Kajaria Ceramics Limited (KAJARIACER) Q1 FY23 Earnings Concall Transcript

Kajaria Ceramics Limited (NSE: KAJARIACER) Q1 FY23 Earnings Concall dated Jul. 21, 2022

Corporate Participants:

Girish Choudhary — Moderator

Pallavi Bhalla — Investor Relations

Ashok Kajaria — Chairman and Managing Director

Chetan Kajaria — Joint Managing Director

Rishi Kajaria — Joint Managing Director

Analysts:

Sujit Jain — ASK Group — Analyst

Unidentified Participant — — Analyst

Achal Lohade — JM Financial — Analyst

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Pooja Pawar — PCG Advisory Services Private Limited — Analyst

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Saumil Mehta — Kotak Life — Analyst

Dhanush Mehta — Individual Investor — Analyst

Ritesh Badjatya — Asian Markets Securities — Analyst

Presentation:

Operator

Ladies and gentlemen. Good day and welcome to Kajaria Ceramics Limited Q1 FY ’23 Conference Call hosted by Spark Capital Advisors India Private Limited. [Operator Instructions]

I now hand the conference over to Mr. Girish Choudhary from Spark Capital Advisors India Private Limited, over to you, sir.

Girish Choudhary — Moderator

Thank you. Good evening, everyone. On behalf of Spark Capital Advisors. I welcome you all to this call. From the management side, we have Mr. Kajaria Chairman and Managing Director; Mr. Chetan Kajaria, Joint Managing Director; Mr. Rishi Kajaria, Joint Managing Director; and Mr. Sandeep Agarwal, CFO of the Company.

I now hand over to the management for opening remarks. Over to you, sir.

Ashok Kajaria — Chairman and Managing Director

Everyone, it gives me great pleasure to welcome you to the quarter one FY ’23 earnings call of Kajaria Ceramics Limited. As already said, joining me on this call are our CFO, Sanjeev, and Pallavi Bhalla from Investor Relations. All of us sincerely hope that you and your family are safe and healthy. We are very pleased to announce our first quarter performance, which again demonstrated our resilience against the backdrop of geopolitical uncertainty and high commodity prices. We have achieved sales volume of 23.33 million square meters in quarter one at ’23 with a turnover of INR1,008 crores by ensuring full capacity utilization despite the energy supply disruptions and unprecedented increase in energy costs. This year remains challenging for the industry, due to escalating costs for almost all inputs. The industry has struggled to pass on costs to end users. It was different for us also. But we have leverage our brand equity to drive a 2% price increase in May ’22, which enabled us to maintain our margins at 15% plus.

Also our new capacity [Indecipherable], which got commissioned in May ’22 is also has been maintaining the margin. This plant is the most advanced technology, continue [Indecipherable] Italy, first-class manufacturing in South India. When we started the journey 33 years back, we started with the manufacturer of 4 inch x 8 inch tiles and now we are making, 40 x 8 feet tiles slab at this plant. Going forward the only major headwind for the industry is the possibility of further rise in energy prices. It is difficult to predict how the current scenario of geopolitical tensions escalating inflation and supply disruptions will play out. And hence, we will not be able to give you any guidance on margin for the next few quarters. [Technical Issues] The demand may continue to be healthy given traction in the real estate sector despite higher input costs and increasing interest rates. At present we are witnessing a greater momentum and the Tier-2 and cities below what’s the metros with India’s GDP growth that gets 6% to 8% over the next couple of years.

The domestic tile industry could in turn witness a similar demand growth, especially driven by the government’s push for investment in infrastructure and low cost housing. Kajaria’s growth will outpace the industry and we will deliver between 15% to 20% volume growth and financial year ’23 on the back off improving demand from Tier-2 and below cities. Distribution expansion and domestic market share gains, as Morbi players are continue to focusing on exports. Export momentum has improved in Morbi after being impacted for a few quarters and we anticipate that export market will grow in double digits going forward. Now for this quarter’s performance. In quarter one, consolidated revenue from operation increased by 80% on a year-to-year to INR1,008 crores from INR562 crores in quarter one FY ’22 because of a lower base. Revenue from the Bathware segment grew by 93% from INR37 crores to INR71 crores in quarter one. Revenue from plywood segment grew by 279% from INR5 crores to INR20 crores in quarter one. EBITDA margin for this quarter stood at 15.23% as compared to 14.32% in the corresponding quarter of the previous year. Consolidated PAT in quarter one is INR92 crores. As on 30th June, ’22 working capital days have increased by 5 days to 57 days as compared to 52 days as on March 31, ’22 due to buildup in stocks of newly commissioned plants. There are three plants we commission.

