Operator: Ladies and gentlemen, good day and welcome to the Q2 FY 2027 investor call of Kajaria Ceramics hosted by Asian Markets Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. Now I hand the conference over to Mr. Karan Bhatelia from Asian Markets Securities. Thank you, and over to you.
Karan Bhatelia: Thank you. Good morning, everyone, and thank you for joining on this call. From the management side, we have Mr. Ashok Kajaria, Chairman, Chetan Kajaria, Vice Chairman, Rishi Kajaria, MD, and Sanjeevji, CFO. I will hand over the call to Ashokji for the initial remarks, after which we will have a Q&A round. Over to you, Ashokji. Thank you.
Ashok Kajaria: Thank you, Karan. Good morning, everyone. It gives me great pleasure to welcome you to the Q2 FY 2027 Earnings Conference Call of Kajaria Ceramics Limited. Joining me on this conference call is the senior management team of Kajaria Ceramics. in Q2 FY 2027, we achieved 10% year-to-year volume growth led by better demand and gain in market share. However, export demand in the H1 of 2027 remained subdued, mainly due to elevated freight rates and limited container availability continuing to pose challenges for manufacturers in Morbi. Our consolidated revenue grew by 24% year-to-year to INR 1,468 crore, supported by healthy volumes and the market's positive response to price hikes. EBITDA margin for Q2 FY 2027 stood at 19.5%. Our capacity expansion plants at Srikalahasti, 12.5 million square meters increased from 10 million square meters and Gailpur 11 million square meters remain on track.
Ashok Kajaria: These facilities are expected to strengthen our manufacturing capabilities and enable us to deliver high-quality products at competitive costs. Looking ahead, we remain confident in our ability to sustain healthy growth, strengthen our market position, and create long-term value for all stakeholders. Now for this quarter's segment-wise financial performance. Tiles segment revenue grew by 23% year-to-year at INR 1,291 crore in Q2 FY 2027 compared to INR 1,051 crore in Q2 FY26. Bathware segment registered a 22% growth in revenue reaching INR 124 crore in Q2 FY 2027 compared to INR 102 crore in Q2 FY26. Revenue from adhesives grew 69% to INR 54 crore in Q2 FY 2027 as compared to INR 32 crore in Q2 FY26. EBITDA improved in Q2 FY 2027 to 19.51% as compared to 17.94% in Q2 FY26.
Ashok Kajaria: PBT for the quarter grew to INR 254 crore as compared to INR 181 crore in Q2 FY26. PAT for the quarter grew to INR 190 crore in Q2 FY 2027 as compared to INR 133 crore in Q2 FY26. As of 30 September 2026, the working capital cycle marginally increased by two days to 48 days compared to 46 days in Q1 FY 2027 because of higher turnover. With this, I take this opportunity of thanking you for joining us today. Over to moderator for Q&A, please.
Operator: Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Praveen Sahay from PL Capital. Please go ahead.
Praveen Sahay: Yeah. Thank you for the opportunity and many congratulations for a good set of numbers.
Ashok Kajaria: Thank you.
Praveen Sahay: First question is related to the realization of the subsidiaries. At the subsidiary level in Q2, there is a down in the realization. Is that the mix of product which impacted this realization?
Ashok Kajaria: We went for more volumes this quarter, and there might be a very minor hit in the realization, but nothing major to talk about.
Praveen Sahay: Okay. Second question related to the price hike, as Ashokji has said, there is a price hike as well. Can you give some indication, the quantum of this quarter, how much of the price hike has been taken? If you can also elaborate on that, the segment-wise, like the GVT, PVT, how has the price hikes happened?
Rishi Kajaria: Basically, in our North and South plants, we increased the prices by roughly 12% to 13%, and it was across all product categories, be it ceramic, be it PVT, be it GVT. The Morbi price increase was commensurate with the price increase at the Morbi level, which is 18% to 19% across all product verticals.
Praveen Sahay: Okay. This is a YTD price hike, or you are talking about the Q2?
Rishi Kajaria: It's not for this quarter, this is still date.
Praveen Sahay: Yeah.
Rishi Kajaria: This is still date since the gas prices went up in the country.
Praveen Sahay: Right. Got it, sir. On the capacity expansion, sir, Srikalahasti expansion all done? That's a 10 MSM and commission?
Rishi Kajaria: No, it's not done. It just started. Earlier we were putting a 10 MSM plant. But then we have increased it now to 12.5 MSM. It will only be commissioned by June of next year. End of June of next year.
Praveen Sahay: All right. Just one clarification, and this is last question from me, about the gross margin. Because if there is a good improvement in the pricing, then why it's not reflected in the gross margin?
Rishi Kajaria: No worry. EBITDA margins have improved, no?
Praveen Sahay: Yes. Definitely, sir. Below the gross margin, that's improved. That's really commendable, but at the gross level it's not reflecting.
Rishi Kajaria: It's more or less same. There's not much difference.
Praveen Sahay: Okay. Thank you, sir. I will fall in the queue.
Rishi Kajaria: Thank you.
Ashok Kajaria: Thank you.
Operator: Next question is from the line of Sonali S. from Jefferies. Please go ahead.
Sonali S.: Sir, thank you for the opportunity. Congratulations on a good volume growth. Sir, my question is on the volume growth, 10% despite the price hike, great number. Any color you want to give us on that as to which end user segment, which region exactly? How do you expect the volume growth going ahead, if any outlook?
