KAJARIACERNSEQ2 FY2024October 26, 2023

Kajaria Ceramics Limited

6,033words

172turns

20analyst exchanges

6executives

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Management on call

Ashok Kajaria

CHAIRMAN & MANAGING

Chetan Kajaria

JOINT MANAGING DIRECTOR

Rishi Kajaria

JOINT MANAGING DIRECTOR- KAJARIA CERAMICS LIMITED

Sanjeev Agarwal

CHIEF FINANCIAL OFFICER

Nehal Shah

DVP

Pranav Mehta

EQUIRUS SECURITIES

Key numbers — 40 extracted

rs,

Kajaria, JMD; Mr. Chetan Kajaria, JMD; Mr. Sanjeev Agarwal, CFO; Mr. Nehal Shah, DVP Strategy and Mrs, Pallavi Bhalla, GM Investor Relations. Without wasting much time, I will hand over the call to Mr.

6.23%

and continues to remain weak. In Q2 FY2024 our volume showed a modest year-to-year growth of 6.23% reaching 26.47 million square meters. The consolidated revenue for the quarter amounted to Rs.l1

26.47 million

o remain weak. In Q2 FY2024 our volume showed a modest year-to-year growth of 6.23% reaching 26.47 million square meters. The consolidated revenue for the quarter amounted to Rs.l122 Crores reflecting a 4

122 Crore

% reaching 26.47 million square meters. The consolidated revenue for the quarter amounted to Rs.l122 Crores reflecting a 4% increase compared to the same period last year. Our EBITDA margin strengthened ex

n square meters. The consolidated revenue for the quarter amounted to Rs.l122 Crores reflecting a 4% increase compared to the same period last year. Our EBITDA margin strengthened exceeding 16% a no

16%

ting a 4% increase compared to the same period last year. Our EBITDA margin strengthened exceeding 16% a notable improvement from 12% in Q2 of FY2023 primarily due to reduction in fuel costs. While f

12%

he same period last year. Our EBITDA margin strengthened exceeding 16% a notable improvement from 12% in Q2 of FY2023 primarily due to reduction in fuel costs. While first half of 2024 witnessed weake

3 million

ojects. These projects hold great promise for our future growth. In August 2023 we commissioned 3 million square meters of GVT capacity in Sikandrabad followed by the expansion cum modernization of our c

1.92 million

acity in Sikandrabad followed by the expansion cum modernization of our ceramic tile capacity by 1.92 million square meters at Gailpur in September 2023. These newly operational facilities allow us to produ

25%

tion hub for global exports. Being the lowest cost producer in the world, India's exports grew 25% to approximately Rs.l6000 Crores in FY2023 which is likely to reach Rs.20000 Crores to Rs.21000 Cr

6000 Crore

ts. Being the lowest cost producer in the world, India's exports grew 25% to approximately Rs.l6000 Crores in FY2023 which is likely to reach Rs.20000 Crores to Rs.21000 Crores in FY2024 as compared to Rs

Rs.20000 Crore

ld, India's exports grew 25% to approximately Rs.l6000 Crores in FY2023 which is likely to reach Rs.20000 Crores to Rs.21000 Crores in FY2024 as compared to Rs.l2750 Crores in FY2022. India exports accounted f

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Guidance — 20 items

Ashok Kajaria

opening

“Furthermore we expect a favorable shift in the demand environment driven by the positive impact of the healthy growth in the real estate sector.”

Rahul Agarwal

“My first question essentially anything you would like to put as a revised guidance for tile volume growth and revenue growth and margins for this year?”

Ashok Kajaria

“See two things as I said earlier every quarter will be better than the earlier one and that is what we are talking about.”

Ashok Kajaria

“As far as revenue guidance it is linked to the growth of volume and as far as margins are concerned we are keeping that at 14% to 16% but we will be at the upper end that much I can assure you because even if you see the 6% volume growth in this quarter Kajaria 7% in the Q I we have been able to achieve this 16% margin.”

