Kajaria Ceramics Limited (500233) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kajaria Ceramics Limited Q1 FY 2023 Conference Call hosted 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 Choudhary from Spark Capital Advisors (India) Private Limited. Over to you, sir.

Thank you. Good evening, everyone. On behalf of Spark Capital Advisors, I welcome you all to this call. 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. Over to you, sir.

Hi everyone. It gives me great pleasure to welcome you to the Quarter 1 F '23 earnings call of Kajaria Ceramics Limited. As already said, joining me on this call my sons, Chetan and Rishi; our CFO, Sanjeev; and Pallavi Bhalla from Investor Relations. All of us sincerely hope that you and your family are safe and healthy. We are very pleased to announce our first quarter performance, which again demonstrated our resilience against a backdrop of geopolitical uncertainty and high commodity prices. We have achieved sales volume of 23.33 million square meters in quarter 1 of '23, with a turnover of INR 1,008 crores by ensuring full capacity utilization, despite energy supply disruptions and unprecedented increase in energy costs. This year remains challenging for the industry, due to escalating costs for almost all inputs. Industry has started to pass on costs to end users. It was difficult for us also, but we have leveraged our brand equity to drive a 2% price increase in May 22, which enabled us to maintain our margins at 50% plus. Also our new capacity of this plant in Kalahasti, which got commissioned in May 22, has also helped in maintaining the margin. This plant has the most advanced technology, continue plus from San Italy, for slabs manufacturing in South India. When we started the joint strategy years back, we started with the manufacturer of 4-inch by 8-inch tiles. And now we are making 40X80 tiles slab at this plant. Going forward, the only major headwind for the industry is the possibility of further rise in energy prices. It is difficult to predict how the current scenario of geopolitical tensions, escalating inflation and supply disruptions will play out. And hence, we will not be able to give you any guidance on margin for the next few quarters. However, the demand scenario continues to be healthy, given traction in the real estate sector, despite high input costs and increasing interest rates. At present, we are witnessing a greater momentum and the tier 2 and cities below, what is the macro. With India's GDP growth that get 6% to 8% over the next couple of years, the domestic tile industry could, in turn, built in a similar demand growth, especially driven by the government push for investment in infrastructure and low-cost housing. Kajaria's growth will outpace that of the industry, and we will deliver between 15% to 20% volume growth in financial year '23 on the back of improving demand from Tier 2 and below cities, distribution expansion and domestic market share gains as more, many players are continuing to focusing on exports. Export momentum has improved in Morbi after being impacted for a few quarters. And we anticipate that export market will grow in double digits going forward. Now for this quarter's performance. In quarter 1, consolidated revenue from operation increased by 80% on a year-to-year to INR 1,008 crores from INR 562 crores in quarter 1 F '22 because of a lower base. Revenue from the Bathware segment grew by 93% from INR 37 crores to INR 71 crores in quarter 1. Revenue from Plywood segment grew by 279% from INR 5 crores to INR 20 crores in quarter 1. EBITDA margin for this quarter stood at 15.23% as compared to 14.32% in the corresponding quarter of the previous year. Consolidated PAT in quarter 1 is INR 92 crores. As on 30 June '22, working capital gains have increased by 5 days to 57 days as compared to 52 days as on 31st March '22, due to buildup in stocks of newly commissioned plants. There are 3 plants we commissioned. With this, I take this opportunity to thank you for joining us today. Over to you for Q&A, please. Thank you.

[Operator Instructions] The first question is from the line of Sujit Jain from ASK.

Numbers, sir, if you could just give us a sense as to what kind of exports...

Mr. Jain?

Hello? Yes?

Can you please unmute your line? We'll check back. Meanwhile, we are taking the second question.

Can you hear me now?

The line of Mr. Rahul Agarwal, please go ahead.

Yes. Am I audible? Hello, I'm audible?

I think you need to check the connection. I think they are not connected maybe.

Let me check. Mr. Rahul Agarwal?

Yes, can you hear me?

Yes, sir. Yes, go ahead.

Okay. Congratulations for a good set of results. Sir, firstly, what was the average gas price for the quarter? Could you help with Northwest South pricing, please? And the trends for second quarter?

In the quarter 1, the North prices were around INR 52, South was about INR 60 and West was about INR 67 for this year.