Rishi Kajaria: So basically, Sonali, the volume growth has been across all the regions. It is not to any specific geography. All the regions of country have grown. Going forward, also we are very positively looking at a double-digit volume growth in the coming six months in the future also.
Sonali S.: Got it. On the end user segment, all the end users have done well, right?
Rishi Kajaria: Exactly. It has gone up in retail sales also, project sales also. So everybody has performed well. All the segments have performed well.
Sonali S.: Okay. Got it. Sir, secondly, on the margins, again, a great quarter of margins. We did notice that the power and fuel cost has increased. Definitely, that is because of the ongoing Middle East conflict. But any thoughts on the margins? How do we expect it going forward, and what will be the levers, if at all, for margin expansion from here on?
Sanjeev Agarwal: I would say we expect margins to remain stable going forward also, around the same numbers what we have given in the quarter. Any extra benefit we might get, we would like to pass on to the market to gain more volume share.
Sonali S.: Got it. Just to confirm, earlier the promoters out of goodwill had not taken the salaries. Are we continuing with that?
Rishi Kajaria: Yes, we intend not to take any salaries right now.
Sonali S.: Got it. All right, sir. Thank you, and all the best, and good festive seasons for the team. Thank you.
Rishi Kajaria: Thank you, Sonali S.
Operator: Thank you. Next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Keshav Lahoti: Hi, thank you for the opportunity. Sir, firstly, congratulations on double-digit volume growth. Will this trend continue, and secondly, should we expect more benefit of unification strategy so this volume growth can further speed up in upcoming quarters? How should we see?
Rishi Kajaria: As I just mentioned in the last conversation, we definitely expect the volume growth to continue double digits over the next two quarters also in this last part of the financial year. What was the second part?
Ashok Kajaria: As the unification is strengthening, our volumes are also increasing. It took a little time to get it all organized, but now as the unification has happened, we can see the results from here on.
Keshav Lahoti: Understood. Got it. As you highlighted, you have taken more price hike in Morbi. My understanding is because fuel prices have increased more in Morbi, you have taken a higher price increase. Assuming if the gas prices start to cool off, then possibly Morbi would be the region where more price cuts will happen. Possibly will that make the Morbi manufacturer more competitive in the domestic market?
Rishi Kajaria: Looking at the trend, the gas prices are not going to come down. We just got the news that the propane prices have increased in Morbi yesterday. There is no visibility on any gas prices going down.
Keshav Lahoti: Got it. One last question. I can see your other expense this quarter was INR 138 crore. Going forward, should we expect INR 120 crore, what you were indicating, or possibly this is the new normal?
Sanjeev Agarwal: This is going to remain the same. This quarter also, this increase is because of advertisement expenses only, and we are going to increase our ad expense going forward.
Keshav Lahoti: Understood. Got it. Thank you.
Operator: Thank you. Next question is from the line of Saurabh Jain from HSBC. Please go ahead.
Saurabh Jain: Thank you for the opportunity, and congratulations on a great performance. My question is relating to the Nepal JV. Wanted to understand a bit more in detail. Whatever income you would be getting from this JV would be reflecting in your income from associates, right? Is that the correct understanding?
Chetan Kajaria: Yes, this is showing down the line as income from JV.
Saurabh Jain: Okay.
Chetan Kajaria: This is not consolidated.
Saurabh Jain: Yeah. This quarter you have reported about 2.5 crore of income from associates. Is it largely relating to the Nepal JV? Do you think this run rate will continue or it will decrease?
Chetan Kajaria: It is mainly of Nepal JV.
Sanjeev Agarwal: This is Sanjeev. All the JV we are having a majority stake except for Nepal. All the JV we are consolidating line by line. Everything is being reflected in top line and bottom line, including dividend, everything. The other income is mainly related with the JV, with Nepal. That is a very small part of our joint venture.
Saurabh Jain: I am trying to understand this run rate that you have booked in this quarter. Does it have further room of improvement from here or just INR 2.5 crore?
Sanjeev Agarwal: That will depend only on what is related with Nepal only. That will depend on Nepal. Nepal is performing well. I think the profit has also gone up, the utilization is also gone up, so it will take some time to be fully efficient, to operate at full capacity. But every quarter you will see some improvement in Nepal. But even if it is so, it will be a small portion of the total profitability.
Saurabh Jain: Yeah, sure. Appreciate it. Secondly, on the Nepal side again, could you please also tell us what is the current utilization so that we get a sense? And in terms of the industry dynamics, like what is happening in India, is Nepal any different from what is happening in India or these trends are also reflecting in your Nepal JV?
Chetan Kajaria: Just to give you a brief color, we utilized 85% capacity in the current quarter in Nepal, and we put up a 5 MSM capacity of a mix of ceramic and GVT tiles around September 2024. And the total market size is INR 2,500 crore. Going forward, we expect the capacity utilization to be better as we keep on moving ahead. Now with the stable government coming in, things are looking much more positive and better.
Saurabh Jain: Okay. 85% is what you mentioned, right? Utilization.
Chetan Kajaria: Correct. The capacity utilization currently.
Saurabh Jain: And the pricing trends and things, is it also similar to what is happening in India or it is more stable in Nepal at this point in time?
Chetan Kajaria: The pricing is more stable because there are very limited players in Nepal, so the fluctuation is not that high. So it is a stable pricing structure out there.
Saurabh Jain: Okay. Understood. Also, your investment in Nepal, can you please remind us that number? Was it INR 180 crore or it was higher?
