Kajaria Ceramics Limited (500233) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference Call of Kajaria Ceramics Limited hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference to Mr. Arun Baid. Thank you, and over to you, sir.

Good evening, ladies and gentlemen. On behalf of ICICI Securities, I welcome you all to the Q3 FY '24 post con call result of Kajaria Ceramics. From the management side, we have Mr. Ashok Kajaria, CMD; Mr. Chetan Kajaria, JMD; Mr. Rishi Kajaria, JMD; and Mr. Sanjeev, CFO. Now I hand over the call to Ashokji for his opening remarks, post which we have the Q&A. Over to you, Ashokji.

Thank you, Arun. Very good evening to everyone. It gives me great pleasure to welcome you to the quarter 3 '24 earnings conference call of Kajaria Ceramics Limited. Joining me on this conference call are my sons, Chetan and Rishi; my grandson, Kartik Kajaria; our CFO, Sanjeev; Nehal Shah, DVP, Strategy; and Pallavi Bhalla, GM, Investor Relations. Considering the privilege and sustained demand changes in the tile industry, the tile volumes continue to remain muted in quarter 3 '24 as well. Our volumes executed a modest year-to-year growth of 6%, reaching 27.09 million square meters. Even though Gujarat price gas -- gas price increased by 17% since August '23, the Morbi manufacturers have not taken any price hike. Despite the existing challenges, we maintained a positive outlook for the tile industry's demand in FY '25. Considering the likely rub-off of strong real estate demand to drive improvement in offtake for tiles in financial year '25, we are confident of achieving better-than-industry growth going forward, driven by our extensive and relentless branding and distribution efforts. The consolidated revenue for the quarter amounted to INR 1,152 crores, indicating a 6% increase compared to the corresponding period last year. The EBITDA margin for quarter 3 stood at 15.52%, representing an increase of 332 basis points from the same quarter previous year. The progress of our previously announced Nepal project is slightly delayed due to heavy rainfall in the last quarter. We now anticipate commissioning of 5.1 million square meters of glazed vitrified in ceramic capacity by June '24. On the export front, India's tile exports have experienced a remarkable 49% growth, reaching more than INR 12,300 crores from April '23 to October '23 compared to INR 8,278 crores in the same period in the previous year. Our exports have slowed down post October '23, with the issues prevalent in the Suez Canal, leading to uncertainty in the region and sudden spurt in an ocean freight. Once the situation eases in the Suez Canal, we hope the growth momentum will pick up. Now for this quarter's financial performance. In quarter 3 '24, the company achieved a 6% year-to-year increase in consolidated revenue from operations, reaching INR 1,152 crores compared to INR 1,091 crores in quarter 3 '23. Tile segment grew by 3% year-to-year growth in revenue, reaching INR 1,013 crores compared to INR 984 crores in quarter 3 '23. Bathware segment registered a 16% growth in revenue, reaching INR 92 crores compared to INR 79 crores in quarter 3 '23. The plywood revenue increased by 81% during quarter 3 '24 to INR 34 crores as compared to INR 19 crores in quarter 3 '23. Revenue from adhesive grew by 42% to INR 13 crores in quarter 3 '24 as compared to INR 9 crores in quarter 3 '23. PAT for the quarter grew by 40% to INR 104 crores in quarter 3 '24 as compared to INR 74 crores in quarter 3 '23. As of 31st December '23, the working capital days increased to 60 days from 53 days as of 30th of September '23. With this, I take this opportunity of thanking you for joining us today. Over to you, Arun, for Q&A.

[Operator Instructions] The first question is from the line of Pranav Mehta from Equirus Capital.

Sir, I wanted to understand your strategy on the tile adhesive business. So basically, what I understand is that even Pidilite is seeing a very fast growth coming in from the tile adhesive business up there. So just wanted to understand how you are going to forward into this business?

See, Pidilite is a very large company. We can't compare Kajaria with Pidilite on that front as far as adhesives are concerned. Adhesives, we have just started about a year back. And now with Kartik coming in, we have handed over this division to him. So we are trying to increase the business. This year, we should be ending up with about INR 50 crores. Next year, we are targeting anywhere between INR 75 crores to INR 80 crores. And we hope this business should grow to INR 200 crores in the next 2, 3 years, that's what we are looking at. Because with the increasing users of tiles and the bigger size of tiles, adhesive market is growing bigger and bigger over a period of time.

Sure, sir. And sir, my next question was related to your acquisition in plywood. So basically, now we are looking for an acquisition somewhere in North India. So if you can throw some light on how you are going to move ahead in this business now that we have been doing kind of a trading business for 3 to -- or last 2, 5 years. And what is the strategy here going forward?

Pranav, it's Chetan here. Can you hear me?

Yes.

Okay. So last year, we got turnover of INR 77 crores in the plywood business. This year, it should end at INR 100 crores, and the next year target is INR 150 crores. The main reason for the acquisition of the plywood plant in North India, we were facing a lot of issues in supplies and quality because we were outsourcing a lot of small, small units in North and Central India. But now with the acquisition happening, there's a lot of stability in terms of quality and supply, and we're very confident of hitting INR 150 crores mark in this coming financial year '24-'25.

Okay, sir. And sir, anything you're looking at, let's say, in laminates as well? Or as of now, you'll be respecting this acquisition towards plywood only?

This acquisition is only towards plywood and blockboards and doors. Laminates, we'll continue to trade and outsource only as of now.