And how are the trends, sir, for the second quarter? What are you seeing there?

And they're very vibrant. Let's check me. Every time the problem is there. Sometimes we cut gas. You have to outsource some various measures. It's very, very, very fluctuative right now. Very, very difficult right now.

Okay, okay. No problem, sir. Sir, second question was on the South Asian Ceramic acquisition. You are putting about INR 28 crores there, 4.8 million in MSM capacity. Could you help what kind of tiles are these? And do you know what drove this acquisition, please?

Okay. So this is Chetan Kajaria here. South Asian Ceramic is the plant, which is 1 hour from Hyderabad Airport. It mainly manufactures 2 sizes, 60 by 60 and 60 by 120 centimeters ceramic floor tiles. The installed capacity is 4.8 million square meters. And we are doing this acquisition to strengthen our base in South, mainly by cutting the transit time from Morbi, trying to service the smaller dealers and increasing the rotation of the tiles of the dealers based in South India.

And sir, in terms of gas supply at this plant, is that already present?

We have LPG connection there.

Okay. Got it. And sir, last question was on the Sanitaryware in plywood segment. EBIT margin looks a bit lower quarter-on-quarter. Any specific reasons you want to highlight, sir?

Can you repeat your question?

The question is, when I'm looking at the EBIT margin for the other segment, which is basically the Sanitaryware in plywood, it is 4.4% for the quarter. It was about 5.5% fourth quarter last year. Any specific reason for the margin being low here?

This is Rishi Kajaria. One, the sales was low with the market conditions. And even the raw material costs were a little higher. I think it was corrected this quarter onwards.

Okay. So you've taken price hikes there again in 1Q?

Sorry?

Have you taken price hikes again in first quarter for Sanitaryware in plywood?

So we've not taken any price hike, but things will be better from hereon.

We have our next question from the line of Mr. Achal from JM Financial.

My first question was with respect to the other expense, can you help us with the A&P expenditure for the first quarter, sir? Is there any reduction Q-o-Q?

Yes.

Can you quantify, please, Pallavi?

Advertisement has been less in the first quarter, but it's been INR 19 crores in the first quarter.

And how much was that in fourth quarter, if I may ask?

Fourth quarter was INR 22 crores. But for the year ahead, little bit -- last year, we spent about INR 80 crores on advertisement. This year [indiscernible] plus for advertisement.

Sorry, how much? I couldn't hear that. How much?

The last year, total spend on advertisement was INR 80 crores. This year, we are looking at INR 100 crore plus.

INR 100 crores plus.

Yes. Normally, first quarter, it is low and then it starts picking up from there.

Got it. And secondly, with respect to the outsourcing volume -- or rather realization, if you look at the realization for the outsourced tile, it has declined Q-o-Q. So just wanted to understand is there any down-trading or lower value added, sir?

It cannot decline. It cannot decline Q-o-Q. It's the same product that we are selling. So it cannot decline. It could be margin 1%, 2% here and there, but it's minus 1%. It's nothing. So that depends sometimes to the product mix. But there is no change -- there is no difference in the prices, what we are seeing manufactured and outsourced.

Understood. Understood. And with respect to the current, if you could help us in terms of the gas mix in the North plant and the South plant.

I can't help you in anything. I can't help you. Currently, it's every day is a different way. Because sometimes it can be -- the price at Morbid remains the same, the price at South is about INR 72. In North, there is a fluctuation on a daily basis because sometimes we can't, we have to source it from spot market and all that. So it's very difficult to tell you right now what will be the price for the quarter.

Sir, well, I wanted to check in terms of the mix in North. Earlier you had indicated 70%...

Very vague question right now. It's very difficult to answer, very difficult to answer on the guess plan.

No problem, sir. And just one more question, if I may, with respect to Morbi's announcing the closure for 1 month. How do you see it playing out on the industry and for us?

I think you not only asked your question, you have answered yourself. It will be positive for organized.

Our JV plants will not participate...

Our JVs are also...

I'm sorry, sir, we couldn't hear you.

Our -- first of all, our own plants are operating in full. And our JVs in Morbi are also working.

We are not taking any shutdown.

We are not taking any shutdown. And so that answers your question by itself.

Correct.

