Kajaria Ceramics Limited (KAJARIACER.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kajaria Ceramics Update Conference Call hosted by Nuvama Wealth Management Limited. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Ms. Sneha Talreja from Nuvama Wealth Management Limited for opening remarks. Thank you, and over to you, Sneha.

Thank you, Rehan. Good morning all. We welcome you to Kajaria Ceramics conference call to discuss regarding the fraud and the step-down wholly owned subsidiary of the company. We are here today joined by the senior management of Kajaria Ceramics represented by Mr. Chetan Kajaria, Vice Chairman; Mr. Rishi Kajaria, MD; Mr. Sanjeev Agarwal, CFO; and Mr. Praveen Gupta, EVP, Finance. We will now start with the opening remarks from the management, followed by the Q&A. Over to you, Rishi Ji, for the opening remarks.

Thank you, Sneha. Good morning, everyone. I'll just start with a little background. In April 2025, in Kajaria, we started the unification process with a very clear objective to bring together our sales operations across India. Earlier, the same dealers were being approached by multiple teams for vitrified and ceramic tiles. This unification was a strategic step towards a sharper focus, better coordination and stronger execution in the market. Building on the momentum in May 2025, we also launched Operation Manthan. Operation Manthan was a structured review of all our internal systems, processes and business frameworks. We started with Kajaria Service Limited, where the exercise helped us identify lot of operational gaps as well as significant cost optimization opportunities. The outcomes were tangible and swift. During the year, we have achieved cost savings of more than INR 150 crores on an annualized basis. These efficiencies came from multiple areas, including reduction of manpower, cutting down travel expenses, reduction in reengineering of cartons and reduction of cost of packaging material, better raw material negotiations and overall plant operations of the company. However, we are not stopping here. We have identified more areas where we'll reduce the cost further. While Kajaria has always been a strong sales-driven organization, we believe that sustained leadership requires equal excellence in cost efficiency and governance as well. This exercise will continue till we achieve excellence in all the areas. In August 2025, for the first time in the history of Kajaria, we also conducted a supplier meet to reinforce the new ethical business practices. A clear message was communicated, zero tolerance for corruption or unethical conduct. Any deviation from the standard will not be acceptable and be severely dealt with. As part of the stronger governance framework, certain issues were identified at one of our step-down subsidiary, Kerovit Global Private Limited, while we were in the last phase of corruption -- correction. This was actually our last plant, which we put our new sanitaryware plant. These were detected through enhanced systems, audits and controls and appropriate corrective actions have been initiated. I want to emphasize that this reflects our commitment to transparency and robust governance going forward. This current episode may not have come to light had we not begin this process of systems processes and MIS audit that was initiated as part of Kajaria 2.0. All around improvement in productivity, purchases, cost and yield improvement as well as rapid cost savings and enhancement of overall profitability will only help Kajaria to become the leader in the industry, not only for sales, but in costs as well. To all our stakeholders, I would like to reassure that Kajaria's fundamentals remain very, very strong. We are optimistic about India's growth story and Kajaria's role in it. This is Kajaria 2.0, where our philosophy is very, very clear. Bad news to be shared immediately and good news only to be shared on completion. Friends, our journey has just begun, and the best is yet to come. Thank you. I invite you for any questions, please.

[Operator Instructions] We take the first question from the line of Shaleen from UBS. Please go ahead.

So can we talk a little bit...

Can you speak a bit louder, Shaleen, please?

Yes, Sanjeev. [Foreign Language]

Yes, it's audible.

Can we speak a little bit in detail exactly what happened and like how this thing has -- like what led to it? And what exactly -- what the nature of -- whatever the broad or misappropriation of finance happened? Can we speak a little bit in detail? And what was the basic reason behind it?