And the next question is from the line of Rahul Agarwal from InCred Equities.

Ashokji, just first question on the CapEx. I think you announced a couple of plants into Morbi. I just wanted to understand this a bit more clearly. The 6 MSM we're talking about in KTPL is a functional plant. And typically, for a similar size, are we getting any benefits in terms of we doing it versus buying it?

Rahul, this is Rishi Kajaria. So yes, this plant is operational. We saw it both in the closed state and then we got it opened and lines were running. And it's producing a very good cost. And going forward, instead of expanding our own plant in Morbi, we thought better to acquire this plant. We were getting a better volume, a more higher square meter at a very good cost.

So this should add to our production starting immediately, is it?

Starting April. It will take 2 months. There's some work to be done, some machinery to be upgraded. A very small cost. It will take about 2 months. And April, we're just trying to start sales from this plant.

Okay. Perfect. And secondly, on the KUPL, the INR 30 crore land buying, can you give some more details? This is for large-format tiles, right?

Sure. So going forward, some -- within export market and the domestic market, we are -- we want to make some big tiles, which we're not able to make in the existing plants. So for that, we have bought this piece of land. And in a target of 15 to 18 months, we plan to put up a big factory for the slabs here. Let's say this is for a target like [ 69 for 3,200 towards Telangana ], which has a big market both for exports and in the market which is going to come up in India. So for that, we are making this -- we are buying the land because we're very bullish on the Indian market going forward. So unless we have the land, you can't put a factory. So we're buying the land right now for future expansion.

So any numbers here in terms of capacity you're looking for, any CapEx numbers?

No, nothing right now. Let us get the land first. In the next 3, 4 months, we'll make a paper and then we'll -- probably in the next meeting, we'll present it.

Okay. Got it. So because it was about INR 370 crores is what we were intending to spend this year. I think with the Morbi CapEx of INR 80 crores, this number should go up. Could you give some kind of sense on CapEx for this year and next year, please?

See, this year CapEx, we have already said that's about INR 370 crores. And next year, we will work out and share it at the next meeting after the fourth quarter.

Okay. So this current investment of INR 50 crores and INR 30 crores for the new plant is not part of the 320, right?

No, no, no, not yet.

It's not CapEx, it's an acquisition. So I think the INR 50 crores is in acquisition CapEx, right? It's not part of it.

Okay. Okay. It's not part of it. It's an additional thing.

Got it. And Ashokji, what was the average gas price for North, South, West, please, for the quarter? And any changes today?

No, no changes. It is INR 39 on an average for quarter 3. And hopefully, it should continue at the same level in quarter 4.

Could you give a breakup if possible, North, South, West?

Sure, I can. One sec. Yes, north is -- quarter 3 was 41, South was 42, West was 34 and average is 39.

Got it, sir. And last, just to close, just some outlook on how do you see the full year like in terms of growth and next year in terms of volume, pricing or margins, whatever you want to share, please?

See, since we have already shared in our presentation, we will grow 5% to 6% more than the industry, which we have been doing also for all these years if you look at it. And as far the margin is concerned, this year, we talked about 14% to 16%. We are at the -- more or less at the upper end. We are about 15.5% plus for the 9 months as usually maintained. And I think next year, if we do well, if things are okay, it should be anywhere between 15% to 17% because that 14% thing is out.

And our next question is from the line of Ritesh Shah from Investec.

Sir, first on the North Sea thing that you indicated, so does it have any impact on the gas that you procure? I think we have very attractive long-term pricing and we have. So on a landed basis, is it likely to impact the cost curve? Or are we already held -- how should we understand that?

No. Long-term gas is still expensive because it is based on RLNG. So long term, it's still expensive. When I'm giving you all these numbers, these are including the cost of -- average cost of gas, biofuel, all these components. Yes, fuel cost, it's not a gas cost.

Yes, fuel cost. So basically, the Red Sea would not impact. Basically, you indicated blended INR 39, it is likely to remain at similar levels. This takes into account the potential risk on back of the ongoing disruption?

No, no, nothing has changed. Ongoing disruption if you see this year for the last 2 months -- 2.5 months now, this problem at the Red Sea. So nothing has changed. Gas price is more or less on the same level.

Perfect. And sir, you indicated since October, industry exports have actually reduced. So in this scenario, are the Morbi guys putting material locally? Or have they opted to operate at lower utilization levels?

It's a question for me to answer because Morbi will know better, but some material has to come locally and some [ are from ] production. The exact information will come from them. I'm not the right guy, but that's what market intelligence says.

Sure. And sir, lastly, on ply, how much is the amount that we paid for acquiring 51% stake? And if you could please detail on the capacity as well?

The total amount invested is about INR 42 crores to acquire 51% stake.

And sir, capacity?

2.14 million square meters, which is 80 trucks a month. The capacity is roughy 2.14 million square meters, which is roughly 80 to 85 trucks a month. And then full optimization -- optimum utilization is up to INR 90 crores to INR 100 crores of revenue.

Sir, sorry, I could not hear the capacity, I heard INR 90 crores to INR 100 crores?

The capacity is 2.14 million square meters, which is 80 to 90 trucks per month. And on full optimum utilization, the plant will generate a revenue of INR 90 crores to INR 100 crores per annum.

And the next question is from the line of [ Sonia Kohli ] from Shri Money Matters.

So first of all, many congratulations for another splendid quarter. So first question from my side is about, from where are they getting the majority of our business? Is it from the renovation activities or the properties that have been newly constructed?

