Kajaria Ceramics Ltd

Kajaria Ceramics Ltd –Q2FY24 –Earning Call Highlights –20th Oct23 :

Financials :
–Revenue : 1122Cr –Growth of 4% YnY
EBITDA : 179.71Cr–Growth of 39% YnY
EBITDA Margin : 16.02% —growth of 400bps on 12.01% YnY
PAT : 107.96 Cr –growth of 55% YnY
Volumes : 26.47 MSM —Growth of 6% YnY over 24.91 MSM in Q2FY23
Sanitaryware / Faucets : 85.29Cr –Growth of 14.5% YnY
Plywood : 23.47Cr —Growth of 21% YnY
Adhesives : 13.03Cr –Growth of 38.2% YnY
WC days decreased to 53 days from 62 days QnQ

–While H1FY24 witnessed weaker than anticipated demand, gradual pick-up in volumes since September and expected improvement in demand environment emanating from rub-off of strong growth in real estate sector is expected to drive better volume growth in H2FY24

–The recent commissioning of the Sikandrabad and Gailpur modernization/expansion projects augurs well for our future growth.

–India is become a production hub for exports –being the lowest cost producer in the world. India exports increased to 16k Cr in FY23 –which is likely to reach 20/21k Cr in FY24. Indian exports a/c for 15% of world’s total exports

—If the current rate of growth continues , INDIA will become largest exporter in the world for Tiles by FY25

–Revised guidance : Looking at Q3 better than Q2 and Q4 will be better than Q3 –so things are improving . Margin guidance is 14 to 16% but it will be at upper end of this band with 6% growth in Volumes in Q2 and 7% Volume growth in Q1 & if we are able to achieve 16% , going forward it should be slightly better

–Fuel pricing outlook : Q2 was 38 INR & going forward it will be more or less same +/- Rs 1.00 as brent has slightly increased so it would be in this band & since we are using Bio-fuel so it wont go beyond that

—Regional breakdown for Fuel : Gas is 40 INR in North , 38 INR in south , West is 33 INR and avg. is about 38 INR for Q2FY24

–Saving of power & fuel was expected to be 150Cr for full year , how much was it in H1 ? – it was slightly better than 75Cr & some of it was passed on to the trade so it would be 80/85Cr Approx

–Capex : This year we will spend 370Cr in FY24 and going forward it would be 200/250Cr for the next 3 yrs. 50Cr in Gailpur Modernisation & Sikandrabad was 100Cr+ , Nepal project is 91Cr , Kerrovit global is 80Cr & Corporate office is around 50Cr & 26Cr is capex maintenance —total of 370Cr in this FY24

–Export : H1 exports from India is about 10kCr +

–Pricing action in Tiles ? —No change

–Demand : Real estate is good for the last 2 yrs , earlier they sold own inventory , 2nd year the construction started , our demand has started coming now with Sep’23 better than last 5 months and things looking positive . First they sell cement & other bldg material product for making the bldg like cables etc & now the time has come for finishing end where tiles / sanitaryware / plywood / paints –all these segments have started moving & Now we are seeing demand coming back in the real estate sector for our segment.

–Volume Growth : Q1 was 7% , in Q2 we did 6% and with the mkt looking up it will be better than first 2 Qts and Q4 will be better than 3rd –so avg. will be close to 9/10%

—We gave a guidance of 13/15% in Volume terms growth in May’23 & now what is happening in the industry we see a tough mkt and whatever is the on-ground situation , we have revised accordingly. Cables and wires are used in the time of construction , post that tiles / sanitaryware / paints / plywood etc starts moving

–Employee cost spike ? —We have taken increment provision in this Q2 & next Qtr will be slightly higher than Q2 .
Ad Spend : We spent 108Cr last year & tgt is to 130/140Cr by FY24

—Where is the demand getting generated from ? — First 6 months the volume growth was 6/7% and next 6 months it will be better than 6/7% & growth is coming from everywhere in good proportion , mainly from Tier2/Tier3 cities where new houses are being built & more for renovation so greater demand from smaller towns