So Shaleen, good morning. In case of Kajaria Ceramics, we have a robust and automated vendor onboarding system already in place. This also involves a committee comprising of senior people from IT, purchase, accounts and the respective functional heads who approved the vendor onboarding. And in case of any project purchase, multiple bids are invited and given to an L1 vendor. So we have reviewed all the other subsidiaries, and no discrepancies are found there. But we found some discrepancies in Kajaria -- Kerovit, sorry, Kerovit Global. And to explain this vendor onboarding process in detail, I would like to hand it over to a senior purchase person, Mr. Anubhav, who caught this discrepancy there and can explain this process in much further detail.

Hi, Shaleen Ji, good morning. My name is Anubhav. So I'll explain. I will just give you a little bit details about how we are doing this process at Kajaria and other subsidiaries. In case of Kajaria, we have a very robust system of vendor onboarding at our end. Just I will explain you how we do it. We have one party that is [indiscernible] who is doing this onboarding management of many of the reputed organizations, including Kajaria. So they give us the total solution from onboarding to direct payment. This is the first step what we are doing as of now. We are creating the vendor portal for Kajaria Ceramics and all the subsidiaries. So this is the first step where we are doing this activity. The link -- whenever we want to onboard any supplier, we just share the link to that supplier. They put all their details in their link. And then ultimately, all the verification and processes has been carried out through online portals where we have invested also on this process. So all GST numbers, PAN number, check, everything gets validated through the online portals of these websites and finally come -- if there is any issue in their PAN, GST or anything so it immediately gives us message and we stop that activity immediately there itself. This is the first step, which we have done in this process. Second, after these all checks, finally, it comes to us. We have the 4 members approval authority, where we check each and every detail thoroughly and then finally approves it as a vendor onboarding process. So once it complete and then finally, it gives the message directly to the supplier and all the members of the authority that this vendor code has been already created in system and gets automatically messaged to supplier. No manual intervention is there at all. So this is the first step. So this is the step of doing the new vendor onboarding. So as per the management direction, we were having the clear mandate that whatever existing vendors are there, that should also come automatically on this portal. It should be migrated from their process to this process. So in this process, when we were doing this activity of migrating from earlier process to this process, we found that there are some inconsistencies in this subsidiary, which were the last subsidiary where we were doing this activity. So when we deep down this activity, there we found the issue and then finally, we highlighted this issue to management and then it finally comes to this level. So this is the history and the process which we are doing as of now. And how we are going to strengthen this process. This also I have explained to you that vendor portal has been in the process, which were there in Kajaria subsidiary already. And finally, now we are putting up to all the subsidiaries of Kajaria itself. In coming -- maximum, it will take maybe 2 to 3 months, which will complete this activity to all the subsidiaries of Kajaria. So this is the process. This is the submission from my side. So if you have any particular question in this activity, you can ask me.

Sir, 2 questions. So you're saying the process which you have in Kajaria was not there. So what process was there? And what issue did you find? Like you said you find -- you found some issues, some discrepancy. Can you elaborate on that?

We were doing the -- means we were checking the -- our CapEx total investment. During that process, some CWIP was open. So this was -- even the project is already complete and it was showing it as an open category, then it comes into the criteria of discussion.

So what exactly...

Shaleen, in the last financial year, there was -- in this particular subsidiary, the CWIP was to the extent of INR 6 crores, INR 7 crores, which was a lapse on our part. we ignored that. So while doing this vendor onboarding, we came to know that this amount is going up, then it came to light, then we took that action.

So what was -- the vendor -- so there was a -- what vendor was, like is it a wrong vendor? What exactly has happened?

Has created vendor in his own name.

Okay. So it's a vendor fraud?

It's a vendor fraud, yes, you can say that, but I don't know the matter is under investigation. But Prima facie, yes, it is -- and he has not even -- and he has posed the signature of the approving authority management signatures to misled the other signatory who was doing online. So he showed the those approval to him to make him -- there's a maker, checker concept. So for the maker, he showed the post document to make this happen.

It's a big vendor you're saying beside from the funds.

Yes, yes, definitely.

And sir, how are we -- how confident are we that this cannot be repeated? Like you mentioned a few things, but will that sound completely, I'd say, the concept issues -- to place here, will it make sure that nothing happen again in this?