Sanjeev Agarwal: It was roughly around INR 200 crore, the total investment, including the JV stake.
Saurabh Jain: Okay. Total investment was INR 200 crore. Perfect. Thank you. Secondly, I had a couple of questions on the cash flow for this H1. There is a loan that is given out about INR 155 crore. What is this relating to?
Chetan Kajaria: Normal corporate loan.
Saurabh Jain: But extended to which entity?
Chetan Kajaria: Oh, the one we give to
Sanjeev Agarwal: What is the question?
Saurabh Jain: When I look at the cash flow statement as a part of your cash flow from investing activity, there is a loan given of INR 155 crore. I was trying to seek more understanding around this number.
Sanjeev Agarwal: That is in the normal course of business. We are trying to maximize our return on treasury. We have earlier given to Bajaj and PNB Housing Finance. We have given to other NBFCs and we will continue to do so, but the safety will be the priority. We cannot disclose each and every name where we are investing.
Saurabh Jain: No, that is fine. This loan is extended to NBFCs?
Sanjeev Agarwal: Yes.
Saurabh Jain: Okay. Maybe I will get more understanding separately. Lastly, there is also a drawdown of debt of about INR 178 crore. Can you please help us understand why there is an increase in the borrowings? We already have a good cash sitting in our balance sheets. I am just trying to understand.
Sanjeev Agarwal: Can you please repeat the question? Sorry, I did not catch that.
Chetan Kajaria: Please repeat the question.
Saurabh Jain: Okay. What I am saying is in the financing activities, there is a proceed from current borrowings of INR 178 crore. Just trying to understand why did we had to raise loans? I thought we already have a good cash bank balance that is sitting at the balance sheet for us.
Chetan Kajaria: That has been for many quarters because some of the JVs are having loans also from the bank limit. That is mainly for that. Even in Kajaria also we have working capital. Sometimes we invest the fund in fixed deposit. Sometimes it happens that we need the fund, so we utilize the working capital. That is the optimum utilization of fund. That is why we need some working capital. That is for Kajaria side alone. For our joint ventures, we have some certain loans.
Saurabh Jain: Okay. Sure. Thank you, and all the best.
Sanjeev Agarwal: Thank you.
Operator: Thank you. Next question is from the line of Neha Talreja from Nomura. Please go ahead.
Sneha Talreja: Hi, team. Thanks a lot for the opportunity. First question is with respect to gas pricing. Could you quantify the gas pricing at North, South, and our West operations?
Ashok Kajaria: Neha, gas prices have not changed much for this quarter, but going forward, gas position is very tight because of this America-Iran war. I foresee with the knowledge which I have gathered from GAIL and others that gas situation will be tough going forward as of today. That is the situation as of today, but till today, the prices have not changed. Spot prices have gone up drastically, as you all might be aware. The spot prices have gone up drastically in the international market.
Sneha Talreja: Understood, sir. That was helpful. Secondly, with respect to Nepal JV, is there any gas availability issue there or that is not frankly an issue?
Ashok Kajaria: No gas. We run it by coal gas.
Sneha Talreja: Coal gas. Understood. Thirdly, with respect to we are seeing a renewed CapEx enhancement from your front. Just wanted to understand the reasoning behind it. We understand that you are still targeting double-digit growth for the H2. You are seeing strong demand momentum, plus right now the gas pricing is also favorable for us versus Morbi. Other than that, what are the structural changes because of which you are putting renewed CapEx in your own plant versus relying, let us say, on Morbi?
Ashok Kajaria: See, if we have to grow by double digit, we need to increase our volumes, increase our capacities, and we are putting up both our plants and both our brownfield expansions in our North and our South plant. With these two expansions, we feel that we can further penetrate the market. And we further have a gas advantage here as compared to Morbi.
Sneha Talreja: Understood. Can I just lastly get the numbers for the distribution? Where is our total distribution network standing at and versus what is the aim for the year-end?
Rishi Kajaria: Total dealers, we don't have distributors, we have dealers. We have over 1,800 dealers all over India. Out of that, about 450 are our exclusive that only sell Kajaria, and rest sell other brands as well. The dealer network is more or less consolidated. It might reduce 100 and increase 100, but that's it.
Sneha Talreja: Understood, team. Thanks a lot, and all the very best.
Ashok Kajaria: Thank you.
Rishi Kajaria: Thank you.
Operator: Thank you. Next question is from the line of Ritesh Shah from Investec India. Please go ahead.
Ritesh Shah: Yeah. Hi, sir. Thanks for the opportunity and congratulations for a good set of numbers. Sir, first wanted to have some color with respect to Morbi. Usually you help us with numbers on a monthly exports. How is it faring? Any full year numbers that you would like to indicate? That's the first question.
Ashok Kajaria: This year, the Morbi exports are down. It should be roughly around INR 12,000 crore for the whole financial year because of the rising container cost. The domestic industry should be roughly INR 48,000 crore due to the price hike also. Roughly total industry should be at INR 60,000 crore.
Ritesh Shah: That is useful. Secondly, you indicated Nepal, we are on coal gas. Would it be possible for you to indicate the source of coal and INR per SCM, basically the consumption cost that we have?
Ashok Kajaria: We can get back to you with these numbers after the call, with the exact consumption cost and the INR per SCM numbers.
Ritesh Shah: Right. Sure, sir. Sir, my third question, usually we do indicate region-wise cost. I think last quarter we had indicated INR 64 for North, INR 85 for West, and INR 73 for South. Can you give similar numbers for Q2 as well as on spot?
