Kajaria Ceramics Limited (500233) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kajaria Ceramics Limited Q4 FY '22 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Aasim Bharde from DAM Capital. Thank you, and over to you, sir.

Thanks, Ryan. Hi, and good evening all. On behalf of DAM Capital Advisors, it's a pleasure to welcome you all on Kajaria Ceramics Q4 FY '22 Earnings Conference Call. From the management, we have Mr. Ashok Kajaria, Chairman and Managing Director; Mr. Chetan Kajaria, Joint Managing Director; Mr. Rishi Kajaria, Joint Financing Director; and Mr. Sanjeev Agarwal, CFO. I would now hand over the floor to the management for the opening remarks. Thank you, and over to you.

Good evening, everyone. It gives me great pleasure to welcome you to the Quarter 4 F '22 Earnings Call of Kajaria Ceramics Limited. As just said, joining me on this call are -- con call are my sons, Chetan and Rishi; our CFO, Sanjeev; and Pallavi Bhalla from Investor Relations. All of us sincerely hope that you in your family are safe and healthy. I would like to meet you and address you in person as we do each year, but the current unprecedented circumstances have confined us to use this format. Financial year '21/'22 was a year of revival for Indian economy from COVID-induced disruptions. The country made rapid progress in vaccination and closed the year with the majority of the Ukrainian population decimated with bulldozers. For Kajaria, the fourth quarter was the best quarter ever in terms of both volume and value. We logged the highest ever sales volume of 25.97 million square meters in quarter 4 and 91.65 million square meters for the year without addition of any new capacities. We achieved the highest quarterly and annual turnover of INR 1,102 crores and INR 3,705 crores, respectively, despite tremendous destruction phase during the year. FY '21/'22 was tremendously challenging in terms of cost pressure for the industry as well as for Kajaria. Back in July, adverse energy crisis started, resulting in supply shortages and full spikes in fuel costs. And then there were spikes in paper prices, freight costs, et cetera. And then the disruption due to current inflationary challenges resulting from the geopolitical tensions in the Russia, Ukraine region. However, despite these headwinds, we have managed to keep our business on track and continue to build confidence with our customers. Though the rising gas prices and commodity cost inflation pose a near-term pressure on operating margins, our 5 sites around 2% from 1st of May will partially mitigate these cost pressures. Today, India is among the fastest-growing ceramic tile market, especially for branded players. This momentum is likely to continue given the ongoing recovery of the real estate sector and increased spending on home and workspace beautification and appearance. Thus, we'll see accelerated traction, not just from new projects, but also from increased application of tiles in replacement and renovation projects. In fact, we expect strong momentum from the replacement market going forward. We remain optimistic about the future and expect the next financial year will be a strong year for the company. Now, for this quarter's performance. In quarter 4 F '22, consolidated revenue from operations increased by 16% year-on-year to INR 1,102 crores from INR 953 crores in quarter 4 F '21. Revenue from the Bathware segment grew by 16% from INR 71 crores to INR 83 crores in quarter 4. Currently, our monthly sales run rate is more than INR 30 crores for this segment. Revenue from the Plywood segment grew by 25% from INR 15 crores to INR 19 crores in quarter 4. In the quarter, power and fuel costs have gone up by INR 82 crores as compared to the corresponding quarter of the last financial year, which has impacted the EBITDA margins. EBITDA margins for this quarter stood at 15.06% as compared to the rupees -- as compared to 20.04% in the corresponding quarter of the previous year. Consolidated PAT in quarter 4 is INR 96 crores. As of 31st of March '22, working capital days have marginally increased by 2 days to 52 days as compared to 50 days as on 31st of March '21. Let me now provide an update on our ongoing expansion plans. We have commenced commercial production at our Jaxx plant in Morbi in April '22. The other 2 expansion projects at Gailpur and Srikalahasti has also been commissioned in this month. In the previous quarter, we had announced the organic expansion of 5 million square meters of slab manufacturing capacity in Gujarat, with planned investment of INR 210 crores. Today, the Board has decided to withdraw the proposed investment as projects have become less viable due to steep rise in gas prices of Petrogas and inconsistency in gas supply at Morbi. With this, I take this opportunity of thanking you, taking your time out and for joining us today. Over to you.

Ryan, you can start the questions.

[Operator Instructions] Our first question comes from the line of Sujit Jain with ASK Investment Managers Limited. Please go ahead, sir.

[ Sanjeev], one question on the average gas price for the quarter. And you can give the average gas price for this quarter as well.

The average gas price for the quarter 4 was about INR 49.79 and for the current quarter, it is about INR 50.30.

Right. And this 2% price hike that you've taken 1st May, does that now fully cover the price hikes that should have been taken for FY '22?