Shaleen, just to answer that they are basically -- this was the last step-down subsidy where the expansion was still going on. That is when advantage was taken. All other companies and subsidiaries are completely reviewed, and there is no discrepancy there at all. And we will further -- we are going after this instead, we will be extra vigilant. We will -- we are going to put more stringent system in all of our processes. We will further review. We will not stop that -- though we have already done everything in Kajaria, we have checked. But we have -- we are in the process of rechecking even we may go for forensic audit for this particular subsidiary. So we will not leave anything -- we will not allow this thing to happen again at all. So whatever we need to do, we will do that for either for Kajaria Ceramics or for any of its subsidiaries. It may take some time, but we are going to be very, very, very stringent all the system and process. There will be no compromise at all. We may complete watertight systems, very, very strict systems.

And sir, what's the view on this amount? Do you think you can get back anything? Or how are you going to treat it in the financials?

How it is going to be -- I think it should be shown as an exceptional thing. But still, we are taking the opinion, but we or the auditor will decide, but 99%, it will be shown as an exceptional expenditure.

Okay. And any chances of recovery of any?

We haven't -- actually, we have recovered on the very next day, he has given us around INR 60 lakh back, and he has promised to pay more, but I cannot quantify how much amount. We are not very hopeful the full amount will be recovered even -- we are not hopeful even the half will recover. I can't really quantify, but he has promised to return some money. We have filed a police complaint against him. So he -- he is saying that he will -- he is arranging funds and he'll try to return as much as possible.

We take the next question from the line of Sneha Talreja from Nuvama Wealth Management Limited.

Just a couple of questions from my end. Firstly, how long has this employee been with you all? That's first, so that we can get to know how -- what could have been the severity and how long this incident must have happened, although you have mentioned that incident is from 2 years, but we still would want to know that.

So he's been with us for the last 8 years. And he's been doing this -- this thing has been happening for the last 2 years, but it was much lesser earlier, in the last 4, 5 months, it increased a lot, and that is how I think things came into -- we got to know about things.

But certainty of not having it before because he's an 8-year-old employee with us and has been loyal for so long.

So honestly, he was also reporting to our Chief Accounts Officer, who's been with us for 37 years. And I would say there was some judgment error on our part as well. And yes, it was a lapse of -- I mean, it happened.

Secondly, this division is actually a very small segment for you all in the overall scheme of things. We only make about less than INR 400-odd crores revenues, and we've been making only about 4-odd percent margin last year in this business. So really overall small in scheme of things and INR 20-odd crores on that particular amount is a big number.

Partly how it happened was that we just put up a new plant in our Kerovit Global company for the -- we have put a latest sanitaryware plant. And using that as an advantage, he siphoned off the funds from the company.

You mean in the form of all investments, which is getting into place?

Sorry?

You mean in the form of investments which were going into the entire CapEx, this thing happened. So the CapEx number will take in overall...

Correct. Correct.

Lastly, you also have a 15% private equity stakeholder in this, which is West Bridge. Any involvement from them? Or what's their understanding or their comments on the situation?

We have informed the same as a governance, they need to know about it. We have informed them what has happened.

And sir, what has been their day-to-day -- I mean, what has been the involvement otherwise in the day-to-day operations or in the Board meetings of the same.

There is no day-to-day. That was a very passive investment.

We take the next question from the line of Ritesh Shah from Investec. Please go ahead.

Sir, no questions. All questions answered. Thank you so much.

Thank you.

We move on to the next question from the line of Praveen Sahay from PL Capital. Please go ahead.

Sir, just a clarification that this is related to the work in progress CWIP? Or is it the CapEx you have done to the new plant?

Can you please repeat your question?

So once you had said that's related to the CWIP that is related to the vendor. And again, in the last question, you had said that's a new plant you had put in. So is it related to the CapEx of the new plant? Or is it related to the CWIP related to the vendor?