Roughly, you can say that we are closing their plant on 10th of August to 10th of September. There will be no dispatches from 15th of August to 15th of September. And 85% of Morbi will be closed. Some people will be working. Some people who are based on exports will be working. And you can roughly take that 85% capacity will not be working.

And what about [ Ranila ], the outsourced vendors? Would they be working or shut down?

Our outsourced vendors are, you can say, 70% are working. 30%, who are the smaller players, have to close down. And thus, we are building up stocks to make sure that we don't have any problems in sales from our outsourced people.

We have a next question from Onkar Ghugardare from Shree Investment. We have Mr. Sujit Jain from ASK.

Am I audible?

Yes, sir, you are. Please go ahead.

Yes, am I audible?

Yes.

Yes, sir.

I just wanted to check, Mr. Kajaria, what is your estimate of exports this year from the industry full year FY '23?

For the industry, it should be close to 16,000 crores or maybe slightly high. Definitely not less than 16,000 crores.

And what would that figure be for FY '22 full year?

INR 12,700 crores. In case, while it will be INR 12,700 crores.

Right. And what was the average cash cost for the company as a whole for the quarter?

For this quarter?

Yes.

INR 55.

Right. And when we manufacture the product in-house versus the outsource, are the margins better?

Slightly better in our own manufacturing. Slightly.

Right. And one last question is you acquired this company close to 4 million to 5 million square meters at around INR 28 crores, like you said, INR 51 crores.

4.8 million square meters, yes.

Right. If you were to pull that facility, you yourself, what would have been the CapEx for this?

See, a CapEx like that in a stand-alone plant is close to about INR 120 crores. And that is what we have acquired it for, because basically the capital employed is INR 60 crores. And INR 60 crores is a debt, like we put the individual plant in few of this capacity, the cost to stand on plant anywhere in India will cost you about INR 100 crores, to INR 120 crores. If I put up in Morbi, it can cost about INR 100-and-plus crores. But any other player, it can cost about INR 120 crores.

And plus, there is also a time lag of 24 months of putting a project like this in South.

And secondly, also 1 information which Chetan just said, earlier the machine deliveries was 3 to 6 months. Now minimum machine delivery from either China or Italy is 9 to 12 months minimum because of COVID. They are suffering from COVID more than what we anticipate sitting here.

Right. So this acquisition is close to INR 60 crores for 100% plus or INR 60 crores debt, so INR 120 crores of EV. And which is what your cost would have been if you were to set up this plant you yourself?

Absolutely right, yes, sir.

We have our next question from Onkar Ghugardare from Shree Investment.

Can you help me with your CapEx plan for this year, sir?

See, every year, we have always said that for the next 3 years, the same is already done. And for the next 2 years, we are looking at 15%-plus volume growth. And if you look at it, the CapEx plan should be anywhere between INR 200 crores to INR 250 crores.

Each year, right?

Each year, each year.

Okay. And how you would be funding that internal accruals? And how you plan to utilize the cash you have?

Internal networks, Internal networks. Internal accruals.

And how to -- how you are planning to utilize the cash?

How do I...?

After the CapEx, we have revised our dividend policy. We'll be paying -- in fact, we have paid also last year INR 11 dividend. So the cash, separate cash will go for expansion and dividend payments.

40% to 50% is -- of the earnings is a dividend policy.

And one thing you mentioned that you won't be giving guidance for margins for the next 2, 3 quarters. So any specific reasons for that, only because of fluctuating gas prices?

We can't give up margin guidance because the gas...

I think you have not listened to me before. I have made myself very clear. With this global uncertainties, there is no talk about margin right now. Please don't talk about this subject. Right now, it is struggling to get gas. That's a scenario on the ground. See, talking doesn't give me gas. Let me tell you, the situation is very hard on the ground. So let's not talk at our margins. We have assured and we have said last conference also that we are looking at 15% to 20% volume growth, which we are trying to do in all sincerity against the normal industry growth of 6% to 7%.

But at least can you hold on to this margin, that's what I'm trying to ask.

No, no, I can't say. I am making myself clear. I am not committing anything. And please don't keep on asking the same question again and again.

We have our next question from the line of Sneha Talreja from Edelweiss.

Congratulations on a good set of numbers.

Thank you.

