter. Have I got the numbers right? And is that a new normal? Can we work with that kind of a run rate even for the coming quarters?

It all depends if the markets are like that, and we have to go 15%, we have to operate at 95% to 100%. [ 5% ] I take a problem because sometimes you shut in from mechanism all that, but otherwise, it would be 95% to 100% to achieve those numbers.

Absolutely. No. I was asking, sir, for the quarter, it is appearing 115%.

Normally, all ceramic tiles when I say ceramic means [ ceramic activity ]. They are normally running at 100%. You can't open on the plant.

Next question is from the line of Rajesh Ravi from HDFC Securities.

Yes, good evening. Congratulations on strong growth. My question pertains to, first, on the industry, if you could throw some light on what is the industry demand numbers, both domestic and exports? How are they shaping up? And second, if you can discuss about the [ this ] CapEx, INR 210 crores. Is this times only large format tiles? Or is it something the different types of sets that you're investing into? .

Last question, I will answer. First question, I may answer your second question. I'll ask Rishi to answer. The first question is regarding the industry. Right now, it's a lot of turmoil, not 2 things. One gas prices have gone up on first of November, as I said to earlier also. Now another thing we have done is put a rider that you have to have NGO and non-NGO [ balances ], we are in a mess right now. Exports have come down drastically from INR 1,100 crores to INR 500 crores, INR 550 crores because of the containers. So right now to talk about the industry will not be right for us at this stage. But definitely, things should get better as you go along. As far as Kajaria is concerned, I have already shared. Let Rishi talk about the [indiscernible].

We were putting about 5 million square meter slab plant and the slab plants are already there in Gujarat in Morbi already about 10 to 15 plants like that. And we're already outsourcing a little bit from them. And now we felt that it's time to put up our own plant with this technology so that we can have our own range of products. And so this is what our plan is. That is why we are putting the slab plant with an investment of about INR 210 crores because we want to put up the high-end machinery and it's on a big plant.

So it is like INR 210 crores pertain only for this 5 million square capacity or you can expand it further that CapEx?

So this 5 million square meter will -- it is cost about INR 210 crores, but it will also give you a higher turnover of [ INR 400 crores ] because you're going to provision high-end tires, the selling price will also be higher.

Okay. I'm just trying to understand for incremental CapEx, if you want to expand beyond 5 million suppose you want to add another line of 2, 3.

Your question is right. So if more we can put another 5 million square meter, there in the same unit, so cost is at INR 120 crores.

Okay. That explains initial high oil cost, okay?

Yes, because it's a greenfield, right? So we have to pay for the land and share and all that stuff.

Okay. And sir, on the demand number that you're talking exports almost halved because of the external factors. So is that impacting domestic sales. Are those export volumes are pertaining into domestic markets? Is there anything like that which you are seeing?

I think you haven't listened. I just now shared that earlier, the more the units, we are working with a plan that today you require a gas, you go to the SEC and get a gas. The [ SPC ] a certain formula which because buying is selling the gas to the industrial to them, and they said, look. And the current requirement of 5 million or so 5.5 million, I will give you gas prices. If you want more, I will charge you. Current spot prices, which is [indiscernible]. Now if you're running a plant, you have to sign an NG that this is what I want to buy. And [indiscernible], which is a great thing that 15 days, you come, you negotiate. And even if you use only -- supposed you have [indiscernible]. And the utilization only 60%, 65%, to 20% [ rate ]. So the question coming to the domestic market doesn't even arise. Today, it's -- As I said, right now, I'm not commenting on it because it's a big mess. Comment on gas prices have just gone through the roof which you are aware, but we are not talking about the container prices. Container prices have again gone through the roof. They are not coming down.

Not coming down, and broadly on the gas prices...

Sir, sorry to interrupt, but for any follow-up questions, may we request you to rejoin the queue, please? The next question is from the line of Sneha Talreja from Edelweiss Securities.

And thanks a lot for the opportunity and congratulations on great top line. Just 2 questions from my end. Firstly, you said that [ on then ] you will see the impact of higher gas costs settling down. So are we thinking that our margins will be back to that 18% to 20-odd percent and the gas cost increase will be above?