It's related to CapEx of that new plant. Actually, CapEx was going on in between his -- some entries in CWIP.

Okay. And is there any insurance related to that, if that is a part of a CapEx?

No, no, there is no insurance.

We take the next question from the line of Rajesh Ravi from HDFC Securities.

My question pertains to again the same. You mentioned that the recoverability seems to be quite difficult. And also, you mentioned that most of the siphoning would have happened predominantly in the past 4 to 5 months, right? So -- and most of the siphoning would have happened through some business account of the erstwhile CFO, right? So I just want to understand where would the money would have subsequently been sub out because this is a considerable amount. So why there...

We have -- the police has asked for all his bank statement, and they are checking the...

Okay. And what you mentioned is, if I heard it correct, that most of the siphoning has happened in this financial year itself.

Correct.

Correct.

Yes, correct.

And lastly, you mentioned that -- earlier you were mentioning that 3, 4 more months would be needed to complete the onboarding process for all the vendors? Or is it already been done and this 3 to 4 months addition is for something else?

Sir, actually, for Kajaria, we are already done. For subsidiaries, because we need to mitigate the data from existing to our new system so it will -- because this is the process where we have maybe around thousands of vendors where we are checking each and every vendor very carefully. That is the reason it will take around 3 months to mitigate the data and implement to this new process.

We take the next question from the line of Sajal Gupta from Marine Research. Please, go ahead. [Operator Instructions] Since there is no response, we'll move on to the next question. We take the next question from the line of [indiscernible] who is an individual investor.

My question is why was Kajaria 2.0 plan started? Was there any indication from the internal auditor or statutory auditor that this exercise is required because they found any deficiency? Or was there any indication at all from the internal or statutory auditor?

Sorry, can you...

And the second question -- the initial...

Was not very clear.

Yes, the exercise of Kajaria 2.0 plan was started that was explained by the management at the initial call. So why was it required? Did the internal auditor or statutory auditor suggested that this plan should be implemented? Or was there any role from the internal or statutory auditor pointing out that there may be some fraud because this is for 2 years and accounts are audited. So what was the role.

I'll tell you. I'll tell you. It is not pointed out to anybody. So as I said in the beginning, in April, we started a unification process in the company, where we are aligning all the salespeople together. At the same time, we also felt the need to understand our entire cost processes. And that is why we made an internal team and launched Operation Manthan. So this was our internal team, which we -- which got us all our -- a lot of things were taken out in our purchases and all that, and this was a resultant of that.

Sir, will there be any change in the hiring process as this is committed by KMP. So the management lookout at the hiring process should also be changed?

So we are strengthening our internal processes and systems. And definitely, we'll be more careful in the hiring in the future also. But more importantly is to put systems and controls in place so nobody can take advantage of the situation, be it whoever sitting in that seat.

It is going to be a system-based organization going forward, not a person-based organization.

We take the next question from the line of Rahul Agarwal from IKIGAI Asset.

I just wanted to clarify a few things. We are referring to the balance sheet of Kerovit Global Private Limited. Is that correct?

Correct.

Okay. If I look at that 31st March, the capital work in progress number was about INR 8.5 crores. Is this number correct?

Yes, yes, this number is correct.

Okay. So I just wanted to clarify the estimation of overall payments, which were made on account of CWIP was about INR 20 crores. That's an estimate as of now, and that number could be lower when the inquiry is basically complete. Is this understanding correct?

More or less, this amount is correct. We have checked all the entries of the last 2 years. So this amount is correct. This will be approximately INR 20 crores. That might be INR 19.9 crores or INR 19.7, should be around INR 20 crores, plus/minus INR 50 lakhs, INR 25 lakhs, here and there.

Okay. So if my understanding is correct, this INR 20 crores was a payment made from Kerovit Global's balance sheet to a vendor who essentially was a self-payment to the CFO. And hence, this entire transaction has to get reversed. Whatever recoveries happen, to that extent, the CWIP will get canceled as per the auditor new accounting, and then the balance will be written off in the subsidiary P&L. Is that correct?