Just a couple of questions on my end. You've mentioned in your presentation that you have and were seeing healthy traction in the real estate, plus you're seeing greater momentum in the Tier 2 and better markets. Just wanted to understand how is it differing this particular time and that too very different from Morbi, who is constantly complaining about weaker demand, both in the domestic and exports market and taking a 1-month shutdown? How are we differentiating ourselves? Is it product launches? Is it going into newer geographies? And how are we seeing higher demand compared to them on a regular basis?

So right, the demand is not that high. The demand is there, but what we -- how we are trying to gain more market share by doing these product launches and making sure that we sell more.

And the value of the brand.

And the value of the brand. Because of our brand value, we are getting that more...

More share of the market.

More share of the market. And we're also increasing our distribution, penetrating our network by opening more showrooms in Tier 2, Tier 3 parts of the country.

Could you give out there in terms of how much distribution you could have added within last 1 quarter itself or maybe last 1 year compared to last year?

So last year, we added almost 50 exclusive showrooms. And today, we have almost about 1,700 operator dealers all over the country.

Peer-peer expansion.

Sure. And we also understand that your visit to large plants of product launch, which was there after May -- after your new plant came into commission. How is it response within the large scale plant? And where do you see the segments moving in terms of it could be a percentage of sales or it would be in terms of margins. Some color on the large plant platform.

We've got an excellent response. We were late in this inventory. So with our South plant, when we launched these trials, we had a great, great response. And so it's just the beginning. We launched only in June. So going forward we see a good amount of sales of that. It will not be a very big volume, but it will give a good realization going forward.

Sure. Any reconsideration of coming up with the CapEx, which you have right now put on hold, the newer plant of [ Jaxx ] which you were going to come up in Morbi, just given the...

That's still on hold. In fact, we are looking at modernizing one of our North plant with the same cutting up technology. We're still working on it. But we're not going to put a new slab plant in Morbi.

Anything finalized on the North plant? Or that's in the process?

We're still working on it.

Sure. And then last question, the newly acquired, South Asian Ceramic just acquired, how old is the plant? And we could say, I think it was loss-making unit. Any reasons there?

The unit South Asia just opened 2 years back. And it was making losses because 2 years there was COVID. So the owners, who are Gujarati, could not run the plant at capacity. So now once we take it over, we'll start setting the entire production between this year and next year.

Sure. Understood. And I actually missed out the product profile that you mentioned, I'm sorry, if you could please share.

It's making ceramic flow tiles of 2 sizes, 60x120 centimeters and 60x60 centimeters.

[Operator Instructions] We have a next question from the line of Yash Khemka from Yashwi Securities Private Limited.

Congratulations.

Thank you.

Again, there is some disconnect.

Let me check that. We have Mr. Rajesh Ravi on the call.

Yes, am I audible?

Yes.

I have a few questions. First on this Asian Ceramics acquisition. What is the revenue potential for this INR 120 crore EBIT?

We're looking at a revenue of INR 130 crores in '22/'23 going up to INR 180 crores in '23/'24.

Okay. Great. So INR 120 crore itself, you are looking to achieve in this financial year, that to go to INR 180 crores.

Correct.

And second, you mentioned that the demand industry growth is 6%, and that you would be growing at 15%. Last financial year, if I remember correct, domestic market, so Kajaria said that market has contracted. So could you throw some sense that are we seeing a growth just because of a low base of last year? Or sequentially, are we looking at demand improving in the domestic market?

What is your question of low base? We have grown at 33% in volume terms '23...

No, no, for the industry. Because last year COVID -- it was impacted because of COVID. So this growth of 6% [ for interest ], is it just because...