See, it's mixed. The demand is mixed. It's a combination of both renovation and some new projects. But looking forward, we foresee that in future, we're going to get -- the new projects is going to be much more.

Okay, okay. Because of the infrastructure development, right. And sir, second question is that I want to know the approximate respective contribution of Tier 1 and Tier 2 cities, both in the current performance and the future expectations.

See, it's very -- it's more or less about 50-50. I think we'll be about 50% in Tier 1, 50% Tier 2. Out of that Tier 1 -- no, no, in metro, it is close to about 20%. In Tier 1, it's close to about 30%. In Tier 2, it's about under 30%. In Tier 3, it should be close to about 15%, and Tier 4 should be about 5%.

Okay. And we expect to continue this trend in future also?

No. The Tier 3, Tier 4 over a period of next 3 years should slightly go up because that's where a lot of new construction is happening. So I would say that Tier 3, Tier 4 should slightly go better.

Understood. And sir, my final...

Yes, please, please.

Sure. My final question is about the industry as a whole. So currently, this industry is experiencing a boom. But what do we see in the coming time for this?

See, industry is passing through a tough time. Two reasons. You see, we have been attracting new features a lot, all of us. But you see, real estate has been good for the last 2 years, as you all have been saying. First year, what they did was they sold the inventory, which was locked. Second year, new construction started, whereby they made this structure where cement, steel, cables and all that got used. Now is the time for our kind of industry like paint, tiles, sanitaryware, ply, all these will come in from now on. So we hope that next 3 years should be good for the industry.

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

My first question was with respect to the demand scenario. I know you've already partially answered, but have you seen some improvement in January? Or January also looks pretty much the same what it was in October, November, December months?

January has been equally tough. As we all know, North has been -- had a bitter cold with much snowfall in 20 days out of 31 days. So North market has been affected. West, South is more or less okay. East is okay, but North has suffered very badly due to weather, entire North, as you all know. So January has been very tough. And I would say the quarter will also be tough. If we are looking at a scenario where Kajaria should grow at about 6%, 7% in volume terms for the quarter, but going forward, we are very positive that things should improve.

And we -- how do we look at the lead indicators? I mean, yes, you did mention about the real estate, but is there any green shoots, any particular indicator you're seeing that things are improving? Or how do we see...

It's too early to tell. I just told you that January has been tough. February and March will be more or less like this, where Kajaria should grow at about 6%, 7% in volume terms, maybe 7% in volume terms. But looking at that lead indicators, we will only know after the post-budget, post-March where things should start looking up. So I think we have to wait for another 2 months.

Got it. Sir, a related question. You did mention that you have grown -- outgrown the industry by 5, 6 percentage points even in the past, and the same is expected to continue. So given the numbers, what we have reported for last few quarters, is it that the industry is kind of flat or seen a slight decline? How do we look at this...

Absolutely. You are absolutely correct, the industry is flat. I told in my opening remarks also, gas prices have gone up much more by almost, what, how much?

17%.

17% from August towards. Morbi has not even touched the prices. So why? Because exports are down, the local market is down. So looking at that, we have to see where to find the right balance, and more indications will come only around end of March.

Understood. Understood. Sir, the second question I had was with respect to the pricing. Now if you look at the realizations for each of our 3 buckets, whether it is owned or subsidiaries or outsourced, we see a realization kind of being down Q-o-Q as well. So is it purely the discount? Or is it purely the mix? How do we read this?

No. Prices, you are absolutely correct, prices have come down by 2%, 3%. And I would say we are lucky that the prices have only come down by 2%, 3%, looking at the overall scenario. Because as I just said, Morbi, in spite of our 17% gas increase, normally they would have increased prices, they have not touched the prices at all. So just to keep the right balance, we have -- the prices per se has not come down. We have given more benefits to the traders to sell, which I've always said. Prices per se don't come down. It's a -- dealers -- we give benefit to the dealers so that they can sell more by some way of scheme or something.

Got it. Sir, if I may ask one more, I'm sorry. So if you look at what Morbi was, let's say, 5 years back and what it is today, you see that Morbi is far more competitive now given the players have become bigger, the Tier 2, Tier 3 players have become bigger and, hence, I mean it may not really hurt Kajaria, but in the industry, do you see that Morbi is far more organized and, hence, the possibility of any significant margins or significant growth is kind of getting reduced year-after-year?

See, 2 things you asked, and I will answer one by one. First, what has happened in Morbi? Morbi has improved partially due to GST. You know what was the situation 6 years back? Because GST just completed 6.5 years now, after 1st of July, that 6.5 years have been completed. They have partially corrected themselves. And today, what is happening is more or less, people have come in GST. There are some here -- things going here and there, I'll not go into the deep side of it. But that process will further be corrected maybe a year or so or 2 years or so. But once it is corrected, definitely, their share will come down. The organized sector, per se, will take some market share. That's number one. Number two, as far as their organization concerned, yes, they are getting better. They are putting better plants, and they are trying to do. But see, they are all local players, all based in Morbi. When you go all over India, like we are or Somani is or Johnson is, then you have to do a lot of advertising and all that to build the brand, which is still far away. A couple of people are trying to emerge like Simpolo and Varmora, we all know. But it's still far away because to make a local brand, you have to spend a lot of money on advertisement and placement of plants at other areas also. Right now, they are restricted to Morbi.