Yes. Yes. Correct.

Against the net worth of Kerovit Global. Is that correct?

Yes, yes.

Okay. Perfect. And just lastly on -- so because this was part of the CapEx and this CapEx actually hasn't really happened, would we need to complete CapEx at the sanitaryware plant? Or is it largely done and this was over and above? This was not really...

It's all done. The plant is in production and the CapEx was all done.

There is not going to be any expenditure in CapEx -- in this plant as CapEx.

We take the next question from the line of Keshav Lahoti from HDFC Securities.

Firstly, this INR 20 crore number which you have computed, employee also accepting this INR 20 crore number, both are on the same page. And secondly, the recovery might be tough. So both are around INR 20 crores, right? But employee [indiscernible] right? Why are you saying the recovery would be tough if the employee has taken INR 20 crores, possibly he might be having the funds with him. So why so recovery should be tough? And what is the status of the employee? Is he put behind the bar right now?

So this is -- we have already filed a complaint with the local police station and economic offence wing, and they are -- he is under interrogation, and based on the feedback from him and -- based on his feedback, we presume that it is not going to be -- because we don't know where he has put in the money. We are still tracing the trail, maybe he may have circulated or where diverted money, we are not very sure about it. We can't say, it is better -- like conservative. And if the more amount come, we'll be more happy to -- for that. We don't want to give any false hope to shareholders that the amount will come...

And out of this INR 20 crores, how much would be in this financial year and possibly how much was in earlier financial year? And whether this amount was -- depreciation was charged in this amount or it was sitting in CWIP and no depreciation was charged earlier?

No depreciation was charged because it was a capital work in progress last year. So last year was INR 8 crores -- 6 crores...

INR 6 crores last year and INR 14 crores this year.

INR 14 crores this year.

So this was in CWIP or fixed assets. So because CWIP won't be charging depreciation, not bit clear on that part.

It was in CWIP.

So it was in CWIP, then no depreciation would have been charged on this amount, right?

No depreciation was charged.

Sorry, I missed you.

No depreciation was charged. It was completely...

We take the next question from the line of Rishab Bothra from Anand Rathi Institutional Equities.

Just wanted to understand 2 steps back. You are saying that...

Rishab, I'm sorry to interrupt you, but your audio is not clear.

Is it better now?

This is better. Please go ahead.

I was saying that I'll take 2 steps backward and understand whenever there is a CapEx program and RFQ is supply. So is there any person other than the CFO, either from the procurement team or the inventory team because whenever the inventory -- there has to be inventory coming to the system against which payments are made. So how come without inventory coming into the system, payments have been made to the supplier? And is it a single supplier fraud or a multiple supplier fraud?

No, it is a single person fraud. He misrepresented to his juniors that he has some approval for paying some advances. It was not some raw material, it was advance for some machinery...

Where he forged the Chairman's signature as well.

So he paid advance.

We take the next question from the line of Rajesh Ravi from HDFC Securities.

Just a follow-up question. See, this INR 20 crores, which was all CWIP, and as you mentioned, this was forged advanced payment towards purchase of some machinery. So I just wanted to understand given that most of your CapEx was already done, so did it not raise red flags immediately when -- this being INR 20 crores? And what is the quantum of the total CapEx, which was done in this subsidiary? And what could have taken it such delays to identify this? This is commendable that you could identify this and bring it to notice of everyone and do the procedural thing of raising it with the -- filing a complaint.

No, this company was started CapEx in last year around May 2023 or May 2024. Then entire year CapEx was going on and total CapEx was approximately INR 120 crores. Out of this INR 120 crores, CWIP was very small amount, negligible amount, INR 8 crores. In this INR 8 crores, he hidden that amount of INR 6 crores, INR 7 crores. So CapEx was going on regularly, and he misrepresented to his junior that he had some management approval for some advances.