Definitely will be 18% plus. I tell you why. Because you see the price increase in quarter 3 when the gas price is set at the route. First, gas prices went up on first of October, then on first of November. And our price increase happened around 15th of October and 15th of November. So the full impact of these prices, you will get for the full quarter, number one. Gas prices have now stabilized -- whatever it is we have to pay, we have to pay. So definitely, as I have showed last time, it will be 18% plus.

Right. And you also said that the next quarter from average of 46.5% that you saw in Q3, you are expecting prices to be around 47%, 48%, which is not a very meaningful increase from here. Was my understanding correct?

Yes, yes. You are absolutely expect, it would be close to 3% high because someone plan [indiscernible], where gas prices are based on trend. So with the trend going up today, like what you are seeing 87, 88. So some price increase will take place, whether I like it to not, [indiscernible].

Right. right. Sir, understood. And the second question on the [indiscernible]. Sir, just wanted to understand how is the market scenario right now? Is this a similar supplies shortages or is this still there in the market?

The market is pretty good. That's why you've seen the growth. This is Rishi. The market is -- we have grown by almost 22%, 23% this quarter. And next quarter again. So last year, we did a turnover about INR 200 crores in Sanitaryware and [indiscernible]. And this year, we are looking at a 45% to 50% growth, which is about INR 290 crores to INR 300 crores of turnover. And even going forward, we are expanding both in our [ profit ] and Sanitaryware with a new plant in Sanitary and in posted in existing brownfield projects with a very small CapEx. And with these 2 expansions, we further feel that in the next 2 years, we should do INR 500 crores plus turnover. That's what we are aiming for. So the market is there. We're also a very small percent of the entire market. It's a big, big, big market where [indiscernible], [indiscernible] Kajaria has a very small share. So we have a lot of room to go.

Got it. But just on last thing on, sir, answering on Sanitarywear part, what about [indiscernible] much of your current owner is coming, you said that you're outsourcing some bit. So is it a meaningful proportion already? And can we expect margin is much higher on that particular segment for value-wide compared to the current segments like ceramic tiles and/or [indiscernible]?

Yes, correct. Right now, we're not outsourcing that bigger quantity. But we feel that by -- in about 12 to 14 months time, by the time we get the plant in shape, plant online, it will be -- we'll be selling much more. And yes, the margins will be much better when we put up our existing plant. So yes, why the CapEx is also higher because it [indiscernible] a bigger turnover and the margin is also better in big slabs.

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

Sir, first, I think from capital allocation, the management has been very thoughtful on the slab thing. I think we came with a lag after finding a decent market size, so that's great news. But sir, I have a question. Why is it that you are expanding in Gujarat? Eastern market is something where we do not have any manufacturing facility. Just a broader thought on why not to set up an incremental facility in Eastern India, given we don't have a manufacturing plant over there?

I think you are not aware, Eastern India doesn't have raw materials. Except [indiscernible] , nobody has raw material. We tried to do it in [indiscernible], there was no raw material. You have to get your clay materials. You see, clays, the one which is available mostly in Rajastan. And even in Gujarat, a lot of clay goes from Rajasthan [indiscernible] outsource [indiscernible] locally. In entire Eastern India, only [indiscernible] certain raw materials. Rest of the states don't even have raw materials.

And just to secondhand, Morbi very [indiscernible] location. With Morbi, you can feed the entire India. If you have any other plant, it is not been the entire industry. [indiscernible]. That's why we're putting up a slap plant in Morbi so that we can supply all over India.

Okay. So it's primarily from a raw material standpoint. That's useful.

Raw material and the location and the market. Location.

Right. That's useful. Rishi, my second question is, you indicated like [indiscernible]. I could not get the CapEx number. And secondly, what will be the potential revenues over here from the [indiscernible] plant?

CapEx is only about INR 5 crores to INR 6 crores for that additional 6 lakh pieces and the revenue will be about INR 50 crores to INR 60 crores.

INR 50 crores to INR 60 crores. And sir, how lucrative do you see this market? It is small for us basically on overall scale of things. You indicated a number of INR 500 crores. But when it comes to pricing power, if one had to compare [ where possible ] versus stores, how would you put it?