Ashok Kajaria

“I think going forward it should be slightly better that is the way I look at it.”

Ashok Kajaria

“As far as the Q2 is concerned the total if you take all the plants it is about Rs.38 and going forward it will be more or less same plus or minus Rs.l because as you all know brent has slightly increased in the international market so it should be a plus or minus Rs.l like that but at the same time since we are using biofuel so we are confident that it will not go beyond it.”

Ashok Kajaria

“I would say slightly better and part of it will be passed on to the trade as I said earlier.”

Sonali Salgaonkar

“My first question is regarding the capex any revision in the guidance for the capex or do we hold to our guidance of last quarter?”

Ashok Kajaria

“The capex guidance remains the same I think this year we should be spending close to about Rs.370 Crores in FY2023-FY2024 and going forward I think it should be about Rs.200 Crores to Rs.250 Crores every year for the next three years.”

Sonali Salgaonkar

“Sir secondly on the export front you actually gave a very good summary of how India is faring well as a low cost producer so any any updates on the Q2 exports how much have we grown and which are the new markets that we will be currently targeting?”

Risks & concerns — 6 flagged

We must acknowledge the ongoing challenges in the domestic tile market as the demand continues to remain weak.

— Ashok Kajaria

Furthermore we expect a favorable shift in the demand environment driven by the positive impact of the healthy growth in the real estate sector.

— Ashok Kajaria

Sir just one last question in your starting commentary you said that demand is a bit weak so if you could help us understand where is this weakness primarily coming from, is this urban driven or Tier-2 or Tier-3 rural driven?

— Sonali Salgaonkar

Right Sir sorry just to dig into it basically it indicates 15% decline even if it is CY how should one believe this number, is it something realistic?

— Ritesh Shah

Sir second is we have given our volume guidance but given we have bunching up of festivities this time of the year, we have Diwali and Chhath Puja altogether so do you hear or do you worry about concerns around labor availability which can actually put a concern on volume growth and given there are multiple state level elections are there any historical trends from which basically has labor availability been a problem or is it okay life goes on?

— Ritesh Shah

Sir my question relates to the gas so when can we expect the impact of natural gas to be corrected?

— Allvallavhi Rumgta

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Q&A — 20 exchanges

Good evening Sir thank you for the opportunity. My first question essentially anything you would like to put as a revised guidance for tile volume growth and revenue growth and margins for this year?

Ashok Kajaria

See two things as I said earlier every quarter will be better than the earlier one and that is what we are talking about. Weare looking at a positive scenario for Q3 and Q4 should be better than Q3. As far as revenue guidance it is linked to the growth of volume and as far as margins are concerned we are keeping that at 14% to 16% but we will be at the upper end that much I can assure you because even if you see the 6% volume growth in this quarter Kajaria 7% in the Q I we have been able to achieve this 16% margin. I think going forward it should be slightly better that is the way I look at it

Sir thank you for the opportunity. My first question is regarding the capex any revision in the guidance for the capex or do we hold to our guidance of last quarter?

Ashok Kajaria

The capex guidance remains the same I think this year we should be spending close to about Rs.370 Crores in FY2023-FY2024 and going forward I think it should be about Rs.200 Crores to Rs.250 Crores every year for the next three years. Kajaria Understand. Sir secondly on the export front you actually gave a very good summary of how India is faring well as a low cost producer so any any updates on the Q2 exports how much have we grown and which are the new markets that we will be currently targeting? You see total first six months exports are from India is about Rs.l 0000 Crores plus. Got it Sir

Thank you for the opportunity. My questions have been answered thanks.

Management

My question was regarding the volume growth earlier you targeted was around 15% to 20% at the start of the year so now you are revising it to 9% to 10% so any comments on that?