Ashok Kajaria: The gas price for Q2 for North was roughly 70.56, South was 63, West was 75, and the average is 70 basically for the second quarter.
Ritesh Shah: Sir, you indicated West was 75 and South was 63?
Sanjeev Agarwal: The North was around INR 70, and South is around INR 63, and West is around INR 75, average is around INR 70.
Ashok Kajaria: Per SCM.
Ritesh Shah: Correct. Sir, does this imply that there was a reduction in West and South from Q1 to Q2, that is 85 to 75 and 73 to 63?
Ashok Kajaria: You are right, there was a little reduction, but prices are again going to increase in Q3.
Ritesh Shah: Sir, what is the cost?
Ashok Kajaria: Because West is basically more on propane and the propane prices have increased.
Chetan Kajaria: I will just tell you one thing about the gas thing. The gas cost presently is a telecommuting business, but we are working very hard on reducing our firing cycle, and it will take three, four months. Hopefully, and we are also in the process of getting some cheaper gas also. We hope from January we get some significant reduction in our gas cost. That will be partly because of some cheaper gas might be, and a reduction in firing cycle. We are very hopeful that our gas will be more competitive and will be very competitive going forward.
Ritesh Shah: Perfect. Sir, just last question. Given the West costing is higher as compared to North and South, I think Kajaria is in a very good position right now given, I think 80% plus of our capacity is outside of West. We will continue to show good volume growth because of this cost curve gap for West versus the rest of the country. Is that a fair assumption?
Rishi Kajaria: It is not 80%, it is the capacity, but the selling volume are much more because that includes our outsourcing also. You are right, North and South, that is why all our expansions are coming in North and South, and we get a better advantage than other people.
Ashok Kajaria: These expansions, the cost of production in these expansions will be much cheaper than our existing ones
Rishi Kajaria: because of higher capacity. Yes.
Ritesh Shah: Perfect. Sir, last question. Would it be possible for you to give some color on the spot pricing, given it's a very volatile situation or a dynamic situation right now? I am just trying to understand the incremental price increases, which will be required, say, specifically in North.
Rishi Kajaria: See, spot prices are very high. They are currently in the range of almost $28 to $30 per SCM. But right now what we are getting is the normal prices from GAIL, which is for North, which you asked. Even for expansion, we are talking to them to cover our gas requirements. As Kajaria is concerned, as just said by my colleague, gas prices will not go up, but we are also trying to optimize our gas consumption by firing cycle and also trying to source a cheaper gas only from the existing sources. Thank you.
Ritesh Shah: Okay. Just a follow-up. Based on the current prices, is there a need for further end product price increases? Is it required?
Rishi Kajaria: No. Currently, no. You see, when we just talked about, as Kajaria, we have to increase volumes. This has been our problem for the last two years, which we have been trying to address, but unfortunately not able to address. What has happened, if you realize, that after 20 February, the gap between Morbi to Morbi, suppose a manufacturer is at Morbi and his dealer is buying from Morbi exclusively, and a dealer from Kajaria. The gap has minimized from the earlier 40% to currently about 20% to 25%. That has been the big change. We want to continue that change for all time to come. For this, we will be doing one more thing. Our fixed cost is going to be much. The increase in fixed cost in next two will be much lower than the increase in revenue.
Rishi Kajaria: So we will get operating leverage in fixed cost also. Plus, the new plants we have put up, their product will be much more cost efficient. That will give us some operating leverage that will improve margin. Third, they will also help in reduction in freight, in logistic cost. So that will also help in improvement in EBITDA margin. Because, see, next year we are not anticipating any price increase. So we have to increase our margin because of cost cutting, cost optimization, reduction in fixed cost and logistic cost, and other improvements. And the expansions we are doing, which itself are much more cost efficient. We will be making much cheaper products than our existing capacity.
Ritesh Shah: Perfect, sir. Thank you very much for the elaborate answers. Thank you once again. Thank you.
Operator: Thank you. Next question is from the line of Anu Parekh from Anand Rathi Shares and Stock Brokers. Please go ahead.
Anu Parakh: Yeah. Good morning, team. I just need one small clarification. So we have produced 22.9 MSM tiles from our own and JV plants against our production capacity of 20.7 MSM. So just wanted to know as to what would be the peak quarterly production run rate for us based on the existing capacity of 20.7 MSM.
Rishi Kajaria: It's got to be the same. We don't have any capacity expansion right now, so whatever got produced this quarter will be produced in the other quarter as well. All our plants are running at optimum capacity, more than its production capacity.
Anu Parakh: Understood. Sir, also, we have sold Tiles of 24 MSM in Q2 FY 2027 versus a production of 22.9 from our own and JV units. Just wanted to know by when our quarterly sales volume would be at par with the quarterly production volume for our own and JV units.
Rishi Kajaria: We are already selling more than what we are producing. Whatever we are producing, we are already selling that, and we are outsourcing more and selling. Right now, our overall capacity is about 88 million square meter, and this year we'll be selling about 130 million square meter. The rest, 42 million square meter, will be outsourced from Morbi. Going forward, our expansions will help for next year.
Anu Parakh: Sir, going forward, what would be the outsourcing volume, expected share of the outsourcing volume in FY28?
Rishi Kajaria: See, outsourcing going forward will go down. We are putting up 26. We are looking at about, from 130, we are looking at about 145 million square meter of sales. With that, we have 88 million right now, and we are adding about 22.5, which will actually get about 19 to 20 million. So the rest will be all outsourcing. So outsourcing from 42 will go down to about 36, 37 million, roughly. Little bit here and there.
