KAJARIACERNSEQ1 FY24July 29, 2023

Kajaria Ceramics Limited

8,533words
202turns
20analyst exchanges
6executives
Management on call
Ashok Kajaria
CHAIRMAN AND MANAGING
Chetan Kajaria
JOINT MANAGING DIRECTOR
Rishi Kajaria
JOINT MANAGING DIRECTOR – KAJARIA CERAMICS LIMITED
Sanjeev Agarwal
CHIEF FINANCIAL OFFICER
Manish Mahawar
ANTIQUE STOCK BROKING LIMITED
Manish Mahawar From Antique Stock Broking. Please Note That Certain Statements Made By The Management May Be Forward
looking
Key numbers — 40 extracted
25 million
uted to the subdued demand scenario in the months of April and May 2023. In this quarter, we sold 25 million square meters of tiles compared to 23 million square meters in Q1F23, achieving a growth rate of
23 million
ths of April and May 2023. In this quarter, we sold 25 million square meters of tiles compared to 23 million square meters in Q1F23, achieving a growth rate of 7.25%. However, we are firm in capitalizing on
7.25%
quare meters of tiles compared to 23 million square meters in Q1F23, achieving a growth rate of 7.25%. However, we are firm in capitalizing on increasing demand and surpassing industry performance.
2.6 million
try performance. Our previous announced projects are progressing as planned. We will commission 2.6 million square meters of capacity in Sikandrabad by early August 23 and the modernization of ceramic
30%
lishing new kerovit showrooms or integrating kerovit into their existing ones. And a considerable 30% or more of new orders coming from previously untapped dealers. On export side, Indian exports a
INR4,803 crore
in several territories. In the first quarter of FY -24 alone, the country achieved exports worth INR4,803 crores, marking a remarkable 23% growth compared to INR3,897 crores in Q1FY23. Presently the United Sta
23%
quarter of FY -24 alone, the country achieved exports worth INR4,803 crores, marking a remarkable 23% growth compared to INR3,897 crores in Q1FY23. Presently the United States, United Kingdom, Israel
INR3,897 crore
, the country achieved exports worth INR4,803 crores, marking a remarkable 23% growth compared to INR3,897 crores in Q1FY23. Presently the United States, United Kingdom, Israel, Russia, Mexico, Kuwait and UAE s
INR21,000 crore
nations for Indian tile manufacturers. Looking ahead we anticipate exports to touch and be around INR21,000 crores in fiscal year 23-24, surpassing last year's figure of INR17,500 crores. This substantial increa
INR17,500 crore
to touch and be around INR21,000 crores in fiscal year 23-24, surpassing last year's figure of INR17,500 crores. This substantial increase reflects the rising global demand for Indian tiles and the industry's
6%
his quarter's financial performance, in Q4-FY24, the company achieved a 7.25% volume growth and a 6% year-to-year increase in consolidated revenue from operations, reaching INR1,064 crores, compared
INR1,064 crore
volume growth and a 6% year-to-year increase in consolidated revenue from operations, reaching INR1,064 crores, compared to INR1,008 crores in quarter one FY23. Despite the challenging market conditions, the
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Guidance — 20 items
Ashok Kajaria
opening
“Looking ahead we anticipate exports to touch and be around INR21,000 crores in fiscal year 23-24, surpassing last year's figure of INR17,500 crores.”
Ashok Kajaria
qa
“We hope that from September things will pick up, things are much better from June onwards and regarding your question of price adjustment yes some price per se will not come down, but some benefit will passed on to the dealers and this I have already said in my investor meet also but overall it will be a net gain for Kajaria in the year.”
Rahul Agarwal
qa
“And one last question then I will come back in the queue, on the Nepal plant should we expect like INR10 crores, INR15 crores of profit next year from Nepal?”
Rahul Agarwal
qa
“Yes, sir I am asking about fiscal 25, assuming that you have 50% share, my sense is Nepal could be like a INR30 crores annual profit business and INR15 crores comes to Kajaria from next year, is that assumption correct?”
Ashok Kajaria
qa
“Exports have picked up, definitely and going forward, as we all are aware, things are moving in the right direction in the country with a lot of real estate growth, you are more aware than me September onwards that demand should come, infrastructure demand should come and as you know elections are coming, general elections are coming, that demand should also come from sometime from October, so things are much better, things should be much better.”