May I add some things, Achal? Achal, I think your question was whether the [ market is ] more advanced and competitive, the answer is yes. As far as product is concerned, their product quality, they are coming in a big sizes, that is correct. But in India, India is a very vast market. There is a brand-conscious customer, there is a cost-conscious customer. So despite they are making the same type of tile, the same quality of tile, there is a segment in the country which will go for the brand even the products are similar. So both will grow. I mean, they will continue to cater to the cost-conscious customers, and branded players will continue to cater to the brand-conscious customer. And going forward, there will be a situation where the gap between the branded and unbranded will shrink. And a lot of -- because of Indian people inspiration, a lot of people will turn towards the branded players. So we are very confident the industry will move towards the branded player.

Got it. Got it. Sir, this is very helpful. Just one more question, if I may. With respect to the fuel mix, the RasGas, Gujarat Gas, biofuel and propane, et cetera, coal for the quarter, sir?

I just shared our prices of INR 39 blended for the fuel in the quarter...

No, I mean, the fuel mix in terms of the total fuel consumption, how much is propane -- sorry, how much is biofuel, how much is RasGas, how much is Gujarat Gas...

See, for North plants, we are using -- for North, Sikandrabad, Gailpur, we are using 30% as a biofuel. And overall scenario, you see the combination of biofuel, coal and this -- what you call propane is around 25% overall. Propane, right now, it's 0.

And the balance 75% is Ras and Gujarat, Gujarat Gas?

75% is gas. Yes, gas consists of -- RLNG gas consists of -- LNG gas consists of JPC -- JCCI -- JCC. And Gujarat is, of course, Gujarat Gas.

And the next question is from the line of Keshav Lahoti from HDFC Securities.

Sir, you highlighted the margin guidance for next year. What sort of volume you are targeting?

Volume, we've already said that, and I think you must have listened while you are at the -- just listening that we will do 5% to 6% more than our competitors. And that's -- and that industry -- I'm sorry, than the industry, and we have been doing this for years. And we are confident that industry will improve. Industry will improve, our growth will go. We cannot quantify at the moment, but we are confident that we will be growing 5% to 6% higher than the industry. If industry will grow by 5%, 6% next year, we will be growing 12%, 13%; industry grow 4%, we'll be growing 10% like that.

But any sense like what sort of growth you are expecting for the industry, when is the demand revival, what sort of number...

It's too early to tell today. As I said, let's wait until March. Let's wait until March.

Got it. What is the CapEx for the first 9 months? And what sort of CapEx you expect in FY '25?

FY '25, I already said that we will share with you in the next quarter results. And this year, it's about INR 370 crores for FY '24.

Okay. One thing I want to understand, in slab, the larger tiles, which we're bringing the high margin kind of -- normally, what kind of a growth?

March '24 should be INR 352 crores.

This is excluding Nepal.

Excluding Nepal.

Okay. Got it. Yes. So last 2 questions from my side. One is on the slab plant. So it's a normally less competitive market and the margins are higher. So once the plant ramps up, what sort of EBITDA margin you expect in this? And lastly, on the brands side, which is right now around 3% of revenue, is it going to stay at the similar level? Or is it going to inch up going forward?

Starting with the first question, you asked on the slab plant, it's too early. Right now, as you said, that we're going to give this -- I think in the next half or next quarter, we'll give you details as to what we plan to put and what is -- how it's going to be. And as far as the advertisement is concerned, yes, 3% is there, and it's only going to be more. I mean, we're going to -- around that level, we're going to be spending on advertisement from our company.

And the next question is from the line of Sneha Talreja from Nuvama.

A couple of questions from my end. Firstly, on the demand front, I know you've already answered a lot. But just one clarity here, this kind of scenario that you're seeing right now, is the demand slowdown completely broad-based, like region-specific or Tier 1, Tier 2 cities or whether it be a replacement or new demand? Any sense on any of these parameters would help.

Going forward, we are more positive than what we are today, number one. Number two, the Tier 1 -- metro and Tier 1 is more of a renovation -- metro is more of a renovation; Tier 1, Tier 2, Tier 3 is more of a new construction. So if you take it like that, it will be new construction will be close to about 75% replacement or renovation will be about 25%. But I also like to add for the benefit of the people that a lot of work is also coming from the government side. A lot of things are happening on education and this -- what you call health market -- on the medical front and the education front, a lot of work is coming from the states on that front. They are now with this new push towards new railway stations, push towards new airports. All this is going to add more to the demand because of the infrastructure spend being spent by the government.

Understood, sir. Sir, secondly, on your new division, could you specify what are you exactly -- like what is the -- how is the distribution with respect to adhesives on plywood front? How is the distribution reached? What we understand is your Bathware was something which were -- you were targeting our existing tile dealers. But what's happening with the plywood panel space as well as adhesives part would be helpful.

First, I'll answer the adhesives part. Currently, our existing dealers are selling our adhesives, plus we're also hiring a new team from the market from the adhesive industry, like Roff, Reckitt and other companies, who will target adhesive dealers who are already dealing with this product. In terms of plywood, the distribution network is totally separate. And the existing tile dealers do not sell plywood and laminates. They have a separate distribution network for that.

Yes. Sir, lastly, while you mentioned a lot on the Morbi-based player, any comments on large brands looking at entering into tile industry, whether it be somebody like an L&T or somebody like -- we have been hearing even a couple of other players are in this industry. Any view there? What's the right to win or any such feedback would be helpful from your end.