So I would say, firstly, the industry is big. Even if we are today at -- this year, we do about INR 300 crores, the industry should be INR 10,000 crore plus, right? Going forward, it's only going to increase. And if we do about INR 500 crores, I think we get a little late share of the market. And we are making money. Our profits are profit will only increase. So I think pricing power is really don't need as well if you get a good product and you're making -- you have your dealer network in place and you are selling well, that's fine. You cannot be the leader overnight. If you just 6, 7 years in we started. So I think that in a decent joint it's only going to get better now.

That's encouraging. And just one last question for [ Ashok ]. Sir, you indicated that we are not aware of the container freight rates. If you could please explain on what the container freight charges are right now. I'm looking at the European gas prices -- so is it ability of container? Or is it the container freight cost, which is actually prohibiting exports out of our .

The availability of containers and freight costs. The freight cost has gone up by 3x in any destination in the last 1 year. In Europe, in America, the freight used to be $4,000 to $5,000 for a 20-feet container now the $15,000 for both East coast and West coast. For [ half ] like Dubai, it used to be $200, it's $500 now. So the freight costs have gone up through the roof. So that is one of the reasons why you are not able to compete. And especially in Gulf, nobody wants to pay a penny more. Your cost of gas has gone up, so your cost of production has gone up. Your container freight has gone up. So the entire cost has gone up. So exports are right now and will continue to be so in the freight rates come down. But in Europe, as you rightly said, the cost of gas has gone up, yes. And they are going to buy as high as 3x when we last talked. And cost wise, you will make up because their costs have gone up, your cost have gone up, you'll make it up. But what about the freight rates? From Europe, the freight rates has not gone up. It is only the at this point, India and China, where the freight is the most effective.

Sir, just one last question. There were new units which were planned in Morbi, I think the number which was around 70 to 80. Has that -- as part of the 70, 80 units actually come to light? And broadly, if you could comment on the industry utilization levels?

I cannot comment. I already said that I cannot comment. Everything is in a mess. Some of the plants which we are talking about have been commissioned, some have been closed, very difficult for us to comment at this stage. But I can tell you that from first of November, a lot of things have gone completely and the latest guidelines issued by GSPC, you will have to find out more in the next 4 weeks, I would say. But those line lines have come only 4 days back. Let's wait for 4 weeks. We'll have a lot of answers from one.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, if you can just talk about in terms of the domestic market. We also are seeing a lot of new launches in the real estate part of it. And a lot of it is happening by the organized real estate players itself. So was it that the first part was more of replacement demand and now the new real estate launches are kind of seeing the demand momentum? Any color there would be helpful.

See more work is happening in Tier 1, Tier 2, Tier 3. Now talking about new launches. They have started selling 6 months back. They have sold a lot of material. New launches when it happens now, the demand for tile will only come after 1 year. So it is not going to come overnight. So we wait for that. Meanwhile, in next 6 months, as I said last time also, their financials have yet to improve. As we all know, their financials are improving, but it will take another 6 months or so or maybe by June this year, the financials improve. Once the financials improve, they will come in the market. But right now, the demand for new launches will come only after 1 year. It's not that it will happen too. Right now, the basic demand is coming from smaller towns, big towns, then other than metros, metros are basically for refurbishing. As I said, people have started working from home, a lot of investment bankers, auditors, financial people, they are still working for home, if I'm not wrong, And they need bigger spaces. So they are redecorating their homes, redecorating their places. Earlier they never used to bother. Now once they are at the station at the house, and a lot of connections. That's where the demand is coming from. Commercially, it is less because people are leaving some of you are leaving your offices, you are restricting your offices. So it's a balance. But the ground side is very positive. Except for this Omicron.

And in fact, the great news that so many real estate launches are asking at least the future is even better. We are [indiscernible]

Sir, the other thing is in terms of the profitability of the Sanitaryware division, now that the utilizations have seen a good improvement how are those margins in the Sanitaryware division? How different are they from the maybe company margins? Any color on that will be helpful. .