Not necessarily. Not necessarily. Because gas situation, you must understand is you might be interacting with other industries. First of all, the supplies are uncertain, but there was a gas cut in more with by 20%. Gas cut north is to the extent of 10% and the prices are very erratic. And nobody can say at this stage what the gas prices will be next month or month after. So looking at that, whatever we can do under the current circumstances, we are doing.

Right. And in terms of our growth guidance, 14%, 15% kind of growth in, tiles does that continue?

We are looking at 15% to 20% volume growth for the year '22, '23 and a revenue growth of about 20% to 25%.

And our medium-term target also, 15% to 20% in revenue growth?

What's that?

About 3 years target that you used to give?

No, what we are saying today, situation has improved better while we have just completed 3 expansions. So looking at that, we have seen and we -- as I said in my earlier, as I saying that this growth has come with no expansion. Now 3 expansions have been completed. So with this, we are looking at 15% to 20% volume growth for the year '22, '23 and 20% to 25% revenue growth. Revenue growth is because prices have already increased in the latter half of the year last year. So that will be reflected in our guidance.

Right. And one last question, your estimated market size and export size in FY '22 for the entire industry.

For Kajaria?

For the industry, sir.

Industry size for '21/'22, the domestic market is close to about INR 21,000 crores. And export has been to the extent of INR 12,700 crores.

Our next question comes from the line of Sonali Salgaonkar with Jefferies India. Please go ahead.

Sir, my first question is regarding your price hikes for the entire year FY '22. Could you help us with an approximate range of your price hikes -- cumulative price hikes in tiles, Bathware and Sanitaryware there as well?

You see in -- the average price hike for the year starting from April, July, then October, then November was about 10%. The cumulative effect was about 10%. For Sanitaryware, the price hike last year, financial year, was to the extent of about 15%. And for bath fittings, it was close to about 12% to 13% roughly.

Got it, sir. Sir, my second question is regarding Morbi exports. You told us that the export market currently in FY '22 is about INR 12,700 crores. What was it in FY '21? And currently, do you think that there is an impending risk at Morbi, which used to export about 45%, 50% of the production could start a good thing in domestic markets?

See, 2, 3 things have happened. First, the year '21, the export was about INR 12,000 crores. Last year, they were disruptions. So like -- and mainly because of the freight costs going down, if exports didn't go much. It is -- was about INR 12,700 crores. This year, as you all might be aware, the cost in Europe have gone up sky high. The cost of electricity has gone up by 300% in Italy and Spain. The cost of gas has gone up by 400% in Italy and Spain. Their cost have gone up like anything. Similarly in China, they have -- the best costs have gone up by 150%. In the current scenario, the exports look very, very promising for Morbi. My personal estimate is that this year, against INR 12,700 crores, they should end up with INR 17,000 crores to INR 18,000 crores of exports. Because the export market has really opened up with their costs going up in India. Costs not going up that much also definitely gone up, as you are aware. Costs not going up as much, the exports will pick up from INR 12,700 to close to INR 17,000 crores, INR 18,000 crores.

Got it. And currently, what production of this being exported?

That, that is very hard to say. Because you see, the gas prices keep on changing. But this year, definitely, they should export at least 30%, 35% of their production is exports. Maybe 40%.

45%, 50%.

Yes. The main focus is exports. So they are trying to export as much as they can.

Okay. And you don't foresee any risk that they will start a price war in the domestic market?

Not at all. Not at all. It's not easy also. It's not easy to suddenly switch markets from export gold domestic, it is not easy. So they'll be -- they are happy exporting and they are going to increase the market share there.

Sure. Sir, my last question is regarding your guidance for CapEx. You mentioned that you have withdrawn one of your projects in Gujarat. So what is the revised guidance for FY '23?

This is Rishi Kajaria. So the reason why we do this plant was that because of the high cost of gas and the, I think, supply of gas, we said we'll defer the [ Plywood ] here, not -- we don't expand right now. We're going to outsource, and we are -- we just put our latest plant in South of India for the same big tiles, so we're going to move from there.

Our next question comes from the line of Achal Lohade with JM Financial.

Sir, can you help me with the GAAP cost for the full year FY '22 and FY '21? If you could also split in terms of North, West and South please?

The full year gas cost is INR 42 and INR 0.0021 paisa for the Kajaria for FY '22.

Would it be possible to split in North, South and West, sir?

North is close to about 41, South is close to about 44, and West is 49.

Understood. And at this point in time, what would the prices be -- the cost will be? You said blended -- sorry, INR 50 something. If you could give the cost at this point in time?

As of now, North is about INR 52, South is INR 59 and West is, of course, INR 68.5, which is the GSPC prices.