Anu Parakh: Thank you, sir. All the best.
Operator: Thank you. Next question is from the line of Dhananjay Mishra from Centrum Broking. Please go ahead. Mr. Mishra, your line is unmuted. Please proceed with the question. Mr. Mishra, can you please speak? Due to no response, we will take the next participant. I now request Mr. Rahul Gupta from Morgan Stanley to please proceed with the question.
Rahul Gupta: Hi. Thank you for taking my question. Just one clarification, if I understood you clearly. Given north and south margins are relatively better, you do not need to take price hikes to maintain blended margins despite spot gas prices moving higher. Is that correct?
Rishi Kajaria: Yes, we just said that we are not taking any price hike because the gas prices are stable right now in our north and south plants. West is a little bit up, but we do not need to take any price increase. As we just discussed that we need to go more for volumes, and looking at everything, we are okay.
Rahul Gupta: But just to understand it better, this would not impact the margins. You are focusing on volumes. But given non-Morbi plants operate at higher margins, you chasing volumes would not come at the expense of margins, right?
Rishi Kajaria: No, it will not. That is why the blended margin will remain as where we are.
Rahul Gupta: Okay, great. Thank you so much.
Rishi Kajaria: Welcome.
Operator: Thank you. Next question is from the line of Roshan from Antique Stock Broking Limited. Please go ahead.
[Analyst] (Antique Stock Broking): Yeah. Thanks for the opportunity. Just wanted to understand how the
Operator: I am so sorry to interrupt, Roshan. Can you please speak on your handset mode? We are not able to hear you properly.
[Analyst] (Antique Stock Broking): Yeah. Is it better now?
Operator: Yes. Please go ahead.
[Analyst] (Antique Stock Broking): Yeah. Congratulations on a good set of numbers. Just wanted to understand how the unorganized market is kind of playing out now in terms of the price hikes that you have taken. You also mentioned in your opening remarks that you might have had some market share gains. Can you talk a bit more on that?
Ashok Kajaria: It is tough going for the unorganized market because the price increase has gone up, and most of them don't have a stable distribution network. They are not used to selling at such high prices also. So it is tough going for them right now.
[Analyst] (Antique Stock Broking): Approximately what would be the price hike that they would have taken versus the organized players?
Rishi Kajaria: Sorry. What was the question?
Ashok Kajaria: Can you repeat that?
Rishi Kajaria: Okay. Can you repeat the question?
[Analyst] (Antique Stock Broking): I am asking what would be the price hike that unorganized players might have taken versus the organized players?
Ashok Kajaria: No. You see, it is not a question of unorganized or organized. It is a question of people sitting at Morbi. The gas prices went up from INR 50 on 28 February to INR 91 today. So they had to take a price hike of almost 35% to 40% as far as Morbi is concerned. That applies to us also of the Morbi plant, that applies to outsourcing of the Morbi plants also. So overall, they have taken this increase because of the much higher gas prices. In north and south, as already said by Rishi, our gas prices have not gone up so much. So we have taken about 12% to 13% price hike compared to 35% plus what they have taken at Morbi.
Rishi Kajaria: That is why the difference from the Morbi player and the branded players has come down.
Ashok Kajaria: That is what I said earlier also that the gap which was earlier before 28 February was almost as high as 40%. It has come down now to 20% to 25% between Kajaria and the Morbi players.
[Analyst] (Antique Stock Broking): Understood. That is helpful. What would be your top-line guidance for FY 2027?
Ashok Kajaria: Pardon? You are not audible. Yeah.
[Analyst] (Antique Stock Broking): I am asking what would be your top-line guidance for FY 2027?
Sanjeev Agarwal: Next year there will be-
Ashok Kajaria: No, this year.
Sanjeev Agarwal: For this year, we can say the volume only because price is difficult to say. But as in the last call, the Chairman has guided that for the remaining 9 months, our endeavor will be to have a 10% of volume growth.
[Analyst] (Antique Stock Broking): Understood. Any color for FY28?
Ashok Kajaria: Sorry.
[Analyst] (Antique Stock Broking): Any color for FY28?
Ashok Kajaria: That will come back later on. It is too early to talk about next year.
Sanjeev Agarwal: Next year also, the volume will remain in double digits, but the value will not be much higher than what it was this year because there was some inflation this year, which will not be there next year.
[Analyst] (Antique Stock Broking): Understood. That is helpful. Thank you. Thank you so much. Season's greetings.
Operator: Thank you. Next question is from the line of Lavish Soyin from Burman Capital. Please go ahead.
Lovish Soien: Hi, sir. Thank you for the opportunity. My question is regarding Morbi overall in an industry level. We have seen disruption in Morbi where gas prices have increased and availability has also been a problem. How much of that has actually impacted the industry supply at the Morbi level? How much of these capacities have been offline?
Ashok Kajaria: Morbi overall, a lot of plants are shut down because firstly, exports are not happening and they are not able to sell to the domestic market so easily. The costs have increased. Morbi overall production has a huge cut.
Lovish Soien: Can you quantify how much would that be?
Ashok Kajaria: See, it is difficult to quantify, but overall, all our sources are telling us that a lot of plants are shut down. There are about 400 to 500 plants in Morbi. Out of that, a lot of about 40% to 50% are not working.
