P&F cost impacted margins in Q3: Kajaria Ceramic

Ashok Kajaria, CMD, Kajaria Ceramics, says that he expects the company to maintain margin at 13.5-14 percent levels going forward. He expects the company will continue with 20 percent top-line growth for FY13. The interest cost is expected to go further down on back of lower capital expenditure.

"The company has also acquired four plants in last one year. The power and fuel (P&F) cost for UP plant increased by 60 percent y-o-y for the third quarter and it impacted the margins," says Kajaria.
Also read: Religare Cap sees strong FII flow ahead; bets on RIL Below is the edited transcript of his interview to CNBC-TV18. Q: One can see some pressure on your margins; operating profit margins (OPMs) are down about 1.5 percent. Can you take us through what were these pressures, were they largely cost pressures?
A: Gas and power has been the main reason for margins to be under pressure. On a regular basis, the cost of power is moving up. The cost of power in UP plant has gone up by almost 60 percent from October 1.
So, pressure was seen in this quarter. As we go forward will be absorbed and maintain our margins around 13.5-14 percent EBITDA. Q: What took place with regards to the volume growth this time, it slowed down to 10 percent, which is one of the lowest in many quarters. What happened in this quarter and what is the trajectory expected going forward?
A: This quarter has been tough for various reasons but going forward as a company we have already grown more than 20 percent and for the full year as per our guidance we should grow in the same bracket. There is no problem on the sales front. Q: How much pickup are you seeing in the last quarter because the company has done around 13 percent in the first nine months or this fiscal? What would you end the year with?
A: For the full year, sales should be above 20 percent and net profit will be better than 20 percent. Q: How do you see demand panning out? Are you seeing any pressures?
A: No. Demand is good for the total industry. Industry per se should grow at about 13-14 percent for the full year and Kajaria should grow above 20 percent. Q: You will be able to pass on any increase in fuel cost?
A: Yes. It normally happens but not immediately but with a time lag of one-two months we pass on that cost. Q: How did you manage to bring down interest cost? Did you prepay some debt and how will interest cost pan out in the coming quarters?
A: Interest cost is lower because we are using our earnings for the repayment loans. We didn't have much of a capex for the full year. So, the interest cost will further come down as we go forward plus the cost of money has also come down. Q: What is your guidance with regards to realization? We do understand that there is a change in your product mix going forward. You are focusing more towards high end tiles. Can you take us through what the trajectory is with regards to realisations?
A: Kajaria is a top brand in the country today and industry is moving towards value addition. Kajaria is moving towards value addition and bigger sizes in all three product categories, be it ceramic tiles, polish vitrified tiles or glazed vitrified tiles where the value utilization is much better compared to earlier scenario. Q: Should we expect any expansion plans now?
A: Currently, we don't have any individual expansion plans but we are using a joint venture (JV) method, which we have acquired four plant in the last two years and things are working well for Kajaria where the capex is low and ratios are much better. However, the company also has expansion plans. We plan to construct a plant in south but it will take at least one year to materialise.