We haven't heard anything like that, number one. Number two, the key thing, as you all know, you see number of dealers, the kind of dealers you have. See, to manufacture in the industry is much easy. To have the network of dealers is the most difficult part, which has been generated over a period of 35 years. So I think any new guy coming in -- I'm not talking about L&T. There are some sanitaryware people who also wants to come in, they come in, they get out, they come in and get out. So I leave you to judge that, how it will shape up.

And the next question is from the line of Mahek Talati from YellowJersey Investment Advisors.

So a couple of questions, especially on the export side. So how has the Red Sea prices impacted the overall export market?

The exports have slowed down. November, December, January, the exports which are on an average of about INR 18 crores, which is the data we gave you for the first 7 months, have come down to about INR 1,300 crores. November, December, January, the exports have been to the order of INR 1,300 crores each month. See, the rates have really increased. I'll give you an example, a container to U.K. was costing $600 in December. And today, it's costing $4,000. So because of the high freight rates and the transit time, the exports are down 20 days to 40 days of year. The export -- transit time has increased in that part of even from 20 days to 40 days also. So availability of shipping will be less, but this will further be high if this continues, if this problem continues.

So then can we expect this export demand to transfer that to domestic, which can result in oversupply and further decrease in the prices going ahead?

I just answered this in earlier this thing, 2 things will happen. Part of it will come to domestic, I don't say. Whereas, secondly, they have also -- will cut down in production because they can't sell everything to domestic. And third, the moment the situation exists in that part of the world, they will again go back to export because exports is a priority to them for various reasons. And also, it's not easy for any brand to just dump in the Indian market without any -- since they've been exporting. So there are no leverage, there are no distribution network and they have no brand.

And they have no brand.

So it is not a switch on and off button that you suddenly export, you suddenly dump in the domestic market, you're starting to export again. So if you don't -- if your exports are going down, then you most probably reduce your production and you stop the plant.

Okay. And last, in terms of the 2 acquisitions, so what are the capacities which we are expecting to come from KUPL and KTPL?

KTPL, already mentioned, it's going to be 6 million square meters at our acquisition costs about INR 50 crores. And for KUPL, it's still very early. We're just buying land right now. And in the next 3 to 4 months -- in the next quarter review, we will give you an outline as to what we are planning in that.

And the next question is from the line of Anmol Grover from Albatross Capital.

I just wanted to know what is the profitability for the Bathware segment?

Bathware segment EBITDA is roughly about 8% for the first 9 months. And I think by the time year-end, it would be between 9% and 10%.

Sorry, 9% and 10% for 9 months?

No. So far, for 8 months, it has been close to 8% plus. And by the year-end, it will be close to between 9% to 10%.

Okay. Okay. All right. Is there any way you can bifurcate this between faucet and sanitaryware products?

More or less the same. It's more or less the same.

And the next question is from the line of Arun Baid from ICICI Securities.

We have seen you diversify from tiles to bathware, now getting to plywood, adhesives. Do you think our broad range is not done or we still have more addition to think about?

We are not diversified. We have only diversified to ply. These are all related fields where the dealers said, you are already a big supplier of tiles to us. Why can't you give -- starting, they said, why can't you give you bathware and sanitaryware, which we started. And as I said in my various earlier meetings, 50% joined, 50% didn't join because some were married to Jaquar or HSI or CERA. And now in the last year, themselves said, we are using adhesives also. Why can't you supply adhesives to us? So we have launched the brand name of Gres Bond by Kajaria. So adhesives have been launched on those lines. The only diversification which we did was in the field of ply and laminates.

Sir, do you think the portfolio is complete from that sense or there are more to come?

See, the kind of growth we are talking about, unfortunately, it has not happened from the volume side or revenue side this year. I think the hands are full for both Chetan and Rishi while looking after the day-to-day things. And next 3 years, actually, we are -- we hope that we should grow much faster than what we have done. And we should focus on what we are already doing.

Sir, on the wood front, particularly, we have gone into plywood, MDF is fast-growing segment there. Do we have plans for that segment too?

No. You see, as far as ply is concerned, you all know that we have not made any money so far, we have lost money. So first idea is to make money. And as Chetan said earlier that we had to have this JV because of the quality problems, because of the supply problems, because they were small units who were supplied to this division. Now once this plant comes, then we should have stability. Next year, we are talking about INR 150 crores. And still, we'll make -- we'll lose some money, let me tell you in advance, to the order of about INR 6 crores, INR 7 crores. And next year after that, we should be able to break even. So that's what we are talking about. So as of today, what we have to do is to do our job well as far as ply is concerned so that we'll break even at the earliest.

Just one clarification here. My question was with regards to MDF because most of the guys who sell ply are looking at MDF also. So I'm just trying to understand whether we have plans for MDF in the near future?

No, I have already answered. You didn't -- at least you didn't listen, but I answered that next 3 years, we are not looking at anything. The only growth is what we are doing, ply we will do by partly manufacturing, partly outsourcing. Laminates, as Chetan said, we will do by outsourcing.

And the next question is from the line of Shubham Agarwal from Axis Capital.

Just one small clarification. You said the realization. So we saw the realizations have dropped for you 1% Q-o-Q. This is because though Morbi has not taken any price increases, you said we wouldn't have either. Is this because of the product mix change? Or have we taken some price cuts or, as you said, that we passed on additional benefits to the dealers which has led to lower realization?