Ashok Kajaria

We never give a guidance of 15% to 20%. What we gave guidance was 13% to 15% in volume terms at our day conference when we did our annual results. You are also aware what is happening in the industry it is not that Kajaria has to do something which is beyond expectations, results have started coming from many multinationals, they all are saying that the markets have been very tough so are we. Looking at the current scenario, we have revised our target and have just shared it. So just now you shared that now things have started in for the tile sector as earlier the cable and wire sector or othe

Good evening Sir and thanks a lot for the opportunity. Just two questions from my end that is related to your, one is employee cost we have seen sudden increase in employee cost jump, any specific one-off or will it be now the new run rate?

Ashok Kajaria

It is some provision of increment in the Q2. It is probably this run rate basically can continue for full year considering these increments will stay here? Yes so the next quarter is going to be similar to Q2 slightly maybe very slightly higher than Q I, you can take employee cost in Q3 and Q4 what we have shown in Q2. Understood Sir and secondly I just wanted to understand what has been the add spend for first half as well as Q2? So we spent roughly Rs.l08 Crores last year and we spent Rs.60 Crores in the first six months. Our target is to increase this and have a total spend of Rs.130 Crores

Thanks for the opportunity. Just wanted to know we have done growth we have done in terms of volume 6% to 7% so from where this demand is coming, whether it is coming from replacement market up gradation or more coming from new builders so do you have any estimate of that and what kind of growth in both the segment is happening as of now?

Rishi Kajaria

As we said, the first six months was 6% to 7% and the next six months will better in terms of volume. And the growth is coming from everywhere in good proportion mainly from Tier-2 and Tier-3 cities where new houses are being built. Metros are more for renovation basically that is the overall scenario. Dealers are opening more showrooms and stores in Tier-2 and Tier-3 cities. So we are looking at a much higher volume growth from smaller towns. Then incremental demand will coming once as you said that we are expecting good demand once the project will come in completion stage right? Company Rig

Good evening. Thank you very much for the opportunity. Ashok ji just wanted to ask so we are sort of increasing our footprint in international market like let us say Dubai and also we had set up a N to sell products in UK market so any sort of thoughts whether are we willing to ramp up our export sales or it would still remain small in the overall scheme of things?

Ashok Kajaria

See overall we are very, very strong in the domestic market. Export will always be a small percentage of our overall sale. By opening a showroom in Dubai and by opening a showroom in London we are trying to see how we can get some share of the export market and increase our export sales. It will be a slow and gradual process, but we are putting our effort to get some share of the market. Sure, and we will be selling product tiles in our own brand name, right? Absolutely because Kajaria products are being sold in Dubai or London. Sure and just sorry I missed that part so we shared the gas cost

Good evening. Thank you for this opportunity, Sir. Sir I was saying that I just wanted to know you have been talking about getting into smaller towns aggressively and you also highlighted Tier-2 and Tier-3 markets I just wanted to know if you could share what would be the revenue split like if possible or the dealer split like if possible, for our existing current dealers or our current revenue?

Ashok Kajaria

See currently metro is about 15% to 16%, Tier-l what we call it is about 30%, Tier-2 would be about 30% and Tier-3 will be the balance, Tier-4 will be hardly 2%. So our expansion plan are we looking at Tier-4 or are we saying Tier-3 and Tier-4? Tier-2 and Tier-3 will be the area where the major construction is happening and partly into Tier-4 as we go. In terms of our distribution current mix what would it will, it should be similar to the revenue mix right? Yes it will be similar to the revenue mix. Thank you Sir.

Sir can you please share the split of revenue between tiles, bathware and adhesive and their respective margins?

Company Speaker

For the last six months? Yes. Tiles is 90%, bathware is 7%, plywood and adhesives together is 2% to 3%. The respective margin? Kajaria So tiles is about 16% EBITDA, bathware is bout is 9% EBITDA and plywood is negative margin. How do we see the bathware demand coming up you did give some good guidance on tiles? So bathware market for us first half grew about 16%, the next six months are going to be much, much better than the first six months so we are looking at a blended growth of 20% plus for the entire year. This is in the bath ware alone? This is the bathware segment yes bathware and sanit

Sir thank you for the opportunity. Most of my questions are answered. Just wanted to check on other expenses even other expenses saw a spike in this quarter so anything one off or with higher outsourced it is at a higher rate?