With this, I take this opportunity of thank you for joining us today. Over to you for Q&A, please.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Sujit Jain from ASK. Please go ahead.

Sujit Jain — ASK Group — Analyst

[Technical Issues] on numbers. Sir, if you could just give us a sense as to what kind of fixed portion.

Operator

Yeah. Can you please come online? We’ll will check that. Meanwhile, we are taking the second question. The line of Mr. Rahul Agarwal. Please go ahead.

Unidentified Participant — — Analyst

Hi, am I audible. Hello, hi, am I audible.

Operator

Let me check. Mr. Rahul Agarwal? Yes.

Unidentified Participant — — Analyst

Can you hear me?

Operator

Yes sir, go ahead.

Unidentified Participant — — Analyst

Okay. Hi, good evening, sir. And congratulations for a good set of results. Sir, firstly, what was the average gas price for the quarter. Could you help with North, West, and South pricing please, and the trends for second quarter?

Ashok Kajaria — Chairman and Managing Director

In the quarter one, the North prices we are around INR52, South was about INR60 and West was about INR67.

Unidentified Participant — — Analyst

And how are the trends for the second quarter? What are we seeing there?

Ashok Kajaria — Chairman and Managing Director

I think it is very vibrant. It is changing every day. The problem is you have some time with the gas. You have to outsource from various measures. It’s a very, very, very fluctuating rate now. Very, very difficult rate now.

Unidentified Participant — — Analyst

Okay. Okay, no problem. Sir, the second question was on the South ceramic acquisitions. We are putting about INR28 crores there 4.8 million MSM capacity, sir. Could you help what kind of tiles are these and what drove this acquisition, please?

Chetan Kajaria — Joint Managing Director

Okay. So this is Chetan Kajaria here. South Asian Ceramics is a plant, which is one hour from Hyderabad airport. It mainly manufacturers two sizes 60 x 60 and 61 x 20cm ceramic Floor tiles. The installed capacity is 4.8 million square meters and we are doing this acquisition to strengthen our base in South mainly by cutting the transit time from Morbi, trying to service the smaller dealers and increasing the rotation of the tiles of the dealers, based in South India.

Unidentified Participant — — Analyst

And sir, in terms of gas supply at this plant, is that already present.

Chetan Kajaria — Joint Managing Director

We have LPG connection there.

Unidentified Participant — — Analyst

Okay, got it. And sir, last question was on the sanitary ware and plywood segment. The EBIT margin looks a bit lower quarter-on-quarter. Any specific reasons you want to highlight, sir?

Operator

Can you repeat your question?

Unidentified Participant — — Analyst

My question is where I am looking at the EBIT margin for the other segment, which is basically the sanitary ware and plywood. It is 4.4% for the quarter. It was about 5.5% fourth quarter last year. Any specific reason for the margins being low here?

Rishi Kajaria — Joint Managing Director

This is Rishi Kajaria. [Indecipherable] with the market conditions, I think the raw material costs were little higher. I think it was correct this quarter onwards.

Unidentified Participant — — Analyst

Okay. Okay. So you’ve taken a price hike that again in 1Q?

Rishi Kajaria — Joint Managing Director

Sorry.

Unidentified Participant — — Analyst

Have you taken price hikes again, in first quarter for sanitary ware and plywood?

Rishi Kajaria — Joint Managing Director

No, we’ve not taken any price hike, but things will be better from here on.

Unidentified Participant — — Analyst

Okay. [Foreign Speech] Thank you so much. And all the best. I’ll come back in the queue.

Operator

Thank you. We have our next question from the line of Mr. Achal from JM Financial. Please go ahead.