No, I said 2 things. One, Morbi has not taken any price hike, yes, they have not taken. And our prices have fallen by 2% to 3% over a period of time. And they have not fallen as far as price is concerned. We have given that additional benefit to the dealers to sell more. So it could be in the quarter, we just -- and in October, March, we should have given a discount of about 2% to 3%. And partly you see a 1% fall could be due to product mix.

Right. Sir, and given that you've said that the exports have also seen a downtrend, if I got the numbers right, you said INR 1,700 crores was the run rate -- monthly run rate earlier until October, which has decreased to INR 1,300 crores since November. And since...

Yes, November, December, January is INR 1,300 crores average per month.

Right. Yes. So since that has happened and some tile is being diverted to domestic markets, are you seeing an increase in competition?

[Foreign Language]. I think they have taken -- they take the capacity down in Morbi because Morbi, to shut down the plant is much easier than what we can do, number one. And partly, as Rishi just now, a few minutes back, that it's not easy that unbranded player comes with the pricing, listing and says you buy my products today. And tomorrow, I'll not be there because I have to export. It doesn't happen in the trade, you know? The dealer has to run a shop, he is an entrepreneur. He has to take his wise decisions, whether I should have a onetime thing or I should continue doing my business. So it doesn't happen like that.

Right. What I was asking was, have you seen a month-on-month increase in competition in January over December? Like would you be able to give some...

Nothing like this, nothing like this. You see, you are asking this question, you have seen the results of other building material companies, like Asian Paints, Havells. Everybody is feeling still the market has been tough. So we are not out of that. We are -- what others are doing, we are putting our best efforts, I can tell you. But what the market scenario is, you all understand.

[Operator Instructions] The next question is from the line of Aasim from DAM Capital.

One question on the tiles realization. I think just taking your 9-month volume and tiles revenue, the average number is just about 380 per square meter. Now given that pushing price hikes is hard unless everyone in the industry does it, I just want to know that how will mix improvement help this realization figure in the future? Can your upcoming capacities in GVT and large format tile basically mix improvement? Is there a case for that 380 figure to go to, say, 395, 400 in the next couple of years?

See, the question which you asked is very valid and very important. What is -- let me tell you about GVT then I'll tell you about ceramics also. Both GVT, once the value-added tiles come in, your realization per square meter will definitely come up, for example, it will take some market share of the existing months. And you are -- they are -- the price is much higher. Similarly, ceramic also, some value-added products, bigger sizes come, the realization will go up. Price increase per se will not happen at least for some time that we are looking at. But value realization, the market of slightly improved will go on -- should go on.

But I think product innovation has not really helped keep prices rather blended realization, higher for a longer time, but given that the competition has also been -- have been able to provide similar products in the past. So just that the 380 number going to 390 by 400, I just wanted to understand the degree of confidence behind. I understand that theoretically, it should go up. But the probability of that happening, is that like a decently high number as per you? Or would this still be like overall a volume game, tiles volume growth will come in, blended realization may be flattish given the way the competition is?

You didn't understand what I said. The market is moving gradually towards bigger tiles in the last 3 to 4 years. When these bigger tiles come in, they are priced higher than what it was these smaller tiles. So the realization will not -- is not a resultant of better I'm producing a good tile or the other guy is producing a slightly lower tile. Realization will come from more use of bigger tiles where the price is more. And at the end of the day, you will get a better per square meter number for that particular commodity, whether it's ceramic or GVT. In PVT, also we have brought a lot of value-added products, bigger sizes, which some of them we are outsourcing, and the value addition will also be looked upon accordingly. So yes, to answer your question, the company is moving towards value addition as we go around. And that's the reason of putting the continual plus lines also. That's the reason of buying the land also in future. So yes, it will take time. Because of the market -- because the market being flat, we have really not got any results this year, but maybe in future, definitely, we are looking at a very positive scenario. We are also working on our distribution network and seeing how we can display more and more of value-added tiles. So yes, the future looks good. We can't comment on the exact numbers what the realization will increase to, but yes, company is moving in that direction.

Sure. And just one follow-up. I think to an earlier question, you did say that Tier 3 and 4, Tier 4 markets will grow faster. Will that have a negative bearing? Or would that not be material enough on the realization -- blended realization?

We are selling best of the tiles. People have a lot of money out there, they are showing interest to the tiles. I gave you an example, the showroom opened in Jhanjharpur and Darbhanga, they are state-of-the-art showrooms. Jhanjharpur is a population of 70,000. It's a Tier 4. Darbhanga, you can say Tier 3. And the guy over there has opened 15,000 square feet in Jhanjharpur exclusive Kajaria. In Darbhanga, he has opened 11,000 square feet exclusive Kajaria and all kinds of products are displayed, all value-added products. People have money, but they didn't know where to buy their product. They used to go to Patna to buy the products.

[Operator Instructions] The next question is from the line of Rahul Agarwal from InCred Equities.

Ashokji, one question I had in my mind was on real estate. What we understand is premium luxury real estate is actually doing better across the country, both if we track Delhi, Bombay, Bangalore, that's what it looks like, larger metro cities. Larger houses, people want more square footage, higher floors, in-built amenities, stuff like that. Most of the discretionary companies, I know you also mentioned Asian Paints and Havells, they are looking at some kind of slowdown and everybody is hoping for a recovery to retail demand. Just wanted to get a sense, obviously, it has to tie up with this Tier 3, Tier 4 story of that mix actually getting better. And your exposure to metros, as you said, is over 20%. So I'm not really sure whether this premium luxury kind of changes our business. And coupled with this also is you mentioned infra demand from government, airports, ports, railway stations and stuff like that. Would you -- since you sell everything through your dealers, how would you track that? What is Kajaria's penetration into, let's say, project side? And then on the retail side, does this premium luxury demand also help you? I'm just trying to get a sense of whether this real estate demand actually will play out into our favor or not.