Achal Lohade
qa
“Sir, if you could talk about the capex for FY24 and FY25, what kind of capex can we build in the estimate?”
Ashok Kajaria
qa
“Gailpur modernization is about INR50 crores, Sikandarabad new plant is INR70 crores out of Rs.100, Nepal is INR90 crores, Bathware is INR80 crores, maintenance capex is about INR30 crores plus and we are making corporate office should be another INR50 crores already some capex has incurred last year, and some capex will be this year.”
Praveen Sahay
qa
“So, that will be maintained over here at this gas price?”
Nikhil Agrawal
qa
“Sir, can you just guide on the pricing strategy like will you be taking a price hike in the first few days of July and what is our trend going forward?”
Nikhil Agrawal
qa
“Sir, pertaining to this guidance like what kind of pricing strategies we are looking forward going ahead like do you take any price hikes in the first few days of July like we have seen some significant price drop has happened?”
Risks & concerns — 9 flagged
However, the plywood segment faced a decline in revenue during Q1F24, recording INR14 crores compared to 20 crores in quarter 1FYF23.
— Ashok Kajaria
I had a question about in terms of the demand situation, like you said, April, May has been weak, June onwards it's improving and you're maintaining 13%, 15%, but is it possible to give some more colour in terms of industry?
— Achal Lohade
Have you seen, I mean, in your estimate, has the industry seen a decline in volume in 1Q or was it kind of flattish, any colour on that?
— Achal Lohade
That will be very difficult to tell you exactly on what.
— Rishi Kajaria
But yes, something like 3% decline overall in the revenue.
— Rishi Kajaria
But as some participants asked earlier, right now if you see the numbers, we have done, as far as EBITDA is concerned, it's 15.9, and the two quarters ahead were the most difficult quarters.
— Ashok Kajaria
See, July would have been better but unfortunately excessive rainfalls everywhere in the country has made transportation and everything very, very difficult.
— Ashok Kajaria
Whenever there are more exports, as you rightly said, the lesser pressure will be from the Morbi on domestic market, yes.
— Ashok Kajaria
But exports, whenever it goes up, you take it there will be less pressure on the domestic market from Morbi.
— Ashok Kajaria
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Q&A — 20 exchanges
Q
Hi, sir. Good evening and thank you for the opportunity, good to see the gas cost normalizing for the industry. Sir, two questions firstly on tile pricing, how is that behaved during the quarter and my understanding is the volumes have still not recovered and, in your commentary, also mentioned it will recover from September, Channel discounts in my view should be higher in 1Q also, but any price adjustments was done in 1Q and the outlook on the same, please?
Ashok Kajaria
See as I said we have already promised 13% to 15% volume growth just for the knowledge of everybody who is joining today. 14% to 16% revenue growth for the year and 14% to 16% EBITDA margins for the year. As I said first quarter has been tough because of various reasons. We hope that from September things will pick up, things are much better from June onwards and regarding your question of price adjustment yes some price per se will not come down, but some benefit will passed on to the dealers and this I have already said in my investor meet also but overall it will be a net gain for Kajaria i
Q
So, in Q1 the depreciation cost has decreased what is the reason for that?
Sanjeev Agarwal
There was a subsidiary Vennar earlier year. In this financial year Vennar was not there. Okay, understood. Last question from my side, how has been the fuel prices for Q1 region- wise and how is it currently? The average fuel prices for Q1 has been about INR39 and it will on the same lines in quarter two. What about region mix for Q1? Q1 mix is INR39 for North, 44 for South, West 37, average is 39. Okay, thank you.
Q
Good evening, sir. Thank you for taking my question. I had a question about in terms of the demand situation, like you said, April, May has been weak, June onwards it's improving and you're maintaining 13%, 15%, but is it possible to give some more colour in terms of industry? Have you seen, I mean, in your estimate, has the industry seen a decline in volume in 1Q or was it kind of flattish, any colour on that?