Ashok Kajaria

We cannot hear you properly. It is mainly because of advertisement expenses. So it will be higher for the next half also with increased? It will be similar to what we have shown in Q2. There will not be the same increase in Q3 what we have shown between Q I and Q2. Got it. Thank you Sir.

Good afternoon Sir. Sir I just wanted a perspective on the Indian tile exports market so as you said that India is poised to become the largest tile exporter by FY2025 so is it that only the lower gas prices compared to globally is what domestic exporters are getting benefits of or are there any other benefits compared to other Southeast Asian countries I mean to say during COVID and after just before the COVID the global gas prices were much higher so versus what are the pros and cons with respect to this cost versus the Southeast Asia exporters?

Ashok Kajaria

See gas prices what they are today are also there internationally. Indian manufacturers are paying whatever are international prices. Last year if I take you back in the calendar year 2022 gas prices Europe were 8X and lOx and India was about 1.5x and 2x but right now everywhere is the prices have come down more or less 2X or IX. India per share has become very competitive and the credit goes to Morbi because there are almost 600 manufacturer there and out of that you can see about 120 are focusing mainly on exports because we are a very competitive producer as a country so that is why our exp

Good evening Sir and thank you for the opportunity. I had a couple of years of questions. In Q2 your realization for subsidiaries has gone up and outsourcing has gone down quite significantly so any reason behind that?

Pallavi Bhalla

Nikhil there is some mistake from our end. Revenue from one of the subsidiaries got added in the outsourcing revenue. Now we have corrected the number and going forward this is going to be the trend. So the Q2 numbers that are reported those are correct right? Yes so every number in this earning release is corrected and now this going to be the trend. We have regrouped the number for the previous quarter to make it comparable with the Q2. Got it and one more question it was like on the gas cost, gas cost as a percentage of the topline and as a percentage of operating expenses they have increas

Thanks for the opportunity. Sir just one question can you quantify the volume growth for the month of September and if possible could you give some color on October 15 days also the demand side? Kajaria

Chetan Kajaria

September was roughly about 9% and from October things should be a little better. Should be little better. Thank you Sir.

So last year we were saying that Morbi would take annual shutdown so IS there any shutdown planned during the Q3 from Morbi?

Rishi Kajaria

We would not know. You should ask somebody in Morbi we would not know that. I thought you might be aware because we have N s no problem. Our JV's have not taken any shutdown. Last year also when they had shutdown, we did not take any shutdown. Sure Sir that helps. Secondly Sir if you could just reiterate the capex guidance for FY2024 and where would we be spending it in the second half? So we spent roughly Rs.51 Crores in the Gailpur modernization, SKD was Rs.IOO Crores plus, the Nepal project is Rs.91 Crores and Kerovit Global is roughly Rs.80 Crores and our corporate office will be around Rs

Thanks for the opportunity. Sir my first question is on this data pertaining to ceramic world review what it surprisingly indicates is that India production and consumption actually in volumetric terms declined for CY2024 any thoughts over here that you would like to share is there something that one should read across? Kajaria

Ashok Kajaria

No, you are correct what ceramic world review says but it is actually for the calendar year and when you look at the financial year because in India we do it financial year and that is where we have updated the export data also as per the Ministry of Commerce and if you look at the financial year we have been flat on domestic volumes and exports have grown from Rs.l2500 Crores to Rs.l6000 Crores. Overall industry has been very tough last year for calendar year 2022 if you can see the ceramic world review data worldwide it has degrown by 9.6% because the fuel prices went up in certain parts of

Thank you very much for followup opportunity. Sir we have recently seen that in plywood the company would be able to give a bit higher loan to the subsidiary so any sort of threshold limit that we have the broad amount that we will invest in plywood business?