Lovish Soien: Understood. And sir, can the sustained disruption that you are seeing, that you are seeing that propane prices have also gone up yesterday. Can this sustained disruption lead to permanent closure of facilities in Morbi?
Ashok Kajaria: No.
Lovish Soien: Okay. And sir, secondly, I wanted to ask, what are the drivers of the volume growth that we are seeing? You mentioned that both B2C and project demand is recovering. Just I wanted to understand whether the volume growth that we are seeing, is it more customer pull driven or is it more dealer driven, where the dealers have started restocking after a weak Q1?
Ashok Kajaria: We have taken several initiatives to make sure the volume goes up. Like we are going deeper down to the tier 2, tier 3 cities, making more exclusive showrooms, working on deeper penetration by putting people in places where the market is. A lot of background work has been done to ensure that the volume growth is driven in the current and the future quarters as well.
Lovish Soien: Got it. So you are saying that it is more Kajaria specific, where we are winning market share from others, whereas the industry is not performing as well as what we are doing. Would that be the right way to read?
Ashok Kajaria: It is a mix of both. The market is also increasing, and we are also taking market share. As we just mentioned, in terms of our dealer network, in terms of projects, in terms of architects, we are penetrating everywhere.
Lovish Soien: How much would be our outperformance as compared to the market? Let's say we were growing at 10%, how much would the market growth be?
Ashok Kajaria: We would say about 5% to 6% should be the market growth, and the rest would be, we are taking the market share from the market.
Lovish Soien: Got it. And sir, just one last question on the project side. I think for the last few quarters, the expectation has been that project demand will pick up. However, we have not seen that happen to an extent. So where are we in that trajectory of project demand picking up, and what can we expect going forward?
Ashok Kajaria: Project demand overall in India is picking up. Everywhere there is a lot of projects coming up, a lot of construction is happening. So we foresee that, yes, Kajaria going forward will be able to take a good share of the market as well.
Lovish Soien: Understood.
Ashok Kajaria: The volume growth which we are foreseeing will be a blend of both our retail network as well as project network.
Lovish Soien: Got it. So double digit, would that more be driven by project or would that more be driven by direct sales?
Ashok Kajaria: A combination of both.
Lovish Soien: Yes, sir. I understand that, but what would be the major driver? I mean, would project demand be higher than the direct sales? That is what I am trying to understand. Or would it be the other way?
Ashok Kajaria: It will be the same ratio.
Lovish Soien: Got it. Great. Thank you, sir. Thank you for your answers.
Operator: Thank you. Next question is from the line of Varun Jalasaria from 361 Capital. Please go ahead.
Varun Julasaria: Yeah, hi. Thank you for the opportunity. Sir, I just want to understand the propane pricing in Morbi currently. How is it, how much cheaper it is versus the natural gas today?
Ashok Kajaria: The current scenario, gas was not selling because propane was cheaper. Now, what has happened in the last two, three days, propane prices have gone up by INR 12.5 per SCM. Gas prices have slightly come down by INR 5.5. As a result, the gap is minimized because gas was not selling. Still propane prices are cheaper by about 5%. Propane prices are cheaper by 5% than gas. But, looking at the current scenario of Brent, which is about $116 as of now, the propane prices will further go up in the next 15 days. It will more or less be at line with the gas prices.
Varun Julasaria: Okay. Because, see, we were hearing that in September, a lot of these Morbi players took some discounts and priced the reduction, because propane was around 20% to 25% cheaper. I mean, is it the case that-
Ashok Kajaria: No. At any point, propane prices were cheaper by only 15%. The gap has minimized now. Propane has already gone up twice in the last 30 days, and the gap is now reduced to 5% only.
Varun Julasaria: Okay, sir. In this quarter, any price hike specifically for this quarter versus last quarter have been taken, like compared to, say, last quarter in June and from then?
Ashok Kajaria: No, we have not taken any price hike last quarter, Q2, and we do not intend to take any price hike in this quarter as well, as of now.
Varun Julasaria: Okay, sir. On the sanitary and the faucet business, we had a 21% higher Y growth. How much would be price led and how much would be volume? Any indication on that?
Ashok Kajaria: It could be a combination of about 50% would be price hike and 50% would be volume led.
Varun Julasaria: Okay. Sir, on the adhesive expansion, what can be the peak revenue on this 9,000 MT?
Sanjeev Agarwal: Roughly around between INR 60 to INR 65 crore, if you operate at the 12-hour shift capacity.
Varun Julasaria: INR 60 to INR 65 crore. This is annual you are saying?
Ashok Kajaria: No, adhesive, we are going in a bigger way. Last year it was about INR 125 crore. This year we are looking at about INR 240 crore roughly. Going forward, this expansion and many more expansions will come because it is a freight-oriented thing. You have to be near where the market is. Looking at that scenario, we are looking at next year to about INR 400 crore next year, roughly. With the bigger tiles coming in, adhesive market is growing faster. That is a big change which has happened in the last five, seven years.
Sanjeev Agarwal: See, apart from tile. As I said, next year, the tile will be, there will be no incremental value growth as far as tile is concerned, because the volume growth will be almost equal to the value growth. We are very confident about our two segments, which are Bathware and adhesive. They will give you much more improvement as compared to tile in terms of value, and will add to the revenue growth next year and going forward.
Varun Julasaria: These margins for these businesses are also similar?