Got it. And in terms of the margin guidance, you talked about 20% -- 15% to 20% volume growth. Would it be possible to give any color on the margin guidance?

Margin, it will be very difficult to say this stage. The biggest factor is cost have gone up whether we are in gas, paper, transport. Right now, it's very different. And I personally feel, at this stage, it's too early to guide the margins. Let them settle down. And a lot of things will ultimately come out with the numbers which we are talking about. We are talking about 15% to 20% volume growth, 20% to 25% revenue growth. I think a lot of things will come out from there. There is no extra manpower addition because whatever the people are there, they are there. So with this, some traction will come out of there. But one factor, we are not able to say anything at this stage is the cost of gas. But internationally, just for your information, prices of gas have come down. It was as high as $33, 2 months back. It is spot market, the gas prices have come down to about $21. That change has already happened.

Understood. And just last question, sir. In terms of the momentum. So if we see -- for the quarter, it is about 2% growth Y-o-Y in terms of the tile sales volume, while we are talking about 15%, 20%, is it possible to get some color given Jan, Feb was impacted? How has been the March exit...

Please, you -- one thing for sure that you can't compare it quarter-to-quarter. Some quarters are very, very good in the earlier year. When you start comparing, like, in the first quarter this financial year, the volume growth could be as high as 50%, because the last quarter, there was a pandemic. The entire India was in this COVID. So that is not the way to do it. The correct way to do it, compare to year to year.

Our next question comes from the line of Abhishek Ghosh DSP Mutual Fund.

A couple of questions, sir, you mentioned about a price hike from 1st of May of about 2%. When was the last price hike taken before that, sir?

The last price hike was taken in November end, which was roughly 4% to 5%.

Okay. So just to understand one thing, because we've been looking at inflation across every line item, be it freight, paper, everything. And if you also see the cost of gas differential between your own plants vis-à-vis Morbi is fairly high. So the price hikes were not initiated because that would have impacted demand. How should we look at it in terms of the competitive intensity scenario?

See, price hike is what the market data means. It's not -- it has not taken, we should not take. Number one, my cost of have not -- have also gone up. The gas prices that you see, the numbers which I have given you, they have gone up drastically in the period of 1 year. Last year at this time by quarter 4, '21, the prices of gas was INR 29 at Gailpur. Now in quarter 4, F '22, went up to INR 49. So you see, it's a question of which plant then to take a price hike. There is no general thing that I have to take it across plants. It's a question of where my costs are going up, and I have to see that at what prices we can sell in those markets.

Okay. Okay. And sir, as you mentioned that gas prices have started to soften, and we also hear that Gujarat gas has also removed that supply cut. Sir, at some point, will you again reconsider if these things were to sustain in terms of the slab plant? Or will you keep outsourcing and source it from Southern plant only more in the medium term?

So right now, the plant is not in the cards. Right now, we're going to outsource or from Bajaj or mostly supplied from a South plant and in months -- we'll assess again -- we assess again another 6 to 8 months. See how the market is.

And the prices have gone up. We have put 100%, but the prices have gone up by that time of the year, don't forget that.

Correct. Okay. So it's also a matter of cost and supply both. So whenever you think it's reversing, then will you take a call after 6 months is what the understanding is, right?

Correct.

Okay. And just 2 other quick things. In terms of the Sanitaryware, where you're putting about almost INR 80 crores with about 8 lakhs per annum of pieces, what would be the broad peak revenues that can come out of that?

Revenue will be around INR 175 crores to INR 190 crores.

Okay. So about 2x, 2.5x a sector, one should work with?

Correct. Correct.

Okay. And just one last thing. [ PL ], channel checks are suggesting that April, given the inflation and other things post March has been a slowdown for most of the building material product. Is it -- are you seeing that surprise as well?

We've been okay. It was a decent month for us. We're not seeing a slowdown.

Our next question comes from the line of Sneha Talreja with Edelweiss Securities.

Just 2 questions from my end. Firstly, I just wanted to understand what would be the current run rate of this lab plan that we must be doing an approximate percentage, [ securing ] in terms for overall revenues, just to get a sense that how much would be outsourcing and how much are we getting it from the South plant?

It's a very, very small number -- a small percentage of our entire sales. So our plant is just starting in South and we just commenced commercial production on 16th of May. That was yesterday. So let the materials come out, then we'll take a call, but it's too early to say. We just started.

How long have we been outsourcing?

Little bit. A little bit.

Got that. And secondly, just wanted to understand about the margins. You highlighted a couple of things apart from power and fuel costs going higher, I think paper prices, freight prices, any of those costs have normalized and the 2% price hike takes care of what proportion of the price increase? Any sense on that so that we get to know what could be the margin run rate going ahead?

