Kajaria Ceramics Limited (500233) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '27 Investor Con Call of Kajaria Ceramics hosted by Asian Market Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhatelia from Asian Market Securities. Thank you, and over to you.

Thank you. Good morning, everyone, and thank you for joining on this call. From the management side, we have Mr. Ashok Kajaria, Chairman; Chetan Kajaria, Vice Chairman; Rishi Kajaria, MD; and Sanjeev Agarwal, CFO. I will hand over the call to Ashokji for the initial remarks, post which we will have a Q&A. Over to you, Ashokji.

Thank you, Karan. Good morning, everyone. It gives me great pleasure to welcome you to the quarter 2 FY '27 earnings conference call of Kajaria Earnings Limited. Joining me on this conference call is the senior management team of Kajaria Ceramics. In quarter 2 F '27, we achieved 10% year-to-year volume growth led by better demand and gaining market share. However, export demand in the first half of '27 remains subdued mainly due to elevated freight rates and limited container availability continuing to pose challenges for manufacturers in margin. Our consolidated revenue grew by 24% year-to-year to INR 146 crores supported by healthy volume and the market's positive response to price hikes. EBITDA margin for quarter 2 of 27 stood at 19.5%. Our capacity expansion plans as are meters increased from 10 million square meters and geared for 11 million square meters remain on track. These facilities are expected to strengthen our manufacturing capabilities and enable us to deliver high-quality products at completed costs. Looking ahead, we remain confident in our ability to sustain healthy growth, strengthen our market position and create long-term value for all stakeholders. Now for this quarter's segment Tiles financial performance. Tiles segment revenue grew by 23% year-to-year at INR 1,291 crores in quarter 2 F '27 compared to INR 1,051 crores in quarter 2 F '26. Bathware segment registered a 22% growth in revenue, reaching INR 124 crores in quarter 2 of F '27 compared to INR 102 crores in quarter 2 F '26. Revenue from that grew 6% to INR 54 crores in quarter 2 F '27 as compared to INR 132 crores in quarter 2 F '26. EBITDA improved in quarter 2 F '27 to 19.51% as compared to 17.94% in quarter 2 FY '26. PBT for the quarter grew to INR INR 24 crores as compared to INR 181 crores in quarter 2 of F '26 6. PAT for the quarter grew to INR 19 crores in quarter 2 F '27 as compared to INR 133 crores in quarter 2 F '26. As of 30th September 26, capital cycle marginally increased by 2 days to 48 days compared to 46 days in quarter 1 at 27 because of high turnover. With this, I take this opportunity of thank you to you for joining us today. Over to moderator for Q&A please.

[Operator Instructions] The first question is from the line of Praveen Sahay from PL Capital.

Yes. Thank you for opportunity and many conversations for a good set of numbers. First question is related to the realization of our subsidiaries at the subsidiary level in the Q2, there is a down in the realization. So is that the mix of product, which impacted this realization?

So we went for more for volumes this quarter, and there might be a very minor chip in the realization, but nothing major to talk about. .

Okay, okay. Second, sir, question related to the price hike, as subs has said, there is a price hike as well. So can you give some indication of the quantum of this quarter, how much of the price hike has been taken? And if you can also elaborate on that, the segment wise like the GVT, PVT, how is the price hikes happened?

Basically, in our North and South plants, we increased the prices are roughly 12% to 13% and it was across all product categories with ceramics, be it PTT and the Morbi price increase was commensurate with the price increase at a mobile level, which is 18% to 19% across all product verticals.

Okay. So this is the YTD price side or you're talking about the...

This is steady. Gas prices went up in the country. .

Right, right. Got it, sir. And on the capacity expansion, Sika has the expansion all done? That's a 10 MSM and coming to...

It is no. It's not done. It's just started. Basically, earlier, we were putting a 10 million square meter plant. But then we have increased it now to 12.5 million square meter. And -- it will only be commissioned by June of next year, end of June of next year.

All right. Just one clarification, and this is last question for me. about the gross margin? Because if there is a good improvement in the pricing, then why it's not reflected in the gross margin?

So our EBITDA margins have improved, no.

Yes, yes, definitely, sir. That's below the gross margin, that's improved. That's really commendable, but at the gross level, it's not reflecting.

It's more or less safe. There's not much difference.

Next question is from the line of Sonali S. from Jefferies.

Congratulations on a go-to volume growth. Sir, my question is on the volume growth. 10% despite the price hike, great number. Any color you want to give us on that as to with end user segments, which reason exactly? And how do you expect the volume growth going ahead if an outlook?

So basically, Sonali, the volume growth has been across all the regions. It is not to any specific geography. All the regional country have grown -- and going forward also, we are very positively looking at a double-digit volume growth in the coming 6 months in the future also.

Got it. And on the end user segment, all the end users have done well, right? .