Sanjeev Agarwal: Margin in Bathware have been lower this year. It used to be earlier 14%-15%, but because of the new plant we had put up where the capacity utilization is much lower, the margin is very low in Bathware. It will improve this year partially, and next year and onwards it will be nearly matching the Tiles margin. The adhesive also margin is very good. Both the segment will not only add to the top line, but also be margin accretive. In adhesive, there is some outsourcing also, so it will be more margin accretive. ROCE accretive also.
Varun Julasaria: Okay. So there can be some potential margin improvement because of these business, right? That is what I am just trying to understand.
Sanjeev Agarwal: These will be margin accretive, but we are not guiding more than what we are already having around 19%. We should comfortably have that kind of margin, going forward.
Varun Julasaria: Okay. Thank you so much, sir. Thank you.
Sanjeev Agarwal: Thank you.
Operator: Thank you. Next question is from the line of Akash Shah from UTI Mutual Fund. Please go ahead.
Akash Shah: Yeah. Hi, good morning. Am I audible?
Sanjeev Agarwal: Yeah.
Akash Shah: Yeah. Hi, sir. Thank you for the opportunity. Just wanted to ask, sir, how should we work with the employee cost? As of now it is close to INR 141 crore in Q1, so should we sort of assume the similar run rate, going forward as well? Sir, the reason I ask this question is actually, we are operating at sort of peak margin, if we look at last 10 years. Sir, any thoughts there? Yeah.
Sanjeev Agarwal: We have done some increments in plant and general in white collar also, but that have been incorporated in this selling cost and next quarter you will get the similar selling cost.
Akash Shah: Sorry, you are saying similar would be the run rate for the full year?
Ashok Kajaria: Same. Yes. How much we have shown to?
Sanjeev Agarwal: 141.
Ashok Kajaria: So it should be near to INR 141 or INR 142.
Akash Shah: Understood. Sir, thank you.
Operator: Thank you. Next question is from the line of Shreyans Jain from Swan Investments. Please go ahead.
Shreyans Jain: Yeah. Hi, I have one question. Sir, if I go back in time and understand the realization between our own manufacturing versus outsourced. Sir, last two quarters, we witnessed a change where your outsourced realizations have surpassed your own manufacturing realizations. So, can you help us understand what has changed? Is the sourcing now different from outsource and what exactly are we outsourcing?
Ashok Kajaria: See, it is not a question of our outsource realization because the prices, as we said earlier, the prices in Morbi has gone up by almost 35% plus. In our own plants, which are in north and south, the prices have gone up by 12% to 13%. So of course, when you talk about numbers, that realization will be higher. It is like that. It is not a question of
Sanjeev Agarwal: Mainly because of inflation. We are not seeing any incremental margin on that.
Ashok Kajaria: Just the price hike. That is all, in that part of the world.
Shreyans Jain: Got it. Sir, what typically do we outsource, any PVT and ceramic, and GVT and PVT?
Ashok Kajaria: No, we are outsourcing mainly glazed, ceramic, and PVT. You know, this differentiation between ceramic, GVT, PVT, we do not discuss this anymore. It is all tiles which we are selling because vitrified is selling more.
Sanjeev Agarwal: But one thing I would say, that GVT is more prevalent and the industry is going towards GVT, and it is more margin accretive. Going forward, our ratio of GVT will go up every year. Both the expansion we are doing, they are GVT. Ceramic, we do not intend much expansion. Every year you will see there will be a mix change towards GVT, which will be more relevant to the market and margin accretive.
Ashok Kajaria: Ceramic market is coming down as we talk. Every year it is coming down.
Shreyans Jain: Got it. Thank you, and all the best.
Ashok Kajaria: Thank you.
Sanjeev Agarwal: Thank you.
Operator: Thank you. Next question is from the line of Ritesh Shah from Investec India. Please go ahead.
Ritesh Shah: Hi, sir. Thanks for the opportunity. Sir, one clarification. You indicated both the incremental expansions, will it be 100% GVT?
Ashok Kajaria: Yes.
Sanjeev Agarwal: Yes.
Ritesh Shah: Sir, will it have larger sizes than what we are doing right now?
Ashok Kajaria: No.
Ritesh Shah: Anything different on the product mix?
Ashok Kajaria: No. What we are basically trying to do is make bigger volumes at a lesser cost so that we can penetrate the market more, sell these volumes, and get better margins.
Sanjeev Agarwal: But these plants are capable of making bigger tiles as well.
Ashok Kajaria: We basically want to focus on a size of 4 by 2, which is the most prevalent size which is sold in the market. That is why we are going for higher expansions, higher capacity. Earlier all our expansions used to be about 5 to 6 million square meter. This is the first time in the history of Kajaria where we talked about a volume of 11 million square meter and 12.5 million square meter.
Ashok Kajaria: We are talking for very big expansions. The idea is to produce it cheap and sell it in big volumes.
Ritesh Shah: Right. That helps. Sir, second question is, I think we indicated upon a reduction in freight or some benefit of logistic costs. Is it possible to give some numbers over here? I am just trying to understand the incremental margin levers that the company has, which can actually take us upwards of 19%.
Sanjeev Agarwal: It is very difficult to quantify. It is just a soft issue that when we have our own plant, we do not have to outsource, so we will be able some saving. But I will not be guiding you for more margin. Even we do at 18%, 19%, that is a good margin. We are not greedy for margin. Rather, we will be focusing more on selling volumes. So our focus will be on absolute EBITDA rather than percentage EBITDA.
Ritesh Shah: Perfect. Just a clarification. Ashokji indicated a number of 40% and 20%. I could not reconcile it. If you could provide some more details around it, that would be great.