See, currently, if I remember correctly, our margins are around 15%. As we go more of -- our production goes up, margins are definitely going to improve. Another thing for your information, in [indiscernible] switches, we are at -- when you talk about product line, it is a par with [indiscernible]. Of course, [indiscernible] the #1 brand in the country. But when it comes to Sanitaryware with a new plant coming where we are going to make more value-added but [ here ], the margins will go up. And in this industry, like we [indiscernible] the margins are better than the tile industry.

But it will only come once we reach some critical [indiscernible]. So give us another year, 2 years as turnover increases, our margins are only going to get better.

Okay. Which is where you're getting there in last 12 months where you have improved [indiscernible] .

Absolutely. You see the margins improving already, and it's only going to get better [indiscernible] increases because your costs are not going to increase that much and the margin is only get better.

And sir, just one last thing, given the whole competitive scenario, which is happening in the marketplace, any thoughts on the retail expansion or reuse -- when we look at drop also some of the leaders in the paint, they are expanding their retail network left, right and center even after having so much of penetration. So any thoughts around that as an industry leader how do you look at it in terms of the pace acceleration of retail?

It's [indiscernible] taken to talk at peak of the subject that...

Currently, we have 1,700 operator dealers out of which we have 380 exclusive showing which only sell Kajaria. And in the last 9 months, we've also added 6 excuse showrooms. So our focus is to keep on adding more and more erasure going forward, and increase our advertising and marketing budgets also. Like this year, our budget is INR 75 crores, which you already spent INR 49 crores in the last 9 months. The business set up for [indiscernible] and commercial spend going forward whether that is some in the market.

The next question is from the line of Madhav Marda from Fidelity International.

I just had one question. Like our volumes were pretty strong. Just wanted to know how the industry was doing. And was it the seminal growth for the industry? Or are we gaining market share? .

First, we are definitely getting market share. And as I said earlier, [indiscernible], I'm not able to talk about the industry because of the gas thing which has happened in the last 3, 4 months. So unfortunately, I'm not able to talk much right now, but there is lots of conflicts that's going on. So we'll get to know more in the next 4 weeks, and we'll talk about it.

Understood. And is the demand similarly strong for us in the tier 2, type 3 and rural areas along with the larger cities? Is it like a similar growth across the regions? Or is that been stronger than the other market for us?

I just shared Tier 1, Tier 2, Tier 3 and middle cities also like [indiscernible] [ Pune, Chandiga ], that's where the new construction is happening. In metros, especially like Delhi, Bombay, Bangalore, Carcota, it's more of an innovation market. So that's where the new construction is happening. The demand is very robust in those terms, very, very robust.

The next question is from the line of Pulkit Patni from Goldman Tak.

Sir, you spoke about how bad things are in multi right now.

Mr. Patni maybe request...

Okay. Is it better?

Yes.

I mean you used the word, it's in a turmoil right now. So my question is, if I look at the expansion that we are doing, some of them are brownfield, one greenfield. Why not acquire? I understand the planted machine is very similar. Everybody gets it from the same place. So just to get a sense, why not wire something rather than create it yourself? Because I'm sure, given the state of the industry, you could probably have gotten good deals, buying something out in Gujarat. So any thoughts on that?

Yes. So let me answer that. We did explore that, but we're after doing a lot of work. We said that we would still -- it's better to put a brown -- greenfield project with the latest machinery. Now the plants have been there for a while. And the new ones are not interested in any acquisition or a joint venture. And so we decided that let's put up our own part. We wanted the latest machine and we wanted to do it [indiscernible]. A lot of technical changes have happened in the slab industry. So we didn't want to go with the old [indiscernible]. We did explore a couple of them, but it didn't work out.

Okay. Understood. That makes sense. Secondly, you also mentioned that while exports have reduced significantly, you're not seeing any of that inventory coming into the domestic market. So I just wanted to get a sense that what kind of lag should we expect us to get back to the 20% kind of margin? Because our top line has been really, really strong, but margins have not reflected that kind of strength. So in a couple of quarters, do you think we get back to 20% or price increases have been relatively difficult?