Industry is passing through the toughest time what it is in the past 2, 3 years. And the key aspect is the gas cost, which has gone up from INR 34 in August 23 to INR 69 as of today, number one in Morbi. Number two, anywhere in India, MMS, as far as the gas is concerned, because of the geopolitical tensions. So all the costs have gone up. All the cost have gone up. All the costs have gone up. So that's why we are taking a grade, we are saying we will do it just like China and Europe. China, for Chinese New Year, they shut down their plants for 4 to 6 weeks. In Europe, Spain and Italy, they shut down their plants in the month of August for almost a month. So that's it. And for your information, that every year we will do this, not just the first year. Every year we have said that we will close for a month, timing might differ. So what we are trying to do, as Rishi said earlier, we are trying to penetrate in the local corner of India. And as I've said in my earlier talks that it's a GST which is playing forward. [Foreign Language] everybody is getting a good 18%. Earlier, there was a big cash play in smaller towns. They didn't want to join with the big manufacturers of the organized players because of the tax player. Now they say that we want to join whether it's Prism Johnson -- [Foreign Language]. So that's spoken right now from that part. And that is what we are trying to penetrate. We thought of starting this journey 2 years back. Unfortunately, because of COVID, it won't take place. We have started enforcing from April this year as well as be as possible.

And so like we doubled our south plant at Srikalahasti plants, taking a stake in the South Asian Ceramics. So all this will make a deeper penetration in other markets, north and west. We can go deeper in the south market and get more market share. So that's what we're working on.

Great. Sir, how much price increase has been taken in Q1 and Q2?

We just took a 2% price increase. See, we can't -- right now, the situation is not that the price increase can be taken because we start to take market share in the current market scenario.

Okay. So 2% price increase has been taken this quarter, Q2, right?

One on Q1. Q1 on first quarter.

Q1, okay, okay. And nothing has happened there after, right?

No.

Okay. So no, I'm asking this because gas prices are quite volatile. Even in Morbi, your prices are around INR 69. And how would be the gas situation in south, north is erratic but the south?

I think you're not listening to what I'm saying. I have already given the gas prices to the earlier guy.

No, that was for Q1, right?

I have given everything whatever is required. You can't keep on asking the same question again and again. Please don't ask that question again and again.

I'll take it from your transcripts.

Listen to what is happening.

We have our next question from Yash Khemka from Yashwi Securities Private Limited.

Yes, am I audible now? Pardon?

Yes, sir. Please go ahead.

So congratulations, first of all, on a very good set of numbers. I just had one quick question that are you planning to outsource any of the total conservatory and capacity? Or any more capacity expansion other than the ones announced in Gailpur?

No, we're not going to outsource any floors and sanitaryware. We already have a good manufacturing base. We're already increasing products and we have 2 right now work on more sales. So we are -- and we've already announced an expansion in the future. And our cost expansion is also going to come by October. So capacity is not an issue. We have to penetrate more and do our sales.

We have our next question from the line of Pooja from TCG Advisory Services Private Limited. I'm sorry, we have [ Mr. Chirag Saluk ] on the call.

Am I audible, sir?

Yes, you are.

Congratulations on a good set of numbers. I just have one question. And apologies if this is a little repetitive, but it's basically a clarification on the demand scenario in the domestic market. There are 2 sort of competing commentary. One is from the Morbi segment and the other from the organized there. If I were to request here, could you disaggregate the demand and tell us your 15% target, how much do you think the market is going at? And approximately how much are we taking market share away? I understand there are no exact numbers, but your best estimate, sir. That would be great pleasure.

As I said earlier, last year, the domestic market was INR 21,000 crores. This year, because of various reasons, which has already been explained, the domestic market will not grow more than 5% to 6%, and it should be close to about INR 32,000 crores, near around that as far as the industry is concerned. And as we just talked, the Morbi players are taking a 1 month shutdown because they are not able to shell at these prices, the costs have gone up. As per area now the brand is playing into play because of -- and the key factors which I've been saying in empty number of calls in GST. Earlier there was a big tax play between the so-called unorganized at that time or regional tax, whatever would you call it and the organized players. Now with GST at 18% and uniformity, whether you buy, I buy or somebody else buys, the dealers who have opened more and more showrooms, they are the vision and they're opening more showrooms. Earlier a guy used to have a 1,000 square feet showroom and the other dealer has a 5,000 square feet showroom [Foreign Language]. So that scenario is getting over now gradually. And I would say 80% is connected. The bigger showroom you have, you are more able to sell because you are selling a concept. You're not selling an individual tiles. You don't make a house every year. You make a house once in 5 years, so you want the best out of it. So you decide. And the price difference you are paying, if any, is because that showroom is displaying good set of products. So this is a change, and this is where the branded players, be it Kajaria, be it Somany, be it Johnson somebody, they are all should grow in this line. So we are basically taking a market share. When I'm saying, at Kajaria, our vision is for this year, 15% to 20% volume growth, we will definitely be taking our market share.