Ashok Kajaria
See, industry should have been flattish. If Kajaria has grown at about 7%, I would say industry has been flattish, more or less. Exports have picked up, definitely and going forward, as we all are aware, things are moving in the right direction in the country with a lot of real estate growth, you are more aware than me September onwards that demand should come, infrastructure demand should come and as you know elections are coming, general elections are coming, that demand should also come from sometime from October, so things are much better, things should be much better. Understood. We see p
Q
So, my question is related to the gas pricing. How much of the biofuel contribution right now to your North plants?
Ashok Kajaria
To the North plant is about 33% and total is about 20% overall. And how is the pricing there? Biofuel pricing is about INR22. And you also use propane into South plants how is the pricing there? We are not using propane anymore. South plants are all gas based. And the next question is related to subsidiary realization which has gone down some around 11%. So, is there any specific reason for that or is just a market behaviour? Please see most of our JVs are situated in Morbi and since there is a massive reduction in the gas prices there, we passed on that benefit to the trade because of the com
Q
Good evening, sir. Sir, can you just guide on the pricing strategy like will you be taking a price hike in the first few days of July and what is our trend going forward?
Pallavi Bhalla
Nikhil, your voice is echoing. Can you please speak through the handset? Now it’s audible, sir? Yes, you are audible. Please repeat your question. Sir, pertaining to this guidance like what kind of pricing strategies we are looking forward going ahead like do you take any price hikes in the first few days of July like we have seen some significant price drop has happened? As we said that we already got a good saving on the gas, so there's no reason of taking a price hike. In fact, we are maintaining the prices and giving a little bit more benefit to the dealer so that we increase our sales. As
Q
Yes, hi sir. Thank you so much for the opportunity. Sir, just looking through your volume on a more like a four-year CAGR, we still are looking at about a 6% four year CAGR volume that you have grown for 1Q FY24 and if you look at broadly some of the other building material category we see much sharper growth happening on a three year, four year, CAGR basis. So, is it that with a lag effect, one should expect a much stronger H2, how are you looking at the demand? Is there a point of inflection? Sir, just some thoughts there we will be helpful.
Ashok Kajaria
See, the quarter two, after September things will be better, no doubt about it. But right now, let us restrict to 13% to 15% volume growth. First quarter, we have done at 7%. We must make it up also to make sure that we achieve that numbers, right. So, there is no inflection. And let us focus on what we are trying to do. Okay, great. Just to add to that, you are also increasing our advertisement spent and all, as we said which will also help us achieving our growth numbers. Okay, and what would be the spent for the quarter and the year look like? So, last year we spent INR108 crores in adverti
Q
Hi, sir. Thanks for the opportunity, couple of questions. Sir, first one, you indicated 23% revenue growth for exports for Q1. Sir, how much is the volume growth over here and the price growth?
Ashok Kajaria
Price growth for exports should be more or less the same, whatever number you are seeing is the volume growth. There is not much change in the whatever you are seeing is the value growth. So, 23% is value so there is volume growth that's what you are saying? No, It’s mostly volume growth and less of value growth. price has not changed much. Sir, my second question is on.. Ashok Kajaria One minute. The exports are 23% volume growth over last quarter. So, this quarter Morbi did almost INR4,800 crores of exports. And there is no price change? No, there is no price change…not much Perfect. Sir, se
Q
Yes, thank you for the opportunity, sir. So, my first question is that there is a contraction in the gross margin during the quarter. So, is there any specific reason that you can highlight for that?
Management
The marginal impact, very marginal. No, there is a marginal improvement in the gross margin if you take a purchase of traded goods, power and fuel, and raw material together. And if you're not taking purchase of traded goods, then remove the outsourcing volume from the total volumes. Okay, so I am not taking into consideration the power and fuel cost, so it is just the purchase of trading goods and stock and trade that I am taking in consideration. So, considering that 63% gross margin has gone down to 56%? if you're comparing Y-o-Y then obviously in Q1 FY23 the raw material cost was lower as
Q
Yes, thanks for the opportunity. My question is on margin. So, you guided for let's say 14% to 16% margin for this year, with Q1 at 15.9%. And as gas prices are also let us say favourable, so any specific reason to be conservative here?