We can't answer that right now with the gas prices more internationally. Till things settle down, it's very difficult to answer. But what I can answer is normally what happens, the gas prices, everybody is saying will come down 6 months, 9 months down the line. Once that happens, what normally happens, the price increase which has happened will remain. But what we did you give some additional down a little discount to the dealer to sell more. So that's where the 2 margins can come. Right now, in the current scenario, when the gas prices are the peak, it's very difficult to answer that. [indiscernible], when we meet in the month of April and or early days, they'll have some information on gas, then we can talk on this one.

The next question is from the line of [ Sanjay Nandi ] from [ Rasnabeli Investment ].

Sir, like you mentioned like they happen the gas price hike in the fifth of October and again as 15th of November, and we like to our price in...

Fifth of October and 15th November.

Yes. Sir, can you just quantify like what kind of incremental gas price hike happened in 5th of October and 15th November? And what -- like we have passed on to the end consumers like in front of finished goods?

On 23rd of August, it was INR 26, on 24th of August, it was INR 40. On of 4th of October, it was INR 50. And 1st of November, it went up to INR 62 or INR 63, depending on the exchange. That was stage 1. Stage 2 is 2, 3 days back, they have been told as today is what Friday. I think on Monday, they have been told that you have to all sign AG contracts. You have provided yourself for 15 days. If you don't sign IG conference, you have to pay INR 106. If you don't utilize the plant fully, if you have signed NGO for [indiscernible] and you utilize only 65, you have to pay a [ bill operating ]. So a lot of things have happened in the last 4 days. So nobody knows what is happening exactly at this stage. So let's wait and see.

And sir, what has been the hike we have taken like in 15th of October and 15th of November?

We have taken hikes right from April, July because our Northern Gas was already going up every month. We took hikes in April, July, then 15th of October and 15th of November. Cumulatively, if you ask the hike has been close to 9% to 10%.

9% to 10%.

Yes, on all products.

On all products. So, sir, lately if I want to conclude, like what has been the incremental hike in the gas price from like April 2 as on date compared to vis-a-vis the price of finished goods, if you can just summarize it up, sir?

We have not been able to pass on fully. We have not been able to [indiscernible]. That's why you see a slight dip in the margin in spite of the -- such a fantastic growth in the turnover. So I think there has always been a lag of a few days here and there. Like I said earlier, that in the month -- in the quarter of January, March, the full impact of hike is there, the full impact of gas is there. So once we close this quarter, you will know them.

Okay. Sir, if we consider like the scenario of what is happening, as you just mentioned, like the significant hike in the price of gas is happening. So is it possible on the onset of the demand in the next quarter, like the Q4? So can we take us some further price hikes on that -- is it possible?

It's a portion of price hikes that comes in [indiscernible] already taken so many price hikes. The gas prices have gone up. Do you want to -- need to take a price hike and not to sell, you are looking at 15% plus turnover growth for the year '22 -- '23. And then you are saying, can you take a buy side? Let's talk critical. No. Let's talk critical. Let's just -- talk for the purpose of talking. We have to rationalize whatever we are doing it. You just underline one word that Kajaria's vision is for the next 3 years from here on, financial year '22 to '23 onwards, it should grow at 15% plus volume terms. Some margin, we have to sacrifice depending on the situation, we will do that, but that is a region of Kajaria to grow at 15% plus 1.

Okay. Okay. Got it, sir. Got it. And sir, where the demand is basically coming from like mentioning from non-tier 2 cities or non-Tier 1 cities, the demand is like robust ever all over India.

All of India demand is coming.

[Operator Instructions the next question is from the line of [ Nikhil Agrawal ] from [ BG Capital ].

So we had mentioned in the last call that the industry is about to grow at about INR 70,000 crores. And grow from INR 55,000 crores, which is currently in the next 4 to 5 years. So do you also agree to that? And that...

Can you please repeat what you're saying?

It is not clear.

Sorry, sir. Am I audible now?

Yes.

You mentioned on the call last quarter that the industry will grow by about -- from INR 35,000 crores to around INR 70,000 crores in the next 4 to 5 years. So do you agree...

No. Who said?

Somani.

[indiscernible]

I'm just asking, do you not agree...

Next question, please.