Understood. Very clear. Just if I may follow up the one question. This 5% to 6% market volume growth that we are expecting, if I were to back up, say, 3 to 4 months ago or maybe even 6 months ago, was this -- what the expectation was? Or has that expectation also kind of come down a little bit with time? I just wanted to know if there's an update on overall underlying market.

See, as far as the industry is concerned, industry was hoping for a better scenario because if you recall, the honorable Finance Minister said that I have spent so much of money, spent money on infrastructure development. This geopolitical tension, this war has made a mess of everything because the gas prices have gone up everywhere. And not only the gas, every single raw material has gone up. So as a result, together, the customer is not ready to extend the standout price increase. These are -- the gas prices on 23rd of August was INR 36. Today, it is INR 69 per SCM. You see in a difference of about 5 months and almost a year. So this is -- and gas is something like 30% at that time. Today, it is 38% of our cost of production.

We have our next question from the line of Pooja from TCG Advisory Services Private Limited.

Congratulations for a good set of numbers. So I just wanted a check on how -- the shutdown on the Morbi is working well, but then would not they like to dump their products here at lower market prices, since your penetration is more into Tier 2 and there are much more macro conditions impacting the phasing power of the people there. So how would you look at it?

See, they are taking a shutdown so that they can clear their old stock and get better realization. So of course, it's not to dump metal in the market. That is the least thing what they want. They also want to earn some money by manufacturing their products. So purpose is to clear the stocks lightning their inventory and make better margins going forward. That's the whole purpose of the shutdown.

Okay. So you do not see any threat on price realization point of view from this event?

Things [ going forward ] because they will try to increase their prices a little bit in the supply as the demand is there and increase the market. I'll take you a year back, I take you a year back. In July-September last year, if you would recall, Morbi had a 1-month shutdown for polished vitrified tiles and 1 month shutdown for ceramic tiles after that. And that was in the last financial year, was our best quarter. If you look at the numbers and otherwise, it was the best quarter where our EBITDA margin was close to about 22%. So that scenario, of course, was different, but that is what Rishi has said earlier. They are trying to correct so that the inventory reduces and they start a fresh so that they can also make money. Nobody -- they are spending so much of money in putting up this manufacturing facility is not for fun. They also want to make money.

We have next question from the line of Shrenik Bachhawat from LIC Mutual Fund.

Sir, mainly, I wanted to understand that as we are the most premium player, and I assume we will be having our best and largest stores in metro areas. But our update highlighted that we are seeing better demand from Tier 2 and below cities. So is there any specific reason that metros are weak currently?

Metro has less of a construction. They are more of a refurnishing -- recreation market and real construction is happening in Tier 2, Tier 3 cities in India as of now.

Okay. Got it. And sir, in this quarter we delivered a strong rate of [ 16% ].

Sir, since you asked this question, I want to give you 2 examples, which 2 of our dealer shared in our -- we had a dealer meet on 10th of May. I think for the benefit of everybody, I would like to share these 2 instances. There was a dealer from Bihar, a place called Bhagalpur, and out of that nearby Darbhanga. And the guy said, look, sir, last year, I did a business of INR 8 crores with Kajaria. This year, I will do INR 12 crores. Now that's a small thing. The important thing he said is that I have a 4,000 square feet showroom, and I'm making a 16,000 square feet showroom. It's in a small town which is what our drive, where the population is only 70,000. Then we have another dealer from Punjab, a place called Rayya, which is about 1 hour from Amritsar Airport. The guy has a 10,000 square feet showroom. He is in our top 10 of Kajaria. He said, sir, I'm making a 38,000-square-feet showroom. I said why you bought? He says, look, a lot of showrooms have come in my area and facing a competition. I want to make a bigger showroom. I asked him, what do you keep -- what will you keep? Sir, I am dealing with Kajaria, I will only keep Kajaria. So that's the reason. That's what we are seeing on the ground. So that's why we are saying this that Tier 2 and below, and that's where the real growth is coming.

Sure, sir. So to ask on that, sir, on the development of large stores, what is the contribution of our company? Like do we really help on designing the store? Or we also incur some CapEx for the store as our contribution in the development of the store?