Exactly. It has gone up in retail sales also projections also. So everybody has performed well. All the segments have performed well.

Okay. Got it. Sir, secondly, on the margins, again, a great quarter of margins. We did notice that the parent fuel person has increased definitely. That's because of the ongoing Middle East conflict -- but any thoughts on the margins, how do we expect it going forward? And what will be the levers if fetal for margin expansion from here on?

I would say the exit margins to remain stable going forward also around the same numbers what we have given in the quarter and any extra benefit we might get, we would like to pass on to the market to gain more volume share.

Got it. And just to confirm, earlier, the promoters out of [indiscernible] not taken the salaries. Are we continuing with that? .

Yes, we intend not to take any sales right now.

Got it. And all the best and good festive season for the team. .

Next question is from the line of Keshav Lahoti from HDFC Securities.

Firstly, congratulations on double-digit volume growth. So whether this trend will continue? And secondly, should we expect more benefit of unification and strategy. So this volume growth can further speed up in upcoming quarters? How should we see?

I just mentioned in the last conversation, we definitely expect the volume growth to continue double digits over the next 2 quarters also in the last part of the financial year. And what was the second part?

No, as you -- as the unification is trending, our volume is also increasing. So took a little time to get it all organized but now as visitation has happened, and we can see the results from here on. .

Understood. And you highlighted you have taken more price hike in Morbi. My understanding is because fuel prices have increased more in more, so you have taken a higher price increase. If the gas prices starts to cool off, then possibly Morbi would be the reason where more price cuts will happen. So possibly will that make the more manufacture more competitive in the domestic market?

You're looking at the trend, the gas prices are not going to come down, like we just got the news that the propane prices have increased in Morbi yesterday. So there's no visibility on any cash prices going down.

Got it. Got it. And one last question. I can see your expense this quarter was INR 138 crores. So going forward, should we expect INR 120 crores what you were indicating or possibly this is the new number?

This will going to be remain same. And this quarter also, this increase because of advertisement expenses on loan, we are going to increase our ad expense going forward.

Next question is from the line of [ Saurab Jain ] from HSBC.

Congratulations on a great performance. My question is relating to par JV. I wanted to understand a bit more in detail. So what whatever income you would be getting from this JV would be reflecting in your income from associates, right? Is that the correct understanding?

Yes. This is -- so down the line as income from JV -- this is not sensitive.

Yes. So this quarter, you've reported out about INR 2.5 crores of income from associates. Is it largely relating to the Nepal JV and run rate will continue.

This is Sanjeev. All the JV we are having a majority stake, except for Nepal. So all the JV, we are consolidating line by line. So everything is being reflected in top line and bottom line, including EBITDA and liability. So the other income is mainly related with the JV with Nepal. So that is a very small part of the -- our joint venture.

So I'm trying to understand this run rate that you have kind of booked in this quarter. Does it have further room of improvement from here or...

That will depend only on that is related with the Nepal only. So that will depend on the part Nepal is performing well. I think the profit has also gone up utilization has also gone up. So it will take us some time to be fully efficient to operate at full capacity. But every quarter, you will see some improvement in part. But even if it is so, it will be a small portion of the total profitability.

Yes, sure. Appreciate it. Secondly, on the Nepal side, again, -- could you please also tell us what is the current utilization so that we get a sense. And in terms of the industry dynamics, like what is happening in India, is Naval any different from what's happening in India? Or it's also reflecting these trends are also setting into Nepal?

So just to give you a brief color, we utilized 85% capacity in the current quarter in Nepal, and we put up a 5 million square meter capacity of a mix of ceramic and GVT titles around September 24. And the total market share is INR 2,500 crores. So going forward, then the capacity utilization will be better as we keep on moving ahead. Now with the stable government coming in, things are looking much more positive and better.

Okay. 85% is what you mentioned, right? .

Capacity utilization currently. .

And the pricing trends and things, is it also similar to what's happening in India? Or it's like more stable in Nepal at this point in time? .

Pricing in most because there are very limited players in Nepal. The fluctuation is not that high. So it's a stable pricing structure out there. at low.

And also your investment in Nepal -- can you please remind us that number? Was it like INR 10 crores or it was higher? .

It was roughly around INR 200 crores, the total investment, including the JV stake. .

Okay. Total investment was INR 200 crores. Perfect Secondly, I had a couple of questions on the cash flow for this first half. There is a loan that is given out about INR 155 crores. What is this relating to?

Normal corporate loans. Normal corporate loan. .

But extended to which entity?

What is the concern? .

When I look at the cash flow statement, as a part of your cash flow from investing activity, there is a loan given of INR 15 crores I was trying to seek more understanding around.

That is in the normal portobusiness we are trying to miumiour return on treasury. So we have earlier given to Bajaj and PNB housing finance. So we have given to other NBFCs and we'll continue to do so that the safety will be the priority. And we cannot disclose the each and every day where we are investing.