Okay, sir. Sir, like this new fund that you have commissioned for slabs, does that include all types of size ceramics and [indiscernible]?

I think Rishi has just answered. It's a value-added product. And only value-added tires will be there.

Okay. Okay. Okay, sir. So last question. Most of your -- around 70% of production takes place in the northern plant, where you have about 70% on a long-term basis. But your cash prices as of [indiscernible] operating expenses is increased by 3%. So could you help me with the added cost of [indiscernible] in Q3?

See, I already shared that gas prices are not only to [ Brent ]. The prices have gone up -- going up every month from April onwards. And if you compare from April to today, it has gone up by close to 18% to 20%, number one. Number two, that's why the price hikes have been taken by us in April, in July and then 15th of October and 15th of November because then more increasing gas prices. So that till 23rd of August, for first few months, there was no price hike in Morbi, but our gas prices went up and up every month. So that's how we could do prices.

Okay. So like what is the average gas cost of that Q2?

What is it?

Average cost of gas for Q2. Q3 of 46.5%.

46.5% -- Q2. 36%-something.

Okay, sir. Okay, sir. Sir, like these long-term contracts, they are about 3 to 4 months of something?

No, no, they are long-term contracts for the next -- until '28 is the LNG contract, but the prices change every month because of the brand prices. There is a formula fix, as you know, not only cable to [indiscernible] to everybody who was it. And the price changes every month, depending on brand. Now currently, it is average of 6 months or 9 months depending on the contract. Not currently, over 3 months. Okay, 3 months, sorry. And now the prices of brent is $87, $88. So going forward, 3 months down the line, the prices again become high. So what can you do about it?

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

Sir, what would be the price in the base quarter for gas, like you spend 46.5% for this quarter.

What would be?

Gas price, average gas price for Kajaria in December '20 quarter, this quarter.

In December '20?

Right.

Last year?

Last year.

Last year, same quarter.

See, I just shared some data, the gas impact in quarter 3 -- quarter 3 '20 and quarter 3 '21 to the company is about INR 92 crores.

I get that, but average gas prices can spell out?

Average price is very difficult to get here, and we'll inform you later. I don't have it in front of right me.

And what would be your estimate in terms of market share gains? Would it be safe to say that we would have gained 3% to 4% market share because of this turmoil in domestic market?

Definitely, if we are talking about this kind of growth for this financial year, and we are talking about growth of 15%-plus volume terms for the next 3 years, we definitely will get a market share every year. We'll definitely gain some market share. It could be 2% to 3%, it could be 3% to 4%, it could be 4% to 5%. Difficult to comment because I don't have any concrete [indiscernible].

But the market is not growing. The industry is not growing.

This volume will definitely increase some market share for the company.

The next question is from the line of [indiscernible].

Congratulations, great set of numbers. Sir, my only question is regarding the -- if I'm not wrong, last time, you mentioned about some expansion in the Gulf region. So can we give some status on update on that, sir?

So we were looking at opening an office in Dubai. And from there, we were just going to open a showroom and look at exports later that will be -- that's a very small volume in our overall scale of things. We just wanted to get our presence in the export market there, but that's going to take time. It's a 2, 3 months away when the office and the showroom will start. So the little impact will only come next year. But still we are very insignificant volume in the entire thing.

Okay. So is there no manufacturing over there? Or is it -- do you want to manufacture?

Not at all, no manufacturing at all. It's just a showroom we are making there to show us styles and sell there in the Gulf region and also other regions nearby.

Okay. So from here, you will export it to Dubai and then the Kajaria showroom will display and sell that at...

Right. That's a joint local partner there who is at in the mobile industry. So that it's a very small operation.

Yes, I understand, sir. So just that it is -- are you going to cater to only Dubai or that showroom will cater to other Gulf countries as well?

We see Dubai for sure to start with is little bit in other countries also we can explore one.

The next question is from the line of [indiscernible] from [ Alpha Advisors ].

Sir, my question is primarily with respect to the Plywood segment. So we have seen that in the Sanitaryware segment with scale, we have improved our capital investments also. And similarly, in the Plywood segment, what is our strategy going ahead? Are we looking to set up manufacturing facility. At What scale would be comfortable to commit more capital to this business? .