Sanjeev Agarwal: Yeah. If I take you back before 28 February, the Kajaria plants in north and south were 40% higher than the Morbi plants. Morbi to Morbi and Kajaria dealer. With this gas price hike there and a 35% price increase at Morbi, what we have done in north and south is 12% to 13% price increase. So the gap has minimized to 20% to 25%. Earlier, it was 40%. That is a big change which has happened and after learning from this, we have also decided in future we will try to maintain this kind of a thing, so it is not a push sale, it becomes a normal sale. That is the whole idea. That is why we are looking for a bigger volume growth.
Ritesh Shah: Perfect. Sir, if we just look at sequential numbers that you indicated on cost, it effectively means our cost curve is declining in west and south. So despite this cost curve declining, what we are seeing is we will try to maintain the pricing at the current levels. Is that a fair assumption?
Sanjeev Agarwal: No, but why do you mix west and south? West, as the costs have gone up higher because of the gas prices. South, we have our own plant, where the gas prices are competitive. North, we have our own plants where the gas prices are competitive. But in west, that means Morbi, everything is based on Morbi prices, so the difference remains the same for all the plants.
Ritesh Shah: Okay. Sir, would it be possible for you to give some color around biofuels? How much is it for different regions, and where do we plan to take it, or is it something which is already optimized?
Sanjeev Agarwal: It is already optimized. Biofuel in north is roughly about 30% because you are not allowed to use coal, so biofuel is roughly about 30% of the cost at three plants, which is Gailpur, Sikandrabad, and Malootana. The new expansions will have the same ratio of biofuel.
Ritesh Shah: Okay. Sir, west and south, there is no biofuel.
Sanjeev Agarwal: There is. In south, there is biofuel as well.
Ashok Kajaria: West, there is no biofuel. South, there is. West is using coal in Spraydar.
Ritesh Shah: Sure. This is helpful. Thank you so much.
Sanjeev Agarwal: Quantities of biofuel which we are currently having in our north and south plant will continue for our other expansions also.
Ritesh Shah: Sure. Thank you.
Ashok Kajaria: Thank you.
Operator: Thank you. Next question is from the line of Dhananjay Mishra from Centrum Broking. Please go ahead.
Dhananjay Mishra: Hope I am audible this time. I just wanted to know this Srikalahasti brownfield expansion. Earlier, we were doing 10 million. Now, we are doing 12.5 million. I hope it is single unit. Earlier we were having a CapEx of INR 210 crore. Now it is INR 40 crore. How come CapEx cost increased by 60% when, in terms of volume, it is increasing 25%?
Rishi Kajaria: I will explain to you. What happened was, earlier we were making only a 500,000 square feet shed for one production line. Later we realized that when we increase our production capacity, we had also gone to China, we also went to Italy, and we also understood that it is better to increase our capacity. For that, we have to increase our shed as well, so that when the next expansion comes here, the cost will be much lesser because the shed is already made. Only the machinery will be the extra cost. After we increase the capacity from 10 to 12.5 million square meter, we also went for a larger warehouse with racking systems. The machinery cost may increase by about 25% with the capacity. The extra cost was of the shed and the new warehouse capacity.
Dhananjay Mishra: Okay. Any incremental CapEx will be on lower side in terms of cost, right?
Rishi Kajaria: Much lower. Only the machinery cost will be there. The shed is already made. The back end is already made. The warehouse is already made. It will only be the machinery cost. So it will be half the cost of this expansion.
Dhananjay Mishra: At current shed, what we are making, can we reach 25 going forward in terms of capacity?
Rishi Kajaria: Yeah. In the same shed, we can double our capacity. So from 12.5 MSM, we will be able to produce 25 MSM in future.
Dhananjay Mishra: Okay. All right. That is all from my side. Thank you.
Rishi Kajaria: Thank you.
Operator: Thank you. Next question is from the line of Karan Bhatia from Asian Markets Securities. Please go ahead. Karan, your line is unmuted. Please proceed.
Karan Bhatelia: Yeah. Hi. Good morning. Thanks for the opportunity. Ashokji, wanted to understand your views on slabs and surfaces market. How is that market shaping? How is Morbi expanding, and how are we shaping for these two categories?
Ashok Kajaria: See, slab and surfaces market are increasing, but it is on a very slow Am I audible?
Karan Bhatelia: I lost you in between.
Operator: Karan, may I request you to please mute your line?
Karan Bhatelia: I will repeat my question. Sir, I just wanted to understand how is slabs and surfaces market shaping in Morbi, and how at Kajaria we see this category growing, and how are we shaping ahead for this?
Ashok Kajaria: So we already have two Kajaria north and south plants. The slab and surface market is increasing, but not at a very high pace. So we have these equipment which can produce both slabs and the regular tiles, and we do it as and when we need to. But yes, going forward, we are also concentrating on these tiles because that will give you a better value realization.
Karan Bhatelia: Right. Got it. I think there are no follow-ups. Any closing remarks that the senior management want to make?
Ashok Kajaria: No, I think we are looking at a very positive scenario from here on.
Ashok Kajaria: Karan, thank you. Thank you very much for organizing this. I think it was good set of questions which came from the investors. On my behalf, on behalf of the entire group, I would like to thank you and wish you a very happy Diwali to all of you, and look for a future interaction more and more. Thank you.
Sanjeev Agarwal: Thank you.
Karan Bhatelia: Thank you.
Operator: Thank you very much. On behalf of Asian Markets Securities, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.