—Increasing our Footprint in International mkt with JVs in Dubai & UK mkts , what is the export sales outlook ? —Overall we are strong in domestic mkt & exports will always be a small % of our overall sales & by opening a showroom in Dubai & London –we are trying to see how we can get some share of export mkt & increase them

—Revenue Split or Dealer Split between Tier 1 & Tier2/Tier3 Towns ? —Currently for Revenues —Metros are 15/16% , Tier 1 is about 30% & Tier 2 is 30% & Tier 3 is the balance and Tier 4 is hardly any %. & Our expansion plan is Tier 2/3 where major construction is happening & partly into Tier 4. The current distribution is similar to Revenue mix

—Split of Revenues between Tiles / Bathware & Adhesives & their respective Margins ? —For last 6 months – Tiles is 90% , Bathware is 7% & Adhesives + Plywood is 2/3%. Respective Margins : Tiles is 16% EBITDA , Bath ware is 9% EBITDA , Plywood is -ve 2/3%

—Bathware & Sanitaryware combined demand outlook ? —For us it grew 16% in H1 & next 6 months will be much better than first 6 months so we are looking at blended growth of 20%+ for the entire year
So Tiles we are talking about 9/10% Volume growth and for Bathware / Sanitaryware we are looking at 20%+ growth

—Dealer No. for 30th Sep : Current strength is 1950 Dealers & we started with 1840 Dealers & these are all over India

—Other expenses are higher ? —Mainly due to Ad expenses & it will be similar to Q2
Exports mkt for Tiles from INDIA , what is driving this ? —Gas prices what we have now are also there internationally , Indian mfrers are paying similar to International prices . Last year in FY22 –Gas prices were 8X to 10X & India was 1.5X / 2X but right now more or less its same & India is competitive due to Morbi where we have more than 600 Mferers
& out of that 120 are focussing mainly on exports because we are a competitive producer as Country so that’s why exports are up and looking forward we will see this going up.

—Realisation for Subsidaries has gone up & outsourcing has gone down significantly , any reason ? —There is some error at our end where instead of subsidary it got added to outsourcing part so now we have corrected it and going forward whatever we have reported in Q2 will be the trend

–Gas cost as a % of topline and as a % of operating expenses , they have increased QnQ while your avg. cost was 38 INR & in Q1 it was 39 INR so what is the reaons ? –It has gone up slightly due to some power cost increase in one unit in Rajasthan where there is some change in the JV .
The capacity utilization in Q2 is higher ( 95%+) than Q1 so that’s the reason Power cost has gone up Qtr on Qtr

—Volume growth in Sep’23 and for Oct first 15 days ? —Sep’23 was roughly about 9% & Oct it should be better

—Our JV has not taken any Shutdown in Morbi Last year when rest of them had taken shutdown in Q3 & this year also we have not taken / planned any shutdown

–Overall Ceramic World data , the Industry Volume had degrown by 9% in CY22 because of poor pricing ( 9/10X ) in certain parts of the world but everything has come back to maximum of 1.5X so the industry overall in the world should do better.

—In the last 6 months of the year the growth is always been better , this is the trend of last 5/10 yrs . Elections are always +ve trigger as there is more work in the system so basically its positive

—Pricing & discounting trend in Q2 ? —Slight gas prices have gone up by 5 INR from 24th Aug & 1st Sep’23 & in Morbi and nothing much will happen in Q3 gas pricing so we are not looking at any changes in future Qtrs as well

—Last year in Plywood the turnover was 77 Cr and this year its 100Cr + & as of now plan is to invest in this biz as the Plywood industry is 27500Cr in the country with Organised only 7k Cr & unorganised in 20500Cr & the trend is from unorganised to organised shift so its a big industry and we will gain some mkt share as we move forward

—Capacity Utilization : 98%

—Natural gas is linked to Brent crude & as Brent prices have gone up recently as high as 97$ . The prices of gas cost in North would have been much higher but fortunately since we are using Bio-fuel , we have been saved & current Avg. in Q2 was 38 INR & for Q3 it will be similar +1 INR max

—Morbi capacities : our info. Says that there are 25/30 plants are coming up in Morbi but mainly they will be for exports because its picking up in exports

PS : I may have missed 1 or 2 points due to Audio clarity issues, please refer to detailed transcripts as & when published