Ashok Kajaria

Last year we did Rs.77 Crores turnover in plywood this year we are looking at 100 plus and the loan limit we have not fixed that till now. We look at a positive future going forward and this also should come down as we go ahead so we take it as it comes basically. Sure Sir so as of now the plan is to invest in this business as we see huge opportunity in this business? Yes because the plywood industry size is Rs.27S00 Crores in the country, organized is only Rs.7000 Crores, unorganized Rs.20S00 Crores and the GST coming in we see a lot of shift from the unorganized to the organized peers. It is

I just wanted to know what is the capacity utilization currently you are working at?

Ashok Kajaria

Capacity utilization in the Q2 is 98%. You said 98% right? 98%. Kajaria Thank you very much.

Sir my question relates to the gas so when can we expect the impact of natural gas to be corrected?

Ashok Kajaria

Natural gas is linked to Brent and we are all aware Brent prices have gone up recently it has touched as high as $97. The prices of gas for us in North would have been much higher but fortunately since we are using biofuel we are safe by that so that is what we said the current price of the Q2 was Rs.38 average. For Q3 we are looking at almost the same scenario plus Rs.l max because otherwise it could have been much much higher so that is a scenario so that is where we are right now. That was very helpful.

Sir just one question earlier you had mentioned that there are no new capacities coming up in Morbi but off late we are seeing some signs of fresh investments coming in over there from the smaller unorganized players so do we see this as the hindrance or you would attribute the same for the export growth?

Ashok Kajaria

No, our information also say that almost 25 to 30 plants are coming in Morbi but mainly they will be for exports. You are absolutely correct there are 25 to 30 plants coming good size plants are coming I was told and mainly for exports because export market is really picking up so they have they want a bigger share and better share of that pie. Got it. Thank you Sir. Thank you so and all the best.

Thank you very much for all the people who have joined us today and spending their available time. I hope we been able to answer few of the questions that they have put to us and any further questions can be sent to our team of Sanjeev, Nehal and Pallavi for more answers. Thank you very much for joining us today. Thank you. Kajaria

Management

Speaking time

Ashok Kajaria

Moderator

Parv

Sonali Salgaonkar

Onkar Ghugardare

Akash Shah

Rahul Agarwal

Rishi Kajaria

Sneha Talreja

Nikhil Agarwal

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Opening remarks

Pranav Mehta

Good evening, everyone. Thank you for joining this call. Today we have with us the management of Kajaria Ceramics Limited. From the management side we have Mr. Ashok Kajaria, CMD; Mr. Rishi Kajaria, JMD; Mr. Chetan Kajaria, JMD; Mr. Sanjeev Agarwal, CFO; Mr. Nehal Shah, DVP Strategy and Mrs, Pallavi Bhalla, GM Investor Relations. Without wasting much time, I will hand over the call to Mr. Ashok Kajaria for his opening remarks after which we will open up the floor for questions and answers. Sir over to you.

Ashok Kajaria

Thank you Pranav. Good evening everyone. You have already made the introduction so I will not do that again. We must acknowledge the ongoing challenges in the domestic tile market as the demand continues to remain weak. In Q2 FY2024 our volume showed a modest year-to-year growth of 6.23% reaching 26.47 million square meters. The consolidated revenue for the quarter amounted to Rs.l122 Crores reflecting a 4% increase compared to the same period last year. Our EBITDA margin strengthened exceeding 16% a notable improvement from 12% in Q2 of FY2023 primarily due to reduction in fuel costs. While first half of 2024 witnessed weaker demand than anticipated we have observed a gradual uptake in volume since September. Furthermore we expect a favorable shift in the demand environment driven by the positive impact of the healthy growth in the real estate sector. This outlook augurs well for an improvement in volume growth in second half of FY2024. We are pleased to announce a successful commissi

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