Margin run rate, I can't tell you right now, as I said earlier. But if you look at the overall cost, in this particular financial year, starting from April, the cost would have -- should have gone up by about 2%, 3.5%, taking into account the difference between quarter 4 of last year that was the year we just ended, and quarter 1 of this year. But with this 2%, we cover part -- we are not covering fully. And as we go forward, we'll see how the gas price is there, because the main factor would be the gas prices. Paper prices, which have gone up are now stable right now. It has not come down. And freight costs have normalized, because there was a freight increase because of the [Foreign Language] and all that. So that is normalized. But whatever the diesel cost has gone up, the freight has gone up.

Understood. So that was helpful. Sir, last one, any flavor on the demand in terms of Tier 2, Tier 3 cities, how is it going? Your sense on the new versus the replacement demand that which one is picking up more? Are we seeing good amount of demand from the project side? I mean something were there on the demand side.

This is Chetan Kajaria. So we are seeing the ongoing recovery in the real estate sector and increased spending on home and workspace beautification and appearance. Also with the accelerated traction, not just on new projects, especially in smaller towns and cities, but also increased application of tiles in replacement and renovation projects. In fact, we expect very strong momentum from the smaller cities, Tier 3 and below going forward. For example, a couple of examples or sharing with you, one of the dealers in Bihar wants to open a 16,000 square feet shoring. So maybe a bigger in the year [Foreign Language] 38,000 square foot shoring. This shows the latent demand in the smaller cities, whether demand will come from in the coming future. I hope that answers your question.

Yes, it does. So largely from the Tier 3, Tier 4 cities, driving an additional applications that you're seeing from the tiles space, that's right?

No. Next 3 years, the demand will come from Tier 3 and Tier 4 cities. That's what Chetan was trying to convey. That's where the action would be in the next 3 to 4 years.

Our next question comes from the line of Keshav Garg with CCIPL.

Sir, again, on the question of gas prices, if I heard correctly, you mentioned that Q-on-Q, our gas prices, I mean from INR 49.79 to 3.3%. So sir, that's a very marginal increase, whereas if we see the newspapers are announcing that the government has doubled the administered price of gas to $6.1 MMBtu. And further from 1st October, it is further expected to increase to $9-point-something per MMBtu. Sir, so in that case, how some our...

Yes. My dear friend, we are not getting that gas. That gas is not available to people like Kajaria and other manufacturers. That is for fertilizer, power and other sectors. The debts, which we are -- we are buying today is paying the price which you are paying is much, much higher than what you are talking about.

Sir, so I get your comment that you are not getting administered price gas but the market price of gas itself has shot up even more in the international market, sir. So I mean, then how come our gas prices are so marginally increased?

It's not marginally increase. I think you didn't listen. I just said, quarter 4 of 2021, my gas prices were INR 29 supplied by GAIL for [ SEM ]. And today, in the next -- a year later in the same quarter, I'm paying INR 49. It is 70% price increase in 1 year.

I get that but...

But it is at the peak. It is at the peak. Morbi prices were -- look, Morbi prices are INR 36 on 24th of August. It went up to INR 40 on 24th of August. It went up to INR 50 on 4th of October. It went up to INR 63 on 1st of November, and now it has gone up to INR 68. That means in a space of 9 months, the prices have gone up from INR 36 to INR 68, there's more than 80% to 85%. Who's saying it is cheaper?

Sure, sir. So I get your point totally sir, that throughout last financial year, prices have been going up. Sir, but my point is that quarter-on-quarter, sir, have the gas prices in the spot market not increased further? Q-on-Q, I'm talking about Q1 of this year that we are currently in versus last quarter?

See, quarter 3, the average gas price was INR 46.5, quarter 4, the average gas prices were about INR 50, and this quarter, the prices will be close to about INR 52 or INR 53, roughly. That's what it is.

Sir, and you are mentioning that you are also not sure about the supply of gas. So in case we are not able to obtain the gas that is required, sir, is there any alternate...

That doesn't apply to me. Why do you push such a question? That doesn't apply -- that applies to every single person in the country. If the worse continues, there is a problem. It will apply to every single person. Why this kind push?

Sir, and lastly, just wanted to get a broad idea that our cost of gas, sir, how does this compare with the other major tile manufacturers? So where do we fall? On the higher side? Or the lower side?

Our cost is lower side because we are getting north prices, which are lower.

Our next question comes from the line of Rajesh Ravi with HDFC Securities.

Am I audible?

Yes.

Yes. Sir, on the gas price, again, if you could give the breakup which you gave for an Q1 FY '23. For Q4 and Q3, what was the price across all the 3 regions north, south and west please? Or didn't you say it is for north, south and west in Q4, how were they?

Q4, the north was INR 45.5.

INR 45.5. Okay.

