Oct 20, 2016 10:00 PM IST | Source: CNBC-TV18

Target 10% volume growth in H2FY17: Kajaria Ceramics

In an interview with CNBC-TV18, Ashok Kajaria said that despite missing street estimates the company has not lost its market share and seen a volume growth of 3 percent in Q2 despite the industry growth being negative.

The market was bad in the first two months of the second quarter but the retail market has improved from September onwards, says Ashok Kajaria, CMD of Kajaria Ceramics.

In the second quarter of this fiscal, Kajaria Ceramics reported a 8.2 percent increase in its net profit to Rs 63.6 crore year-on-year (YoY) revenues were up 4 percent to Rs 706.9 crore (YoY).

In an interview with CNBC-TV18, Ashok Kajaria said that despite missing street estimates the company has not lost its market share and seen a volume growth of 3 percent in Q2 despite the industry growth being negative.

He said the company has a volume growth target of 10 percent in H2FY17.

Below is the verbatim transcript of Ashok Kajaria’s interview to Prashant Nair and Reema Tendulkar on CNBC-TV18.

Reema: Your topline growth at 4 percent is a bit disappointing. Could you tell us the reason for that, what was your volume growth in tiles and when should we expect a pick up?

A: The markets were very bad in the month of July and August. Things have started improving from the month of September. The retail market has improved dramatically from September. The builder lobby still has a lot of problem; they still have money problem.

However, I foresee, with the real estate bill, with good monsoon or everything, starting from October things should be very well for the next two quarters and onwards.

Prashant: What is the first half number looking like now, on topline and volumes?

A: Second half the volume has grown by 3 percent. If you take an average the volume growth in the first half has been around 6 percent. In the second half we are looking at a volume growth of about 10 percent.

So things are looking better and I am sure that going forward things will be better. With GST coming in also from April 1, year ahead also looks much better.

Reema: Your volume growth is 3 percent in Q2, what was the industry volume growth because we want to understand if you won, lost market share?

A: We have not lost market share. If you check the industry growth, the industry growth would be less than zero because markets have been very tough in July and August. If it is applicable to Kajaria then you can take it that industry has also not done very well as far as the Q2 is concerned. Going forward, as I said, things are better because of various reasons.

You should see a positive scenario as far as this industry is concerned. As we talked earlier, with Swachh Bharat Abhiyan, housing for all has already taken off, real estate bill coming in, a lot of builders have to complete their projects by March 31, things are in better shape from here on and things will be better from here on.

Prashant: You said that second half, H2 of FY17 you are saying volume growth should be 10 percent as against 6 percent in the first half?

A: In the first half.

Prashant: Some of the factors that you mentioned are slightly longer term impact factors, they won’t have an immediate kind of trickle through effect?

A: I will tell you the short-term impact. Short term impact is the festive season in India starts from September 1 because Diwali is on October 30, that is number one and number two real estate bill is a reality which has already been implemented from May 1 2016. The full impact of which is already happening because builders have to complete their projects as we are all aware and after March 31, whatever is left will be part of the real estate bill so they are rushing up with their projects.

First you have to complete the structure and the tallying stage only comes in the second half which is October to March so these are the two reasons in short-term which will generate volumes.

Reema: What was your growth in the sanitaryware segment this time and is that also going to improve in the second half?

A: Sanitaryware we have already grown this year at about 60 percent plus because last year the volumes were very low. We have already grown at 60 percent. It is going forward in a positive manner because sanitaryware has already stabilized.

The bath fittings industry, the faucet industry took little time which has stabilised now. However, overall it is about 3-5 percent of the total turnover of Kajaria.

Prashant: Within tiles, what is happening, could you tell us which segments, how is premium doing, are people down trading, what is going on essentially?

A: Retail market has not been affected at all except the month of July and August. If you see the first three months, April, May, June, the retail has been good. July August has been somehow very slow.

First of September onwards, retail has started picking up and it will continue to be better and better.

Prashant: I am assuming the retail segment is consumer facing business is kind of small, mostly it is the builders and institutional segment which is -- what is the breakup?

A: In case of Kajaria if you remember, 70 percent is retail and 30 percent is institutional sales. In case of industry it is 50 percent retail and 50 percent institutional sales. So, that has been the strength of Kajaria.

Prashant: You are in a relatively, just by that fact you are in a much stronger position?

A: We are in a much stronger position.

Prashant: What is retail essentially doing, could you give that breakup? What kind of products are doing better, what kind of products are doing not so good?

A: All products are doing well but retail itself was slow because people did not want to spend probably whatever the reason may be in July and August. We have four segments, we have ceramic tiles, we have polished vitrified tiles, we have glaze vitrified tiles and now sanitaryware and faucets. When retail does well, all the segments do well.

Prashant: I am talking about only tiles.

A: Tiles we have three segments - ceramic tiles, polished vitrified tiles, and glaze vitrified tiles. When retail does well, all these segments have to do well. It is not that one segment does well and other doesn’t.

Reema: Just one quick word on margins improved by 40 basis points to 17.9 percent, what was the reason and your outlook on margins going ahead?

A: If you look at the results which we will decipher later, the standalone margins, that has been 24 percent plus in this quarter. If you see joint ventures which have not performed well, that is why the results are less than normal but standalone profits are 24 percent plus as far as Kajaria is concerned.

Reema: Why did the joint ventures not do so well which dragged your consolidated margins lower?

A: There have been various reasons but going forward you will see it performing better; I can assure you that.

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