So we give our expertise in designing the store. We give them the tiles and we give them some mockup scarcities and all that tings, everything they take care of.

Sure. And so for this quarter, we delivered around 6% volume on 3-year CAGR basis. So to understand the expectation for the next 3 to 4 years, what will be a fair expectation for Kajaria's volume growth? Is a 10%, 12% more realistic? Or you can assume a 14%, 15% volume CAGR for the next 3 to 4 years for the company?

See, we have already said in our earlier 2 briefs that this year, we are looking at 15% to 20% volume growth. Next 2 years, we are looking at 15% plus volume growth. That's our vision.

We have our next question from the line of Nikhil Agrawal from VT Capital.

Sir, I just wanted to understand, like do you have any provision for shifting to propane gas in any of your plants?

See, as far as our own plants are concerned, Gailpur, Sikandrabad and Vennar, we have no willing to go to propane. Because what you are seeing today, it's not that something which will be there for all time to come. We all understand that because of this Russia-Ukraine war, the gas prices have gone up there. The fuel price, gas prices are close to about $100. But gas is not easy to transport. So propane is an alternative. The kind of volumes we are doing -- we can see in Gailpur, We have run that plant 12 years on propane from '98 to 2010. With the volume what we are having, we cannot use propane or LPG. We have to run on line gas. As far as the Morbi plants are concerned, there is a scenario we can look at to have propane tanks because sometimes propane in a year is about 3 months cheaper than gas [indiscernible] particular set. We could look into that in the Morbi plants. And as Chetan said, the South Asia is already running on LPG.

Okay. Great, sir. And sir, just one more question. Sir, like given that U.S. is the biggest market for tiles and with the recessionary fuel that are currently overhanging on the U.S. and Europe markets, do you see exports -- do you want to see exports taking a hit like you've projected for a 16,000 crore export. But don't you see any impact on export because of the lower demand from U.S. and Europe?

No, no, that's for I am saying 16,000 crores is a minimum we'll do. We are today a very, very competitive because in Europe the gas prices, electricity price -- gas -- electricity prices have gone up by 300%, gas prices have gone up by 400%, and they are also very lacking. They are not getting enough gas. So a lot of plants are closed in Spain and Italy. And India, in spite of the rating is still very, very competitive. Even China, there is -- their prices have gone up by almost 60%, 70%, which I shared with you last time. So India [indiscernible] position, and we are the #2 producer in the world after China as far as [ commercial ]. So India is very competitive. And I am sure this year, the export will not be less than 16,000 crores. It could be even more.

Okay. Great. And just one last clarification. And an earlier comment you said that you are struggling to get gas, like did I hear it correct? Or was it -- did you mean something?

You absolutely heard it correct because that is having a lot of problems. Some of the cargoes have not been delivered as you might be aware, but I said, but you might be aware more than me as you are tracking many other companies, there is a disparity right now in getting gas. But we are managing some now because some of you have to buy a spot market to make sure that your plants run. That's why I am saying I can't give you the price, which will be in the second quarter as of today.

We have a next question from the line of Saumil Mehta from Kotak Life.

First is on the clarification, when you give a 15% to 20% volume guidance for this year, does it include the revenues from the newly acquired? Or that should be over a number of the normal guide of 15%, 20%, which you [indiscernible]...

[Foreign Language].

Okay. And sir, second question is with respect to propane now, what we hear is opposite. The last month, that was about INR 9 to INR 10 cheaper. Now for the larger players like us, does it really -- in fact, because the cost of production for the Morbi guide will be down by about 5%, 6% of the total production level because of the gas.

I think we are not able to answer the scenario. Let me put this question. First of all, we have already discussed that Morbi players are shutting down their plants for 1 month from 10th of August to 10th of September. If they are cheaper by 5% to 6%, thereby they are not running their plants. My first question would be, so it is not only propane or gas, all kinds of pressures are there as far as prices are concerned. That's why we are taking this. And as Rishi said earlier, they are trying to clear this, so that they can make more money in the future. Because ultimately, they don't make money. How will they run their plants? So it's a very nice year. They are also saying, as I said earlier, that we will do this every year 1 month in a year, so that there is no undue pressure.

