This quarter will be very tough for Kajaria Ceramics because its gas prices are based in dollars, says company CMD Ashok Kajaria. Other than that, other input costs are more or less the same, so there will be some margin pressure this quarter solely on the back of gas, he says. The company is taking corrective steps by raising prices from October 1, though the quantum is not known yet.
He does not think demand will get impacted despite price hike. He expects the industry to continue to grow at 13-15 percent.
The company does not plan to focus much on exports because internationally it is just one of the brands, but as far as the domestic market goes, it is the number one brand, Kajaria told CNBC-TV18.
Below is the verbatim transcript of Ashok Kajaria's interview on CNBC-TV18
Q: Your stock hasn’t really been moving around. A couple of brokerage reports that did come out find it quite attractive. With regard to exposure to South India now there is some traction seen in markets like Kerala as well as Andhra Pradesh. What are you witnessing in that market?
A: The Kerala market is doing very well, Andhra is a bit of a correction because of Telangana issue but I think it will settle down. But things are better in south, south is a market which is growing very fast.
Q: How is input cost doing for the company as a whole and is there any pressure that we could see on the margins?
A: This quarter it will be very tough because our gas prices are based in dollar. All other input costs more or less are the same except for spares which we import but the dollar pressure has been there on gas and there will be some pressure on margins this quarter. We are taking a corrective step by increasing the prices from October 1, but definitely this quarter margins will be under pressure.
Q: Are you looking at exports picking up because just looking year on year basis your exports actually have come down. Have you all tried to combat this by exporting more?
A: We are the number one brand in the country today. In exports, we are one of the brands, we are trying to increase exports but it will only be around 5-7 percent of our total production. We are not looking at much improvement in exports because we are only one of the brands in the international market. In domestic, we are the number one brand and we get a slight premium because of that. So, domestic market will always be better for Kajaria.
Q: You did speak about a price hike. Can you just give us an idea of the quantum of price hike and by when would it possibly be passed on?
A: We are having a series of meetings along with other manufacturers also, costs have gone up everywhere. What we are asking is the price increase from October 1 that is final. The quantum is yet to be decided, it will be done in next two-three days but the price will increase from October 1 for all range of products.
Q: In FY13 your volume growth was around 14 percent. What is the volume growth that you are targeting in FY14?
A: We are targeting a volume growth of almost 15-16 percent, slightly better than FY13.
Q: Do you expect demand to get impacted in case you do undertake a price hike or is it fairly resilient?
A: No, demand will not be impacted, in India we have much room to cover. I think the industry will continue to grow at 13-15 percent. Kajaria will do better than that at least for the next three-five years we don't see any scenario. There may be small hiccups here and there like this quarter because of the dollar up and down. But overall demand is very positive in the market.
Q: You all did around 14.8 percent margins in the previous quarter, what is a sustainable run rate considering the pressure that you all are facing particularly in this quarter?
A: This quarter will definitely be slightly lower but by end of the year we should be able to match what we have done in Q1 because next two quarters look very positive.
Q: There is a small segment where you all do import some tiles from Italy and other foreign countries; it is a small but growing segment. Are your import costs also getting hit because that segment was getting some bit of revenue and was seeing some bit of traction?
A: We have been importing polish vitrified tiles from China, Italian imports have already been zero for the last six-eight months and this quarter will definitely be hurt but we have almost completely stopped imports from China because domestic prices today are more sustainable and imports are no more viable from China.