South was INR 60. And West, of course, was INR 62 because it is a GSPC.

Okay. And this Q3, how were the numbers?

Q3, the north was INR 43. South was in INR 55.5 the west was INR 58.17 on average because the prices went up so fast for those numbers.

Okay. And for FY '21, could you share these records, please, you get for FY '22 average?

FY '21 full year?

Yes, full year.

North was INR 26, west was INR 28.5 and South was close to about INR 12.5.

INR 12.5 and now INR 60.

Yes, Kalahasti, [indiscernible].

Okay. And sir, now given that we have just -- from first of May, we have been able to take a 3% price increase. And given that even on a quarter-on-quarter basis, it is 78% jump in the average fuel cost, energy cost, how do you look at the margins sequentially? Because even in the...

Don't repeat these questions. So I already said margins, we can't comment at this stage.

No, no, no, I'm not saying -- you're right, you cannot comment. But I'm saying, are you already seeing pressure on a sequential basis on the margins, which has already come up to...

We don't know gas prices will be, but it's not in my hands today. What I can do, I can do. What I cannot do, I cannot do. Don't ask me to do something which I cannot do.

And given that your own production have now got commissioned, do you see that would improve -- that would lead to better margins vis-à-vis your...

It's sure. It's sure. It's sure.

Okay. And sir, just in expansion, what is the time line for that, [ Sanitaryware ]?

The Sanitaryware expansion will take about 15 months from here on.

15 months, so somewhere FY '24, second half, we will have this plant running.

Like '23, we should start commercial production.

Our next question comes from the line of Peter [ Agnel ] with [ SIMA ] Wealth Management.

Sir, my first question is that what -- can you please shed some light on what is the raw material basket cost this quarter and this full year? And at what raw material basket cost is it comfortable to maintain close to 18% margins according to you?

No. First of all, let's not [Foreign Language] don't put questions about 18% margin. I just said that margins, we are not able to comment on. Why are you putting that [Foreign Language] 18% margins, number one.

I'm sorry...

Number 2, as -- No, no, no. Number two, as far as raw material costs are concerned, raw material costs, more or less, are in line with what was in 2021 and '21/'22, except some increase in freight, even raw material is concerned because of the increase in the leisure cost and all that. And secondly, I also said that packing costs have gone up. The paper costs have gone up, as a result cost of boxes have gone up drastically. That's a 16% impact from that point of view on the cost of boxes.

My next question. Sir, the previous call, it was mentioned that in order to maintain the 15% plus volume growth, INR 300 crores of CapEx for the next 3 years would be planned. So...

No, I didn't say that. I said every year, it will be like that. Every year, it will be close to INR 300 crores of CapEx. That's what I said.

Yes, yes. So you can consider every year, INR 300 crores CapEx to the next...

Close to that. Close to that, yes. This year, we are already -- we have already spent INR 250 crores, INR 260 crores of CapEx in the 3 expansions.

Sir, just wanted to confirm that same thing what you mentioned last time on...

Yes, yes, yes. It is, yes.

And sir, my final question is that, sir, in terms of -- we are seeing that there's some new store openings. You shared some data on some newer dealers wanting to expand their stores. But any other key market share gaining strategies being adopted by you?

No, the simple thing is Kajaria has to grow at 15% to 20% in volume terms in the year, which we are talking about and 15% plus for the next few years. We have to have our dealer additions. We are talking about writing close to 400 dealers in the next 3 years. And most of them will be -- out of 400, you can say about 170 will be -- or 175 will be exclusive dealers of Kajaria. It could be a division which is -- it could be a dealer who's working in 2 divisions. It could be a dealer who's working all the 3 divisions. It could be a dealer either exclusively in 1 region. But definitely, it will be exclusive to Kajaria, at least 170 to 175 dealers out of the 400.

Our next question comes from the line of [ Shri Nik Pachawad ] with LIC Mutual Fund.

Sir, first question is so what would be the cumulative price hike in the tile segment that we have taken in the last 1 year and versus the unorganized players, how much we have taken?

Say it again, please? Can you repeat -- yes.

Please repeat your question? Yes.

My first question is, sir, what is the cumulative prices that you have taken in the last 1 year? And what would that be for the more -- the more de-organized players? So I'm trying to understand has the price difference reduced over the last 1 year?

We at Kajaria have taken about 10% price hike cumulative for the whole year. As far as 1 year is concerned, we are not aware what they have done because that you have to find out.

Okay. Okay. And sir, can you just give some light on how our master business is progressing? And how is the industry behaving on that side? And what is the growth that we can expect in the bus which you can go the next 3 years?