Chetan, reply to this. Chetan?

Last year, we did a turnout of INR 39 crores. This year, we're targeting about INR 70 crores to INR 75 crores. I'm looking at INR 180 crores to INR 190 crores by March 24th. So [indiscernible] get outsourcing from multiple vendors across India from the [ East]. So you take a look as you go on, how do we increase our turnover in this segment going forward.

Okay. Okay. So no plan [indiscernible] ?

We'll keep on reading the situation as we go along.

Okay. Okay. And lastly, on our domestic business. So do you see any impact from domestic [ more deep layers ] turning more towards their attention more towards a domestic market rather than export market given the...

I already answered that. I have already answered that.

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

Sir, I just had one question. We took a special resolution recently for around INR 275 crores into subsidiaries, except wholly owned subsidiaries. I just wanted to understand what part of it is already done? And how should we want to look at this moving forward?

Yes, [indiscernible]. You see if you recall, we had asked of INR 500 crores in our AGM, which was not approved, INR 275 crores -- we are already giving money to our subsidiaries because they are our own subsidies only who we are buying from, who we have helped in putting up the plant. So currently, our standing is about INR 243 crores. It is past at the resolution of 83% by the shareholders. They are our own JVs, existing JVs. Jaxx, Cosa, [indiscernible], all the people, Sanitary and Bathware.

Right. So sir, this INR 275 crores is incremental to INR 273 crores?

No, no, no, total. Total, currently is INR 243 crores only, total. And those companies are paying interest to that also for [indiscernible].

Okay. And sir, this entire INR 275 crores , it will be pertaining to ceramics, [indiscernible] division only?

It will be for our current working, which is tiles, Sanitaryware and faucets and Ply. So not Sanitary, I'm sorry. Kajaria Bathware, Jaxx. only tile and Ply. Tile, Bathware and Ply.

The next question is from the line of [indiscernible] from [ Tata AMC ].

Sir, my question, first question is with respect to 15% kind of volume growth that you're guiding for the next 3 years. You also made a point, right, that a large portion would be coming from market share gains and the industry may not really grow. So I'm just trying to understand when you are saying 15% kind of volume growth for the next 3 years, what kind of industry growth, are you kind of factoring in when you're giving the guidance.

I can't answer that. I'll be able to answer that question only at the end of this quarter because, as I said, there is a lot of turmoil there. Industry per se is not growing. Industry per se has not grown this year. It was in the mood to grow, especially in the export market. After September, everything has started sliding and domestic market has also gone heavier for the more people with the increase in gas prices. I don't believe anybody, but this is exactly what has happened. So right now, to say that what kind of market it is, what kind of market share you will gain, I don't think I'll be able to give you a right answer. I can give you some numbers, but it is [indiscernible].

Right, right. So sir, I mean, everybody is expecting and that optimism is there for the industry to grow. But for some reason, say, if the industry does not really grow for the next 2, 3 years. So that 15% there can be downward risk to that?

Who is optimistic that the industry should grow under the current circumstances?

No, not generally, I made for the economy to do well.

[indiscernible] people at what we are suffering very much for no reason up there. They were going. They were doing a good job. This jolt of gas has unsettled a lot of things. And you will -- please do a lot of research because when we meet next, you will have a lot of information, which we, as an India may not have, but you will have a lot of inflation. It is unsettled, a lot of things.

Right, right. So then do you think this could be more than a near-term impact? I mean this could be kind of structural also?

I don't know that. I don't know, but I can only share our vision right now that we, at Kajaria, are looking at 50% volume growth plus. And what will structural change, how can I say at this stage? Because a lot of things will emerge in the next 3 months when there's -- these things start taking effect. So we should wait for that in honestly.

Understood. Understood, sir. And my last question would be now supposing the gas prices have kind of hit a ceiling and then maybe sometime in the future, it starts to kind of ease off, do you think there is a possibility for us to kind of hold our prices and improve margins or the industry dynamics may not really allow us to do that?