See, there are 2 things. You said metro. Metro -- for metro, they require better tiles, good tiles, even larger tiles for which we are talking about putting up the plant of glazed vitrified, and we already have products in glazed vitrified in bigger sizes, but even more bigger sizes. As far as the general construction is concerned, they're using all kinds of tiles. Be it ceramic, be it polished vitrified, be it glazed vitrified, it doesn't make any difference. It all depends on where you're making that property, number one. Number two, metro is a different story. Tier 1 is a different story. Tier 2 is a different story, Tier 3 is a different story. Tier 4 is a different story. India being a large country, all kinds of products are being used not from today, it will last for many years and will continue to do. See, when you talk about specifically that luxury is in demand, it's basically limited to 2 cities. When you go to Tier 1, Tier 2, Tier 3, Tier 4, it's again a normal scenario.

So Tier 1 to tier...

Just to add to that, like Delhi, Bombay, Bangalore and all this, we supply directly to projects. A lot of these especially we supply directly to projects, should track what is happening. Even government projects, government projects, a lot of it is supplied directly so that we can track and we -- because they also buy directly from the company. Some of them are very large-scale projects. So there, the dealers are not involved. So all our sales are not through dealers.

So what my understanding was about maximum 10% is what you build directly to government or projects, right? Is that correct?

No, no, it's close to about 30% is the institutional sales. Yes, we always been saying 70% is through retail outlets, that is a dealer outlet; and 30% is institutional sales. When you talk about the institutional sales, it is of 2, 3 types. One, government projects where they want the billing directly or through a contractor, but company markets itself for that account. Then smaller builders where they want direct billing, but payment is not an issue. So these are the 2, 3 kinds of things which we are targeting as far as institutional sales are concerned.

I mean your experience over the last 12, 15 months, where we're seeing a tough time, has this proportion changed in favor of institutional sales? I think that should have happened?

Institutional sales have improved. But in Kajaria, the overall percentage is still low. Institutional sales, when you say government institutional sales have improved, and it will be more and more with the kind of government putting infrastructure. As I said earlier, 2 areas we are spending a lot of money is health and education. And also now a lot of business will come from airports, which they are trying to modernize. From railway stations, which we are talking about, like I have gone there, for Bombay and Lucknow, they are talking about modernizing just like an airport. So these are the demands which will come over the period of next 6 months to 1 year. The projects are already on. And if you all recall, Modiji has already sanctioned 500 railway stations across India to be modernized in the next 3 to 4 years. So ultimately, tiles have to be used in all these places.

And our mix will remain about 75% retail and 25% is projects because we're working in both the plants. So that proportion is more less the same. Even going forward, we feel it's going to be the same.

And the next question comes from the line of Utkarsh Nopany from BOB Cap.

Sir, like if we see in December quarter, we operated at 101% capacity utilization. I'm talking about our old and subsidiary facility. And our capacity would increase by only 7% in FY '25 with the help of the recent acquisition of 6 MSM GVT facility in Morbi. So I wanted to know, do we have scope to increase our own and JV sales volume in the current March quarter on a sequential basis as we operated at full level in December quarter? And do we plan to add more capacity in the domestic market in FY '25 as we are quite positive about the demand scenario from next year onwards?

See, it will be a mix of both outsourcing and increasing our own capacities. And we take the call, there we go ahead and see how the market conditions improve. We already announced 2 projects in GVT. Only as the market condition improves, we can update you more in the next couple of quarters how we are planning to increase our own production or outsource the remaining capacity.

Okay. So for this March quarter, whether our owned and JV sales volume would be limited to what we have done in December quarter, there would not be any sequential growth in the volume?

Correct.

I already said that.

And the next question is from the line of Amit Purohit from Elara.

Just sir, on the initiative that the company is taking up more on the sales for automation from April 2024. And on dealer management system, if you could give some more insights into what is this change will happen due to this operational...

The sales force automation is more to improve the efficiency of our existing sales force. And we don't plan to increase more manpower. As we go along and increase our production and capacities, the same team will increase capacity. This is more from both efficient working, mapping their routes, making them more efficient and you jotting the time most efficiently. The dealer management system is more for making the dealers also more efficient. They can see the stocks online. They can see their outstanding online. They can place the orders to the factory. So to get this as more automated and make it more efficient for everybody in holding the good chain.

Yes. But would that result in some reduction in the inventory at the dealer level? Or would -- this could have an impact on a -- whenever it gets launched, some inventory correction in the system?

It will reduce inventory level also, plus it increase the efficiency of our people, increase the efficiency of the organization.

Okay. So I mean would this be more of an online ordering system by sales force guys?

No, no, no online ordering. Online ordering, we see, but online -- the dealers still orders, but he can see live stocks so that the -- you see right now, we take the stock from the sales people, then you can see the live stocks and order directly to the plant, dealer management system, you can see live stocks and order directly to the plant, just like an airline ticket in blocks because by the time he sees his stocks today, it is already 1 day late, then we will be ordering directly and he can see the stocks. It will increase his efficiency also.