Achal Lohade — JM Financial — Analyst

Good evening, sir. Thank you for the opportunity. My first question was with respect to the other expense can you help us with the A&P expenditure for the first quarter, sir. Is there any reduction Q-o-Q?

Pallavi Bhalla — Investor Relations

Yes.

Achal Lohade — JM Financial — Analyst

Can you quantify please, Pallavi?

Pallavi Bhalla — Investor Relations

Yes.

Ashok Kajaria — Chairman and Managing Director

Advertisement has been less would be first quarter, but it’s been INR19 crores in the first quarter.

Achal Lohade — JM Financial — Analyst

How much sir, if I may ask?

Ashok Kajaria — Chairman and Managing Director

Fourth quarter was INR72 crores, but for the year ahead. It will be, last year we spent about INR80 crores on [Technical Issues].

Achal Lohade — JM Financial — Analyst

Sorry how much I couldn’t hear that. How much?

Ashok Kajaria — Chairman and Managing Director

Last year, the total spend on advertisement was INR80 crores. This year we are looking at INR100 crore plus.

Achal Lohade — JM Financial — Analyst

INR100 crore plus.

Ashok Kajaria — Chairman and Managing Director

Yeah, yeah. Normally first quarter it is low and then it starts picking up from there.

Achal Lohade — JM Financial — Analyst

Got it. And secondly, with respect to the outsourcing volume or other realization, if you look at the realization currently outsourced it has declined Q-o-Q. So just wanted to understand, is there any down-trading or lower value rate…

Ashok Kajaria — Chairman and Managing Director

It cannot decline. It cannot decline Q-o-Q. It’s the same product that we are selling. So it cannot decline. It could be margin 1% to 2% here and there, but it’s minus 1%. It’s nothing. That depends sometimes on the product mix, but there is no change — there is no difference in the prices, what we are selling manufactured and outsourced.

Achal Lohade — JM Financial — Analyst

Understood. And with respect to the current if you could help us in terms of the gas mix in the North plant and the route of…

Ashok Kajaria — Chairman and Managing Director

I can help you in anything. I can’t help you. Currently, it’s every day is a different day, because sometimes the price at Morbi remains the same, the price at South is about INR72 Rupees, in North there is a fluctuation on a daily basis because sometimes they cut, we have to source it from the spot market and all that. So it’s very difficult to tell you right now. What will be the price for the quarter.

Achal Lohade — JM Financial — Analyst

Well, I wanted to check in terms of the mix in North earlier you had indicated…

Ashok Kajaria — Chairman and Managing Director

[Foreign Speech] sir, it is a very question, right now. It’s very difficult to answer. Very difficult to answer on the gas [Technical Issues].

Achal Lohade — JM Financial — Analyst

No problem, sir. And just one more question if I may with respect to Morbi, please. Announcing the closure for one month how do you see it playing out on the industry, and for us?

Ashok Kajaria — Chairman and Managing Director

I think you not only ask the question you answered yourself. It will be positive for organized players.

Achal Lohade — JM Financial — Analyst

[Speech Overlap] plants will not participate…

Ashok Kajaria — Chairman and Managing Director

Our JVs are also… [Technical Issues]

Operator

I’m sorry, sir. We couldn’t hear you.

Ashok Kajaria — Chairman and Managing Director

First of all, our own plants are operating in full and our JVs in Morbi are also working.

Chetan Kajaria — Joint Managing Director

We are not taking any shutdown.

Ashok Kajaria — Chairman and Managing Director

We are not taking any shutdowns and so that answers your question by itself. Roughly, you can say that we are closing their plants from 10th August to 10th September. There’ll be no dispatches from 15th August to 15th September and 85% of Morbi will be closed. Some JVs will be working. Some people who are based on exports will be working. And when you can roughly take that 85% capacity will not [Indecipherable].

Achal Lohade — JM Financial — Analyst

And what about our vanilla [Phonetic] or the outsourced vendors? Would they be working or shut down?

Ashok Kajaria — Chairman and Managing Director

Our outsourced vendors are, you can say 70% are working 30% who are the smaller players have to close down. And rest we are building up stocks to make sure that if you don’t have any problems in sales from our outsourced people.

Achal Lohade — JM Financial — Analyst

Got it. That’s very helpful sir. I’ll come back in the queue. Thank you.