No, I just shared that -- see, 3 years is very difficult in the current situation of gas uncertainty because people are very distracted, more and more distracted here. And a 3-year scenario is very tough, but we can share that the coming year, it would be -- we are -- last year, they did exports of about INR 12,700 crores. I personally feel the exports would be as high as INR 17,000 crores to INR 18,000 crores this year because of the cost increase in Europe, still in Italy and China as well, a big, big cost increase. As far as the domestic is concerned, last year was about INR 21,000 crores. And if all goes well, it should be close to about INR 23,000.

Sir, my question was regarding the Bathware business of the whole year.

I'll tell you Bathware, we're looking at 30% to 35% volume growth in the next -- volume and turnover growth in the next few years. Every year, we at 30% to 35% growth in turnover. Like this year -- from this year, we did INR 210 crores to INR 235 crores, which is over 30%, 35% growth. We're going to maintain the same growth in the next 3 years cumulatively every year.

And sir, on SKU front, are we in line with the large market players in India?

Absolutely. We have all the products and we have all the product lines, which people have as well.

Our next question comes from the line of Jenish Karia with Antique Stock Broking Limited.

Sir, first question is what capacity utilization are -- can we expect going forward? Hello?

Going forward, we will tie our optimum capacity utilization as we keep on going forward.

Close to 95%, 96%.

Okay. Got it. And just one thing. I see that in -- for the quarter, the depreciation charge has gone up, but there's only increase in capital work-in-progress and not the net log. So is that the run rate we should be expecting going forward for depreciation?

Pallavi this side. We don't see this is going to be the run rate going forward. This is one of the case. We have charged a little higher depreciation in key of the assets as required, but this is not going to be the run rate.

Okay. Okay, so are there write-offs or...

Oh I know, there are a few assets which -- where we need to charge a little higher depreciation, and that -- this rate will change obviously because we have commissioned 3 plants. And you'll get new depreciation from April onwards because of the commissioning of the new plant. So this is not going to be the run rate.

[Operator Instructions] Our next question comes from the line of Anik Mitra with Walford Research.

Am I audible?

Yes.

Sir, can you throw some light on the Sanitaryware market? Like do you find any headwind for, like, Sanitaryware manufacturers especially for unorganized players?

We didn't understand your question. Can you just repeat what are you exactly asking?

Yes, sure. Can you throw some light on Sanitaryware market situation currently? Like is there any headwind for unorganized player in this particular segment?

So Sanitary market has a lot of demand. And that is the reason why we are expanding and putting up a very high-end plant, because we are getting that market -- demand from the market. We are not able to outsource much because the products are selling well, even from the unorganized market. So that's the reason. So there's a lot of demand happening. And that's the reason for our expansion.

Okay. So like, can you give a rough number, like, how much is the unorganized market of Sanitaryware?

Sanitaryware, a very unorganized market. I think over an entire market side, 60% -- 50%, 60% would be unorganized and 50% would be organized.

Okay. Okay. And one small question regarding gas prices, I came across that in Q4 FY '22, one of the manufacturers' not based out of Morbi, but obviously based out of Gujarat. They are saying that they are getting gas prices of INR 13 -- INR 13-point-something per MMBtu from Gail. So I just wanted to understand, is there any special arrangements, like, where Gail is giving much lower than market prices to some of the manufacturers, some of the players?

We'd like to remind, good luck to you for this information.

Our next question comes from the line of Mohit Agarwal with IIFL.

Sir, my question is on demand. So you've been mentioning that real estate is doing quite well. So I wanted to understand this 15% to 20% growth in '23. Is it going to come largely from the retail side or real estate project sales also will be a big focus? And if you could share what is the current share of project sales to developers in your sales mix?

This is Chetan Kajaria. So a majority demand comes from retail sales. Our normal split is 75% retail, 25% projects. So we are focusing on building more showrooms as CMD said, and more exclusive showrooms also. So that will split apart per day to project sales.

And just to add to that, the demand is coming from everywhere now there is a shift. Projects also happening -- government projects are also happening. So if we -- as we are looking at 15% to 20% volume growth, we have to cater to all the segments.

Okay. So broadly, the mix will remain same over '23 as well?

Yes.

Our next question comes from the line of Ritesh Shah with Investec.

Sir, my first question is, we have indicated guidance on volume growth. Rightfully, so we have not given any guidance on margins because of gas pricing volatility. But sir, how do you think of balancing volume growth versus margins? It's a bit of a philosophical question, but just trying to understand the core processes, sir.

