The subdued environment prevailing in the real estate sector continued to dampen demand for building products - and the tile sector was no exception to this reality.
The Government''s demonetization initiative (November, 2016) dealt a severe body-blow to anyway stuttering tile demand. Against this backdrop, we grew business, profits and profitability, which in our opinion is a significant achievement of the entire Kajaria team. Although our growth was lower than our historical average, the excitement at Kajaria is palpable for we stand at the cusp of unprecedented opportunities arising from Government reforms.
Goods and Services tax (GST): The single biggest driver of a change in our sectoral and corporate realities is the introduction of the Goods & Services Tax. This is the most important financial policy following India''s Independence. From a reality where India is 30 partitioned states, the GST will immediately graduate the country into one large seamless market place. We have no doubt that this
legislation when introduced will prove to be a game-changer for India''s organized players. For two important reasons One, GST promises to create a level playing field between the informal sector and the organized/ branded players. And as consumer affordability and consequently aspiration are multiplying, we expect the tile demand to shift towards branded products.
Two, we believe that following the GST implementation, the sector''s supply chain will strengthen. For example, trucks earlier needed 5-6 days of travel time to get from our Gailpur facility to Benaras; we will now be able to cover the distance in 3 days. This acceleration will make it possible for our inventory turns to increase and our raw material-to-receivables working capital cycle to shorten, strengthening our financial efficiency and profitability.
Housing: In 2017, the government provided infrastructure status to the country''s Affordable Housing segment. This is a significant step that should transform the prospects of the real estate sector, home buyers and material providers. According to CLSA, Prime Minister''s drive to bring homes to the country''s 1.3 billion people, rising incomes and the best affordability in two decades will unleash a US$1.3 trillion wave of investment in housing. The firm expects 60 million new homes to be built between 2018 and 2024. While the affordable segment is expected to rise almost 70% to 10.5 million annually by 2024, increase in the premium segment is stated to be about 33%.
RERA: This legislation which came into force on May 1, 2017, promises to protect the home purchaser. It puts greater accountability on the developers in terms of disclosure, timely development of projects and maintaining good corporate governance practices - all of which should strengthen the confidence of the buyer leading to greater off take.
Government''s goal to make India open defecation free by 2019 (as per the Swachh Bharat Mission) has made reasonable progress. But needs to cover significant ground over the coming years at an accelerated pace. For India has constructed about 1.32 million toilets (by March 2016) against a target of 2.5 million by 2019. This drive holds potential for increased demand for tiles over the coming years.
These path-breaking policies and ambitious programmes hold significant promise for healthy growth of the tile industry over the medium term.
Given this sectoral optimism, Kajaria Ceramics initiated important measures in 2016-17 to strengthen its competitive advantage.
Capacity: Following GST, we expect sect oral consolidation to emerge. We will look to partner quality conscious manufacturers to enlarge our manufacturing infrastructure apart from Greenfield/Brownfield initiatives.
Products: We will continue to enrich our product basket with unique designs aligned with global trends. In 201617, we added more than 500 designs across product verticals. In addition, we ensured that each product segment possesses trending sizes resulting in a product for every enquiring customer.
Value-addition: 201617, we launched a number of a number of large-format tiles and niche products. Awareness of these products is expected to grow through innovative out-reach communication, translating into a larger off take of more profitable products.
Dealers: Even as we make product basket additions, we recognize that our dealers are often unable to showcase all our products due to funding constraints, impacting their business and ours. In view of this, we embarked on the decision to create distribution channels dedicated to specific product verticals on the one hand while widening our dealer network on the other. The heartening initial response provides us with the encouragement to sustain this initiative.
Visibility: Even as the Kajaria brand generated a strong urban recall, we have still not fully covered a significant part of the market in Tier 1-3 cities and towns. We took two definitive steps in this regard; we increased our visibility through branding and promotions in prominent public locations (airports) and events (IPL, international cricket matches and other national sporting events); we increased our distribution network through the addition of new dealers in 2016-17 with a focus on strengthening our presence and visibility in Tier 1-3 cities and towns.
Joint Managing Director