Sure. And sir, sorry, I'm new to this sector, but I just wanted to know that what is the sales force automation, which is the sales team does is basically to take orders and give it to the dealers in terms of for execution of the orders? Is that...

It is more of automating the whole system. As they make new dealers, it will map the new dealers, the whole profile, it all comes in the system. Everything is stored digitally to reduce the paperwork, map their routes, to increase efficiency, know what they're doing. The whole chain gets more digitized and automated. And all the seniors to the juniors know exactly what is happening in the system where the people are traveling, what is in the whole day, are they building efficiently or not. That is the whole purpose of introducing a sales force automation system in the organization.

Many good companies have done it. Just like we were told that Asian Paints, Havells, they're already doing it. We are slightly late, but we are implementing from 1st of April. And also going forward, this should also make sure that we don't increase our manpower and the same team will take care of the future growth as well. So all these systems -- so 2 or 3 years down the line, as the company grows, you have the [ manpower and the team ] will not grow, and it will be more systematized.

So we are the first in our sector to do this?

I can't say that. We can't say that. We are the first of -- yes.

No, no, we are not the first -- we don't know -- in our trade, we don't know, but I just told you that Havells and Asian Paints are already doing it. And that's what we have learned, and we are trying to improve ourselves. That's all I can say at this stage.

Sure. And just one more thing on the investment that we are doing. One, I understand that there is an acquisition. And first is a subsidiary for the tile. So why is he setting up a subsidiary? Why can't we do it in the Kajaria itself?

We are doing a subsidiary because we also want some stake of that, the Gujarat person who we buy the company from. See, Morbi is a really peculiar market. We don't want to have any factory on our own. For all the local issues, you always need a partner. So all our JVs in Morbi have a local partner. So the similar model, we wanted this one to be as well. There's the other controlling stakes, anywhere between 80%, 90%, and the rest is with a local partner.

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

Sir, it's been a while now. Just in terms of the data, if you could help us with the GVT/PVT ceramic mix for 3Q FY '24 and 9 months?

So roughly, the ceramics revenue is at 39% and volume is at 43%, PVT is 26% and 25%, and GVT is 36% and 32%.

Got it. And Chetan, if you could help us understand in terms of the comment made was obviously not given the harsh winter, obviously, it's impacted. Can you help us understand from a FY '23 or 9 months, how the mix is for North, West, South, East?

So roughly, North is 40%, South is roughly 30%, West is another 18% and East is 12%.

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

I'll make it quick in the interest of time, sorry. So what I'm trying to understand is why there is so much variation in terms of your CapEx cost for setting up, say, 1 MSM of capacity because it ranges from almost like INR 10 crores per MSM for the new plant acquisition that you have made just now. And it goes up to more than INR 30 crores for the Nepal plant. And some of the previous brownfield expansions that you have done, I think it translates to somewhere about more than INR 20 crores per MSM. So I understand it could be different for different kind of products that we do, but what explains so much the variation in your CapEx cost? I wanted some clarity here.

See, as far as Nepal is concerned, nothing is available there. Everything has to go from India. So even the -- some equipment, local equipment and the machines have to be coming from China or Europe, has to be routed through India. So the -- putting up the costs are high. But at the same time, the realizations are much better because it is based on basically an input-based country. There are 3 plants already coming up and running. But at the end of the day, the utilizations are much better than what we have it here. So the cost of putting up the plant will be there, but the realizations, EBITDA margins will be better at the end of the year.

But then comparing the, say, ROCEs for the new acquisitions that you have done, would the ROCEs be materially higher than what would you probably do at Nepal or some of your previous businesses? Or how do you see that?

See, that's what we are seeing, and that's why we are putting up the plant. Nepal ROCE should be better than what we are having it currently.

And compared to the new acquisition, Keronite?

Keronite, it will be me much, much better because we've got a very good deal on the entire project. So there, they're expecting an ROCE of almost 30% plus.

Yes. So that is precisely my question is that why we rather -- if we have such attractive rates in the market, why not rather try to focus our capital allocation on striking such good deals, wherein we make very strong ROCE?

It's not necessary to get that deal every time. So this is, I think, one of the good deals we got, and we grabbed it. And in the future, if we get anything like that, we are still open, right? If we have cash in the company, we are always open to good deals. So this is a good deal, so we got it. You're right, your calculation is pretty good that INR 50 crores for 6 million square meter is a very good deal. And that's why we're looking at a much better ROCE and margin in this.

Yes. And does it also then imply that probably the Ultima, because I remember, I recall a couple of years back, we had plans to do 5 MSM at INR 210 crores of cost in Ultima. So then again, that expansion could actually be kind of much lesser in terms of ROCEs compared to this Keronite acquisition?

You're absolutely right, this is the same Ultima plant which we have planned earlier, which we had put on hold that time. We were not confident in the market. But now looking at this scenario, we are very bullish. And yes, going forward, the land we are buying is for something similar, which we are working on right now, which we want to buy the land first. And the next 2, 3 months, we will announce in the next meeting as to what we want to do. But yes, it is to put our slab plant. The exact version will go on now once we get the land.

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

Thank you very much for this meeting. I think good questions, and I hope we have answered it to the best of our ability, and thank you very much for organizing this. So I thank all the people who have joined us today for this conference on behalf of Kajaria management and myself. Thank you.

On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.