First of all, there will be a very good balance between the volume sales and the margins. Right now, we are not able to answer. I could have answered this question of margin. But right now, because of uncertainty -- absolute uncertainty of gas prices, we are not able to answer that, I'm sure. Next time, when we meet after 3 months, a lot of answers will be there, and we will know exactly what is happening. But just 1 information I must share which I said earlier that I wish to share again, the gas prices, 1.5 months, that was close to $33 for the spot market pricing. Today, the prices have come down in the international market to $21. That means the scenario is improving. If scenario improves, definitely, people like Gail, people like GSPC, everybody will bring in oil. They will try to find better opportunities and try to bring the prices up. If the prices come down, it will definitely not only benefit Kajaria. It will benefit the entire industry. So I think we should wait for 3 months to 3 months when we meet next. You have a lot of answers in this, because this is a very difficult time, so we are not able to give you the right answers. But definitely, you will see that gas prices have to ease. Because lot of developments have happened, people are trying to explore more options, so things should ease. But only thing one can tell you with confidence that at Kajaria, we will do this 15% to 20% volume growth with the 3 new expansions coming up.

Sure. Sure, sir. Sir, my second question is, you did indicate a withdrawal of this INR 210 crores pertaining to slab highlighting economics, right? How different would it be for, say, GVT EBITDA if it costs ceramics? I understand that is something which is a niche product. Is it entirely contingent to the product category that we are looking at? Or does it also put that question of under economics or any incremental capacities, which are actually coming up in Morbi?

To answer this question, basically, this plant we were putting to feed all over India for this slab plant. But then looking at the gas question, again, I think the supply -- we said, let us -- we have just completed expansion in our Tirupati plant, and this is the latest technology from Italy called CONTINUA+ and we are the only plant in India -- sorry, south of India to have this technology. So we thought that let this plant start, let us start feeding the north and the western market from this plant. And as we go along, we take a call. So that's where we have deferred the expansion as of now. This year, I think we'll be complete without it. Later, we'll see how we'll -- we'll call later.

Correct. Sir, what I'm trying to understand is if a company like Kajaria withdraws it, which is a good thing, what happens to the smaller players in Morbi, given their cost over this something similar. We have balance sheet, brand, working capital, everything on our side. Does it mean that there is an evident shift which will happen when it comes to volumes, which will come to the larger like Kajaria?

No, you're not getting it right. It's more a strategic goal. We are not seeing the volume, give you a volume pressure. Something -- it's more a strategic call that we don't want to invest so much money in Morbi right now. We want to see how the south plant is, see that demand and then take a call. That does not mean the demand of the product will be not there. We have taken a strategic call looking at the higher gross gas price and the gas cost and supply. But to also add to that, there's no more new slab plant being added in Morbi. We have put it here as per the knowledge we have.

Sure. That's pretty useful. Just last one question for Ashok-ji. Sir, you indicated the export market can go from INR 1,200 crores, INR 700 crores to INR 18,000 crores. Sir, can you give some more data points? Basically, if -- highlights what the container freight charges are if the export runs for more [ area ] they got on a monthly basis of late, which gives us confidence of this INR 18,000 crore number because if it's a sizable number. We understand gas prices in Europe. But in India, the other variable is container freight. How should one understand this sir, can you please help?

Okay. Good question. The cost in Europe, which is the biggest export market, you see, for your information, Italy exports 70% of its production for exports. Spain exports -- 78% of its production is exports. These countries, the cost of their electricity, as I said earlier, from November, December onwards has gone up by 300% for electricity and 400% for gas. Plus paper, plus pallets, everything that has been written in the ceramic volume, we're matching. With this, India will become viable. In India, we'll export to many markets, including U.S.A., where our presence was much less, and these markets will open up for India. And I'm sure with the kind of aggressiveness that Gujarat people have from Morbi in exports, they will be able to do the numbers which I'm talking about, because our costs have not gone up that high compared to the cost of Italy and China, so that's one reason. In the month of March, we have done exports of INR 1,200 crores, which had fallen as low as INR 800 crores in the month of December, January. They have built up. They have done INR 1,200 crores. I'm sure -- April data, I don't have, but I'm sure with the ongoing time, the numbers would be met, whatever we are talking about.

Sir, this is very useful. Just a related question, sir, is there a raw material line, sir, when it comes to the European, umbilically, referring roughly to Spain when it comes to procurement of raw materials from U.K. Is that also annual what I'm referring to today...

They have this problem. They are working to solve this problem, but they have a serious problem. In Europe, Spain and Italy, they use a lot of Ukraine clay for the manufacture of their slabs, so they're having a very serious problem. But I'm not touching that issue right now. I'm only touching the issue of electricity and gas and other input costs like paper, I said. There also, the cost have gone up, pellets, freight. Everything has gone up, so I'm not touching that thing or going to comment on it. But this is something -- this shipping here, can't comment on. But they're having a very serious issue.

Our next question comes from the line of Saumil Mehta with Kotak Life.

Two questions. First, on the bookkeeping, what was the total A&P spend we have done for FY '22 that -- as a whole. And any guidance on FY '23/'24 for ballpark?