No, that's fine. So this loan is extended to NBFCs?

Yes. .

Okay. Maybe I'll get more understanding separately. And lastly, on the -- there is also a . Brought down of debt of about INR 178 crores. Can you please help us understand why there is an increase in the borrowings because we also already have a good cash sitting in our balance sheet. So I'm just trying to understand this repeat that question I do not cause that. .

Can you repeat the question?

Okay. What I'm saying is in the financing activities, there is a proceeds from current borrowings of INR 178 crores. So just trying to understand why did we have to raise loans? I thought we already have a good cash bank balance that is sitting at the balance sheet for us?

That has been for many quarters because some of the JVs are having loans also from the bank bank limit. So that is mainly for that. So even in Sadara, also, we have working capital sometimes. Sometimes we invest and if deposits. Sometimes it happens as we need the funds. So we utilize the working capital. So that is the optimal utilization of fund, that is why we need some working capital. That is for Kajaria alone. And for our joint ventures, we have some certain loans.

Next question is from the line of [ Neha Talreja ] from Nuvama.

First question is with respect to gas pricing. Could you quantify the gas pricing at North Southeastern operation?

Neha, gas prices have not changed much for this quarter. But going forward, gas position is very tight because of America-Iran war. And I foresee with the knowledge which I have gathered from Gale and others that gas situation will be tough going forward. as of today. That's the situation as of today. But until today, the prices have not changed. But spot prices have gone up drastically, as you all might be aware, the spot prices have gone up drastically in the interaction market.

Understood. So that was helpful. And secondly, with respect to Napa, is there any gas availability issue there or that's not a fan issue.

Yes. No, yes. We run it by coal gas.

Yes. Understood. And thirdly, with respect to we are seeing a renewed CapEx enhancement from your front. Just wanted to understand the reasoning we understand that you're still targeting double-digit growth for the second half and you are seeing strong demand momentum plus right now, the gas price is also favorable for us versus Morbi. Other than that, what are the structural changes because of which you are putting renewal CapEx in your own plant versus lines on Mobri?

See, if you have to grow at double digits, we need to increase our volume side and increase our capacities. And we are putting up both our pits of both our brownfield expansions in our north in our South plant. So with these 2 expansions, we feel that we can further penetrate the market. and we further have a cash advantage here as compared to Morbi.

Understood. Can you just lastly get the numbers for the distribution where is our total distribution work standing at? And what is the aim for the year-end? .

So total dealers, we don't have distributors, we have dealers. We have about 1,800 dealers all over India. That about 450 are exclusive at Unisel Kajaria and restarted as well. And the dealer network is more or less consolidated might reduce 10 and increase 100, but that's it.

Next question is from the line of Ritesh Shah from Investec India.

And congratulations on a good set of numbers. Sir, first, I wanted to have some color with respect to Morbi. Usually, you help us with numbers on a monthly exports. How is it faring any full year numbers that you would like to indicate? That's the first question.

So this year, the Morbi exports are down, should be roughly around INR 12,000 crores for the whole financial year because of the rain container cost and the domestic industry should be roughly INR 48,000 crores due to the price hike also. The ratings should be INR 60,000 crores.

That is useful. Sir, secondly, you indicated Nepal, we are on coal gas. Would it be possible for you to indicate the source of coal and rupees per SCM, basically the consumption cost that we have?

I can get back to -- we can get back to you with these numbers after the call. Is it the exact consumption cost and the rupees per same numbers. .

Right. Sure, sir. Sir, my third question, usually, we do indicate region by cost. I think last quarter, we had indicated INR 64 for north of INR 85 for West and INR 73 per South. Can you give similar numbers for Q2 as well as on spot? .

So the gas price for quarter 2 for North was roughly 70.56%. South was 63%, vest was 75%, and the average 70 basically for the second quarter.

Sir, you indicated West was 75% and south was 63%. .

The North was around INR 70 and South INR 650 and West is around INR 75, East is around INR 70 per SCM. .

Sir, does this imply that there was a reduction in West and South from Q1 to Q2, that is 85% to 75 and 76 in?

You're right, there was a little reduction, but the prices again going to go back -- going to increase on quarter 3. -- that's right with cost.

Because we're more on propane and the propane prices have increased. .

I'll just tell you one thing about the gas thing. So the gas on presently is a telecasts, but we are working very hard on reducing our firing site, and it will take 4 months. So hopefully -- and we are also in the process of getting some cheaper gas also. So we hope from January, we'll get some significant reduction in our gas cost. That will be partly because of some cheaper gas mire and reduction in firing cycle. So we are very hopeful that we'll get some tower get will be or competitive and will be very competitive going forward.