In one of the earlier speakers, I put this question. Normally, what happened, the price increase, which has happened place, which has already happened, takes place. But I had to -- suppose the gas prices come down, should come right, 6 months, 9 months, 7 months down the line when the summer comes, let's say, it comes down. Then what we do, you give expense of [indiscernible] 1% to 2% of dealers. And they will continue [ for the customers ] what is the price. So margin retains [indiscernible].

Understood. Understood. Understood. Now talking [indiscernible] you get more cut price. So in that case, again we are also...

To see ourselves, [indiscernible], we are all in a different bracket. We have our own set of dealers, service markets. So we are all doing our job rightly. If we do our job rightly, whether this portion is absorbed [indiscernible]. See, we have suffered so much. We are right now talking about. There is a turmoil. People are suffering, right? So he will also mean to keep those prices. Everything which has...

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

Just a clarification. You said 9% to 10% price increase in tiles, we have taken since April. And we have in the past quarter indicated about 3% in first quarter and 3% in the second quarter. Does that mean 3% or 4% kind of a price increase in the third quarter?

May 3rd quarter by price hike [indiscernible]. What happens you see, you take a price increase as the market decide to dilute something and pass on. The actual price impact hike have been, let's say, 11%, 12% also, But the actual impact of the price hike at the end of the third quarter remains at 9% to 10%. Let's put it like that.

Understood. So if I were to put it in a different fashion, sir, 3Q FY '20, how much price increase we would have announced? I'm not asking about how much is reflected in the numbers, but how much would have been announced?

Where? When?

In the third quarter, in October to December period.

In third quarter, the price hike was close to 5%. 2 price hikes were there. One was on 15th of October, one was on 15th of November. So both cumulative, could be 5% to 5.5%, 6%.

Understood. Understood. My another question was what about the price hikes in the sanitary and faucets in the third quarter? Was there any further price hike?

Faucet, the price hike has been there throughout the year, let's say, 9 months, the price hike has been there close to 15%. For a simple reason, the brass prices have gone through the roof as you are all aware, brass prices, which was close to about 350 at the end of March '21 has gone up today to 523. So faucet, the price hike have been close to 15%, Sanitaryware, the price hike has been close to about 8% because the impact of -- as it is located in Morbi, the impact of gas has been there and some impact of [indiscernible].

Understood. So given we have reported about 20% growth in the Bathware revenue, does that mean the volume growth was kind of 7%, 8%?

Listen to what Rishi said earlier. Last year, we closed the year with about INR 200 crores. This year, we are talking about [indiscernible] at INR 295 crores to INR 300 crores, which is close to about 45% to 46%, 47% growth in terms of revenue. When you reduce 15% out of that for Bathware, 8% to 10% for even -- that would be about 30%, 35%.

Right. Right. No, I was talking about third quarter, sir, because the revenue growth is 21%. Yes. .

Third quarter, things have stabilized because if you recall, May was close to 0. June was close to about 30% only for Bathware and Sanitaryware if you look at the numbers. So third quarter, things have started stabilizing. And fourth quarter will be -- I already said that by run rate is INR 30 crore plus now. So it is close to about INR 92 crores, INR 95 crores, which will have.

Perfect. Perfect, sir. And just last question, given the state of affairs, I know it's very hard to say. But is it fair to say that the channel inventory will be probably at the lowest levels or because -- or you think the channel would have seen some amount of stocking up...

Channel inventory is low. I think I appreciate this question because it's a good question you have asked. Channel inventory is lower because 2 things. One, the dealer is not keeping enough materials right now. What is required, it takes one. Two, the time line has reduced after GST. What was taking 7 days before is it's taking 3 days, two. Third is paying you faster because he is also not giving credit much to the market. He is also paying you faster. So he want to evolve this money at the fastest. And the channel inventory currently is low.

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

Thank you very much. I think a lot of good questions came. And I hope we as a team, [indiscernible] team, myself and Chetan, Rishi, we have been able to answer them along with Sanjeev and Pallavi. And I thank you, all of them to be there. Thank you very much. And we are -- any further information is added. Our team is there, Sanjeev and Pallavi will be too glad to share. Thank you.

Thank you. Ladies and gentlemen, on behalf of Spark Capital Advisors, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.