You're talking about the advertising spend, right?

Yes.

We spent around INR 80 crores in F1, financial year '21/'22. And we've seen a slightly higher spend in this coming financial year.

Okay. So as a percentage of sales, that number should be still 2-odd percent versus 2% and 3.5%...

At [ 2.7% ].

Okay. Perfect. And the second question is more on the working capital now. Obviously, we have seen some moderation of working capital, which is to be about 65, 70 days. Attach these days in the '19/'20. From there, we are down [ 50 ]. If I take, slightly, a longer history, maybe '14, '15, '16, we used to be average 30 days of working capital. So from there, working capital is still about 50. Over the next 2, 3 years, do we believe that working capital days can actually come down with more formalization, maybe smaller players getting out of the system based on more shares? How should we look at working capital?

When you compare the EBITDA, you're forgetting that the years you are talking about, there were a lot of imports of [ polyeffectified ] tiles from China. And then you import. You have less requirement of money because you pay upfront, 80 days. When normally, if you look at the 3-year data, exports and imports have stopped for the last 6 years. If you look at the data from '18, '19, '20, '21, you will find that the working capital has been roaming around here. And going forward, it could be 1 day 2, 3 days plus, 2, 3 days minus. That's about it.

Thank you. Our next question comes from the line of Sumakesh with Carlyle.

Am I audible?

Yes.

I want to understand how the product mix has moved between GVT and ceramics. If you can do a comparison between FY '21, '22? And what is the projection of the budget for FY '23. The more structural thing that I'm trying to understand is that have the consumer demand changed because of this pass-through of gas prices?

So the revenue mixes are following, ceramic is 38%, PVT is 32% and GVT is 30% and the volume mix is 44% ceramics, 30% PVT and 26% GVT. And we see an equal growth opportunity in all the 3 divisions going forward. Nothing much has changed. It's stable.

So we have basically not observed people moving from GVT to PVT or ceramics because of this inflation in prices, correct?

No. See, you are forgetting 1 thing. Chetan shared some data with you. We had a dealer-meet very recently. A guy in Bihar, who really, with Kajaria, has 4,000 square feet showroom near their bazaar. He's opening a 16,000 square feet showroom near that place and the demand is for all the products. Similarly, a guy in Rajab, which is when I drive from, I'm going to say, airport -- is in highway. He has 8,000 to 10,000 square feet showroom. He is top 10 of Kajaria. He wants to open a 38,000 square feet showroom. So -- he's an highway. And so he sells everything. So it's not a question of the price. Change will make a difference. People are making house once in 5 years, once in 10 years. They want the best of everything. And the impact of the total cost of tiles and cement in the house is about 6%.

I understand. The only reason why I was asking this question is because earlier you had mentioned that there's only a certain level of price increase that we can take. And the basis that I was given is...

It is not because of any other thing. That is because we have to beat the market. We have to complete the 700 people from Morbi and we have to compete with other more organized players. So keeping that in mind, we have to strike the right balance. It's not a question of what the market will take. It's a question of you have to be there to sell. You can't have 15% to 20% volume growth and you take a price hike just like that. So it's actually a very balanced approach.

Our next question comes from the line of Devanshu Sampat with ES Securities.

Just one question. So your plans for exports have been moving as for how the scenario has been. So now that you're saying that it's slightly improving, can we expect a higher contribution or -- from export to Kajaria?

No. Kajaria is not -- you don't expect much contribution, because we want to focus more on domestic market. Kajaria is hardly doing about 3% of external exports. We would like to maintain that even in future.

Our next question comes from the line of Keshav Garg with CCIPL.

Sir, just wanted to understand the competitive scenario. Sir, so do you think in your judgment, the organized players, especially in the tiles, are they basically passing on the prices? Or are they basically holding on to prices for the sake of volume? So what is the basic direction that the competition is taking?

A mix of both. See, depending on what your individual mission is, my mission is, right now, to have a 15% to 20% growth as Kajaria. That's our mission. Keeping that in mind, we will do a balance price side. And if you are not looking back, if you look back last year, in spite of everything, we have taken a 10% cumulative price hike, right from April to July to October to November. So now we are only in the month of May. We have already taken a price hike of 2% from 1st of May. If the situation demands, why should I miss that opportunity? But I can't say it today. Let the market move and then we'll take that call.

As there are no further questions, I would now like to hand over the conference to the management for closing comments.

Great. Thank you very much for this interaction and thankful to all the participants who have given their available time and spent here and put some good questions. And we, as a management, plus our team of Sanjeev and Pallavi will be too happy to answer any questions later on, on an individual level basis also. Many thanks for this meeting today, for this call today.

Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.