Perfect. Sir, just last question. Given the West costing is higher as compared to North and South I think Acaria is in a very good position right now given, I think, 80% capacity is outside of West. So we will continue to show good volume growth because of this cost curve gap for West versus rest of the country? Is that a fair assumption? .

It is not 80% is the capacity, but the selling volume are much more because that includes our outsourcing also.

But you're right, not in South, that is why all our expansion are coming in north and south and we'll get a better advantage than other people. And these expansions that are also production in these expansions will be much cheaper than our testing out of higher capacity, yes. .

Sir, last question. Would it -- that's right. Sir, last question, would it be possible for you to give some color on the spot pricing, given it's a very volatile situation or a dynamic situation right now? I'm just trying to understand the incremental price increases, which will be required, say, specifically in North.

See, spot prices are very high. They are correctly the range of almost $28 to $30 per SCM. But right now, what we are getting as is the normal prices from Gal, which is for North, which you asked. And even for expansion, we are talking to them to cover our gas requirements. So as Jari is concerned, as just said by my colleague, gas prices will not go up, but we are also trying to optimize our gas consumption by firing cycle and also trying to source cheaper gas only from the existing sources.

Could I read just a follow-up? Based on the current prices, is there a need for further end product price increases? Is it required? .

No, no, correctly. No, -- currently no rose currently. When we just talked about, as Kajaria, we had to increase volumes, right? And this has been a problem for the last 2 years, which we have been trying to address, but unfortunately not able to address. So what has happened if you realize that after 20th of February, the gap between Morbi to Morbi, suppose manufacturers at Morgana, his dealer is buying from Morbi exclusively and a dealer from Kajaria. The gap has minimized from the earlier 40% to correctly about 20%, 25%. So that has been the big change. We want to continue that change for all time to come. .

And for this, we'll be doing one more thing. Like our fixed cost is going to be much share the increase in fixed costs and net lower than increase in revenue. So we'll get operating leverage in fixed costs also as some new plants we have put up their product will be much more cost efficient. That will give us some operating leverage as well improvement in margin. Third, they will also help in reduction in freight in the logistic costs. So that will also help in improvement in the market because a, we are not anticipating any price increase. So we have to increase our margin because of cost cutting, cost optimization, reduction in fixed costs and logistic costs and other improvements. And the expansions we are doing, which are itself are much more cost efficient. The products are -- will be much -- will be making much cheaper product than our existing capacity.

Next question is from the line of [ Anup Parik ] from [indiscernible].

Yes. I just have one small clarification. So we have produced 22.9 MSM times from our own and plants against our production capacity of 20.7% Amazon. So just wanted to know as to what would be the peak production, quarterly production run rate for us based on the existing capacity of 20.7 Amazon.

It's going to be the same. We don't have any capacity expansion right now. So whatever got produced this quarter will be produced in this -- the other quarter as well. All our plants are running at optimum capacity more than its production capacity.

Understood. And sir, also, we have sold times of 24 MSM in Q2 FY '27 versus a production of 22.9 from our own and JV unit. So just wanted to know by when our quarterly sales volume would be at par with the quarterly production volume for our own and JV units?

We are already selling more than what we are producing. So whatever we are producing, we're already selling that, and we are outsourcing more and selling -- so right now, our overall capacity is about 88 million square meter. And this year, we'll be selling about 130 million square meters. The rest 42 million square meter will be outsourced from Morbi. And going forward, our expansions will help for next year.

And sir, going forward, how -- what would be the outsourcing volume expected share of the using volume in FY '28?

Outpouring going forward will go down. We are putting up...

So we are looking at about -- from 10, we are looking at about 145 million square meter of sales -- with that, we have 88 million right now, and we are adding about 22.5 million, which will actually get about 90 million to $20 million. So that will be all outsourcing. So outsourcing from 42 million, 42 million will go down to about $36 million, $37 million roughly, a little bit here and there.

Next question is from the line of Dhananjay Mishra from Centrum Broking.. Mr. Mishra, can you please speak? There's no response so we'll take the next participant. I now request Mr. Rahul Gupta from Morgan Stanley. .

Just one clarification. I understood you clearly. Given North and South margins are relatively better, you would need to take price hikes to maintain blended margins. despite spot gas prices moving higher. Is that correct?

We just said that we're not taking any price hike because of gas prices are stable right now in our north and south plants, west a little bit up but we don't need to take any price increase. As we just discussed that we need to go more for volumes and looking at everything there okay.

Yes. But just to understand it better, this wouldn't impact our margins. You're focusing on volumes. But even non-mobile plants operated at higher margins, you chasing volumes wouldn't come at the expense of margins, right?

No, it will -- that is what blended margin will remain as where we are. .

Next question is from the line of [ Roshan ] from Antique Stockbroking Limited. .

So just wanted to understand how...

I'm so sorry to interrupt, Rosha. Can you please speak on your handset phone? We are not able to hear you properly. .

Yes. Is it better now? .