Ashok Kajaria
Let’s hope going forward, you will see better margin. See as we all know, quarter two and quarter three were the toughest last year. Gas was cut, gas prices went up high, spot prices were at double the prices of the normal pricing. Things have become normal, I'm sure with the market improving, you will see a better result. That's all we can say today. We keep our guidance unchanged, but if the number goes up, you will see it first. Okay on that line only employee cost this quarter has declined on a Y-o-Y basis. This is slightly unusual in Q1. So, any specific reason here? See, as far as the em
Q
Sir, thank you for the opportunity I hope all of you are doing well. So, my first question is regarding biofuel. You mentioned in your earlier commentary that the average usage of biofuel across is about somewhere 20%. And I think, correct me if I'm wrong, the maximum that it can go is about 35% of your overall power and fuel cost. So, does that mean that there is a further leeway of margin expansion as you increase your biofuel mix in the overall power and fuel?
Ashok Kajaria
First, the biofuel in North is 33%, overall biofuel is 20%. That's number one. That's the maximum we can go right now, number one. But as some participants asked earlier, right now if you see the numbers, we have done, as far as EBITDA is concerned, it's 15.9, and the two quarters ahead were the most difficult quarters. So, once the sale picks up, numbers will improve, definitely. EBITDA margins has to improve. I'm not giving any guidance right now as I said, but definitely you see more positivity as we go forward. I understand, sir. Sir, my second question is, you mentioned that April-May was
Q
Yes, sir just one question pending. You have highlighted a lot of things. Sir, can you throw light on your plywood business. Earlier we were aiming for more than INR100 crores in 2024, but Q1 has just been INR10 crores. So, how do we see the whole year planning for the business?
Chetan Kajaria
So, last year we did INR77 crores of revenue. This year we're targeting INR100 crores, which is a 30% revenue growth. The main reason being we've got a very strong sales team now. We took a very senior gentleman from the plywood industry for heading the plywood vertical, and he's getting in a very strong sales team in the next month or two. So, we are looking at positively crossing INR100 crores turnover in this financial year. Okay, that helps us sir. All the best. Thank you.
Q
Hello sir, good evening. My question pertains to your volume assumption. As you mentioned second half of the volume numbers should pick up. So, are we factoring in 20% sort of volume growth for second half?
Ashok Kajaria
Let's not go into the details. Let us focus on our job and we are saying that we are looking at 13% to 15% volume growth for the whole year and I am sure with the market improving we will do it. Okay, this main guidance 14% to 16% also we could deliver this Q1 sort of margins in subsequent quarters even if the volume numbers pick up? Slightly look better.
Q
As far as the margins are concerned, the quarter 2, quarter 3 last year were the toughest because of the gas prices, because of gas cut, and the spot prices were double than the normal prices. Things have normalized on that forefront. And going ahead, the moment the volumes come, you'll see a better EBITDA margins, that much I can assure you. But I am keeping... But I can assure you that the margins will look better.
Rajesh Ravi
Okay. Great, sir. I'll come back in queue. Thank you. All the best.
Q
Yes. Hi. Good evening, sir. So, first question is like, what is the reason that our manufacturing tiles production was down 5% on a Y-o-Y basis, whereas our outsource sales volume was up 13% in this June quarter?
Rishi Kajaria
So, our manufacturing was down because we were upgrading our Secunderabad plant, so that entire quarter, that plant was shut down and this, it just, we commissioned the line on 15th of July and the production will come on 29th or 30th of July or early August and then it will match up. The entire quarter was shut because of the up gradation of the plant. And even going forward, you see, as we are saying that 13% to 15% volume growth, we just shared a few minutes back the capacity part. So, our sourcing will increase more and more. Depending on where we are marketing, the outsourcing will depend
Q
Hi sir. Am I audible? Sneha, from Nuvama. I'm really sorry for the earlier disturbances. Just two questions from my end. One is on the adhesive part of it. I think in the opening remark, you mentioned this particular quarter you've done INR10 crores. Just wanted to understand what are we doing here and what's the vision in this particular segment and what are we aiming for FY ‘24? And even going ahead.