And with the CapEx was already over, an incremental INR 14 crores advance payout in this financial year, if I understand correct. And that would be the only CapEx or advance related to this expansion, which would have gone through this financial year?

Yes, yes, INR 14 crores this year.

Out of that also last 3 months, we had taken a lot of money, and that is how it was...

And we have -- he has not done the bank reconciliation for last 3, 4 months, and that -- so that is why the entry did not come as he was the CFO, though it was under -- it was not booked in this year as CWIP, it was lying in the inventory reconciliation, some portion is lying in the bank reconciliation.

For last quarter...

For last quarter.

October, November, December.

Okay. And just to understand the technicalities because this is into a subsidiary, which doesn't have its own large network, most of the payment for such advance payments, the money would be coming in through stand-alone parent company?

No, this company was having itself CC limits.

Okay. So there was no technical approval or any automated approval in the -- any online system, which would have been requiring authorization from the current CFO?

No, no. Because they were having their own CC limits. And as I already explained that he was representative Junior that he had some management approvals by forged document. He transferred money to this vendor on his own name.

Okay. Sir, and last question, the initial remark when you all mentioned that you have saved the project 2.0, which is undergoing INR 100 crores savings. So could you just quantify under what heads, how much savings have been accrued?

So actually, the total is about INR 950 crores...

On an annualized basis...

On an annualized basis, where about INR 80 crores to INR 90 crores would be on raw materials. In the plant negotiations, we reengineered the cartons, better negotiation with the raw material suppliers. So INR 80 crores to INR 90 crores would be the intune of that. INR 20 crores to INR 25 crores was in manpower, where we reduced our manpower after the unification. About INR 15 crores was on travel. We reduced our travel expenses overall in the company of the employees and the directors, everybody. So...

And promoters have also certified their salary. So INR 15 crores came from...

Okay. And what portion of these costs are recurring in nature in terms of which will continue to remain, which may not be reincurred in subsequent year as you would also be targeting growth?

So the savings which we have done will continue. This is -- that's going to be structured. That is we have done, and that will remain for all the years and even as we said, as our MD has said in the opening remarks that we are not stopping here. We have identified more areas where we will be reducing the cost further. So this is one event where we have saved also, we have lost also, INR 20 crores...

The Operation Manthan [Foreign Language]

[Foreign Language] that's agree. [Foreign Language].

[Foreign Language] yes, this was -- it's a hard go, but we are happy that going further from here on, we will be much, much stronger and a leaner and meaner organization.

Got it. And sir, this INR 150 crore run rate has been achieved in both Q1 and Q2. Is that understanding correct?

No, no, it is on an annualized basis. It is not -- every quarter, we have been saving. Every quarter -- see, our margin has increased from 10%, 11% from the Q4, though there were some one-offs also there to 17% or 18%. So that's a gradual process. The major low-hanging fruit we have already taken. The balance saving is also there, but it is not that easy. It will take some time. It will take a few more quarters, but we are not stopping. We have been continuously identifying where even minute cases of detail we are going where we can save. As MD said, that we are a leader in sales. We need to be a leader in our cost also.

Correct. So what I wanted to understand this INR 40 crores, INR 50 crores quarterly savings run rate, given the annualized INR 150 crore savings, how much of that is already in place? I'm just trying to understand H2 versus H1, what sort of cost saving number will be there?

No, no. Please stop here because this is not -- this is a special call. For the normal call, we need to take 2 days clear notice to the investors. We have done this call on a shorter notice. So I would request you to restrict the question as for this particular issue only because that will not be fair on my part to discuss the other business question. The other business question, we can discuss on our next call after the Q3 please.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for their closing comments.

So thank you, everyone, for your attendance. And we do admit there was a lapse in our systems and controls. But going forward, we are taking all steps to rectify that the systems and process will be much stronger going forward in the future, and we are more fitter and a stronger organization from here on. Thank you so much.

Thank you. And just to add to that, that, yes, Kajaria will be much, much better off from here.

Thank you. On behalf of Nuvama Wealth Management Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.