Okay. Perfect. And sir, what would be the channel inventory very roughly versus historical levels given 1 month shutdown? It seems like the channel inventory would have gone up. So very roughly, a number of days would be what? 15, 20 days higher than what usually we had that's around this point in time?

They only do you know. We don't know. We are not Morbi. Only they know there are 600 plants here, they would only know, how would we know? We only know that they are shutting down the plant for 1 month. No supply from 13th of -- 10th of August to 10th of September. No supply from 15th of August to 15th September. We know that much. And we have already said, and I think other organized players may have said that our JV is in run because we are able to sell, so we'll renovate.

And sir, last question is, are we seeing some sort of increase in again target given by the Morbi players, it is from our channel partners from Morbi dealer to it?

No, they are not giving any credit anymore. I think when Chetan was a Chairman of ICCTAS about 2.5 years back, we had a meeting during the first pandemic. That was sometime around July 2020, where the organized players and Morbi players had a good check. And after that, they had stopped giving much credit to the market. And let me tell you, and you can recall that we are giving much, much less credit what used to be happened earlier. They can give a discount, they can give a sustanal, but no credit beyond a certain period. They are very, very tough on that.

We have our next question from the line of Pooja from TCG Advisory Services Private Limited.

Sir, I have 1 or 2 questions. First, would you like to share your aftersales services data, if you have any? What is the progress? And what steps are taken to minimize that with respect to that? And secondly, I would also like to know that if export is such an opportunistic market with such high gas prices, why are Morbi players feeling that -- I mean, witnessing that the supply has exceeded demand? It should have run well for them. So I would like some idea on that, too.

I didn't get your thoughts. I didn't get your thoughts. The after sales service like that, you said, bigger than this, there is no complaints, there's no issues as such. So yes. And what was the second question?

The second question was this export in such an opportunistic market with high gas prices all around the globe, with India having an opportunity to get more and more exports, then how are Morbi people not grabbing that opportunity and going for shutdown? I mean...

[Foreign Language] and this year they will do 16,000-plus. So they are grabbing every single opportunity. Whatever they are trying to do, it will even cross 16,000 plus. Believe we -- this export sale much, much more because first quarter is always tough. And the geopolitical tensions, a lot of problems are there, the moment things slightly improve the exports from India. Right now, the current exports are 1,200 crores per month. The moment the situation improves, believe me, it will be anywhere between 1,500 crores to 1,700 crores per month, at the first opportunity.

We have our next question from the line of Daryush Mehta, an individual investor. Mr. Mehta, please unmute your line.

Hello?

Yes, sir, we can hear you. Please go ahead.

Sir, I had a couple of questions. The first question...

His line is disconnected. We have a next question from the line of Ritesh Badjatya from Asian Markets.

Congrats team for a different performance. Sir, just one question. Based on the overall conversation, I understand incremental demand is coming both from Tier 2, Tier 3 cities. So just wanted to understand, is there any meaningful difference when we are serving back to time Tier 2, 3 market in the terms of cost structure? And product related, what can be the difference when you are taking that current Tier 2, 3 markets?

So there is no difference in the product or anything like that. And Tier 2, Tier 3, the more growth is coming with that, that's only that Tier 1 is not upselling. Tier 1 is also selling, but Tier 2, Tier 3, they are more -- more volumes are coming, but the product line is similar. And it is just because of a deeper penetration in the market by opening more showrooms and displays, that's how we're getting their market share.

Yes. But how -- is there any meaningful difference when we are concluded the cost to serve macro and Tier 2, 3 markets? Like in the metro we have higher manpower costs and other warehousing or other shop-related cost is also higher compared to Tier 2, 3 market.

We have no [indiscernible] because we don't own any shops. All the shops are dealers. And it comes to manpower, they are all similar. We have manpower all over India. So whether it is a Tier 1 or Tier 2, Tier 3, the manpower cost is more or less very small cost, small difference.

Okay. So not any meaningful difference?

Not at all.

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

Thank you very much. I think good questions were answered. We try to do our best to answer them in the right manner. So thank you very much for organizing the call. And if people have more questions, our team of Sanjeev Agarwal and Pallavi are there to take care of those questions. Thank you very much.

On behalf of Spark Capital Advisors (India) Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.