Chetan Kajaria
So last year, we had a turnover of INR38 crores in the adhesive division with a PBT of roughly INR7 crores and this year's target is a turnover of INR65 crores with a PBT of roughly INR12 crores to INR13 crores. We've already tied up with 10 manufacturing facilities across the country for faster and timely delivery in cost competitive manner to all the dealers and channel partners because it’s a freight intensive product. So that's the vision plan for this financial year. and next to next year we plan to cross INR100 crores turnover in this segment. Okay, so this segment is actually growing mu
Q
Sir, thank you for taking my question. Sir, you spoke about export and how strong export growth has been. Typically, we have seen whenever Morbi is focused on export, the competition in the domestic market is a lot lesser. Are you seeing that play out? Can you talk about how this export growth impacts realization in the domestic market? Any colour on that would be helpful.
Ashok Kajaria
A good question, Pulkit. Whenever there are more exports, as you rightly said, the lesser pressure will be from the Morbi on domestic market, yes. Secondly, two things have happened. Gas prices have considerably reduced in the last 12 months. So, prices per se will not go up at least in the next eight months, but our margins will improve for a simple reason that whatever benefits like last year I said, we are saving close to INR150 crores to INR175 crores this year on the gas trend only. And that partly that will be passed on to the trade and at least INR100 crores will remain with the company
Q
Yes. My question was on ROE. What kind of ROE and ROC targets you are looking for this current year?
Ashok Kajaria
There are no targets. Kajaria doesn't have these targets. If the margin goes up, ROE and ROC will go up automatically. And as I said earlier, Sanjive will say more about it, with the more outsourcing, you see math, Kajaria has to grow 13% to 15% in volume terms every year. Part of it will be, lot of it will be outsourcing also. So automatically your ROCE will go up. Maybe Sanju can give far more light on this? See, in this quarter also, there is a 300-bps improvement in ROE from 15.5% to 18%. And this quarter, we have done only 6%, 7% volume. When we grow more, when we achieve 13% to 15% volum
Q
Hi, thank you, sir. Thanks for the opportunity. Most of my questions are answered. Just one thing, I wanted to understand, as you have been highlighting that pricing would be largely stable or slightly lower for Kajaria. How has been the pricing scenario of the overall industry? How it has come down and what's the pricing difference between Kajaria products and Morbi products? Any sense there?
Ashok Kajaria
The pricing for Kajaria has been stable. Prices per se have not been changed. But as we said earlier, some discounts will be passed on, some trade benefits will be passed on to the dealers to sell more, That's one. As far as the difference between the pricing is concerned, I can often tell you that between the nearest competitor, that is number two, I think the pricing difference is between 6% to 10% depending on the product. As far as Morbi is concerned, it should be close to 20%- 25% between Kajaria and Morbi. Got it. And this is largely stable over the last year and now, right? This is stab
Q
Yes, sir. Thank you for the opportunity, sir. Yes, sir, can you please guide us in the trade meeting…
Management
Q
Am I audible now?
Management
Speaking time
Ashok Kajaria
53
Moderator
25
Rishi Kajaria
15
Chetan Kajaria
10
Onkar Ghugardare
8
Rahul Agarwal
7
Abhishek Ghosh
7
Ritesh Shah
7
Praveen Sahay
6
Utkarsh
6
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Opening remarks
Manish Mahawar
Thank you Neerav. Warm welcome to all the participants on Kajaria Ceramics Q1FY24 conference call. From the management, we have Mr. Ashok Kajaria, Chairman and Managing Director, Mr. Chetan Kajaria, Joint Managing Director, Mr. Rishi Kajaria, Joint Managing Director, Mr. Sanjeev Agarwal, CFO, Mrs. Pallavi Bhalla, investor Relations on the call. Without further delay, I would like to hand over the call to Mr. Ashok Kajaria for opening remarks. Post which, we open the floor for Q&A. Thank you and over to Mr. Kajaria.
Ashok Kajaria
Thank you, Manish. Very good evening to everyone. It gives me great pleasure to welcome you to the quarter one F24 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 Agarwal, Nehal Shah DVP Strategy and Pallavi Bhalla, GM Investor Relations. We are in the midst of a growing demand environment on the back of a positive real estate cycle already kicking in and government's continued emphasis on infrastructure development. As tile consumption typically occurs in the later stages of construction process, the momentum gained from new launches over the past one year is expected to translate into stable tile demand from September onwards. Despite having a strong conviction in our ability to outperform the industry, this quarter has been a bit slow as compared to our expectations, mainly attributed to the subdued demand scenario in the months of April and May 2023. In this quarter,
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