Operator

Thank you. We have our next question from Omkar [Indecipherable] from Shree investments. Please go ahead. We have Mr. Sujit Jain from ASK. Please go ahead, sir.

Sujit Jain — ASK Group — Analyst

Am I audible?

Operator

Yes, sir. You are. Please go ahead.

Sujit Jain — ASK Group — Analyst

Yeah, yeah. I just wanted to check, Mr. Kajaria, what is your estimate of export this year from the industrial full year FY ’23?

Ashok Kajaria — Chairman and Managing Director

For the industry, it should be close to INR16,000 crore or maybe slightly high, definitely not less than INR16,000 crores.

Sujit Jain — ASK Group — Analyst

And what would that figure be for FY ’22 full year?

Ashok Kajaria — Chairman and Managing Director

INR12,700 crores. [Foreign Speech] it is why it will be INR12,700 crores.

Sujit Jain — ASK Group — Analyst

Right, and what was the average gas cost for the company as a whole for the quarter?

Ashok Kajaria — Chairman and Managing Director

For this quarter?

Sujit Jain — ASK Group — Analyst

Yeah.

Ashok Kajaria — Chairman and Managing Director

INR55.

Sujit Jain — ASK Group — Analyst

Right, and when we manufacture the product in-house versus are the margins better?

Ashok Kajaria — Chairman and Managing Director

Slightly better in our own manufacturing, slightly.

Sujit Jain — ASK Group — Analyst

Right. And one last question is you acquired this company close to 4.4 to 5 million square meters at around INR20 crores like you said. Right, if you were to put that facility you yourself what have been the cap ex for this?

Ashok Kajaria — Chairman and Managing Director

See a capex like that in a standalone plant is close to about INR120 crores. And that is what we have acquired because basically the capital employed is INR60 crores and INR60 crores is the debt. Like we put the individual plant it took of this capacity cost to standalone plant anywhere in India will close to about INR100 to INR120 crores. If I put up in Morbi it can cost about INR100 plus crores, but any other place will cost about INR120.

Chetan Kajaria — Joint Managing Director

And plus there is also a time lag of 24 months of putting our project like this in South.

Ashok Kajaria — Chairman and Managing Director

And secondly, also information which just said, we have the machine deliveries worth three to six months. Now minimum machine delivery from either China or Italy 9 to 12 months, minimum because of COVID. They are suffering from COVID more than what we anticipate sitting here.

Sujit Jain — ASK Group — Analyst

Right. So this acquisition is close to INR60 crores for a 100% plus or INR60 crores debt so INR120 crores of EV [Phonetic] and which is what your cost would have been if you were to set up this plant you yourself.

Ashok Kajaria — Chairman and Managing Director

Absolutely right.

Sujit Jain — ASK Group — Analyst

Sure sir, thank you so much. All the best to you.

Operator

Thank you. We have our next question from [Indecipherable] from Shree investments. Please go ahead.

Unidentified Participant — — Analyst

Can you help me with the capex plan for this year sir?

Ashok Kajaria — Chairman and Managing Director

See every year, we have always said that for the next few years this year is already done, and for the next few years, we are looking at 15% plus volume growth. And if you look at it, the CapEx plan, should be anywhere between INR200 to INR250 crores.

Unidentified Participant — — Analyst

Each year, right?

Ashok Kajaria — Chairman and Managing Director

Each year.

Unidentified Participant — — Analyst

Okay. And how you would be funding that sir? Internal accruals and how you plan to utilize the cash you have?

Ashok Kajaria — Chairman and Managing Director

Internal accruals.

Unidentified Participant — — Analyst

And how you are planning to utilize the cash?

Ashok Kajaria — Chairman and Managing Director

How do I…

Chetan Kajaria — Joint Managing Director

After the CapEx, we have revised our dividend policy, which will be paying. In fact, we have paid also last INR11 dividend. So the surplus will go for expansion and dividend payments.

Ashok Kajaria — Chairman and Managing Director

40% to 50% of the earnings, is the dividend policy.

Unidentified Participant — — Analyst

And one thing you mentioned that you won’t be giving guidance for margins for the next two or three quarters. So any specific reason for that, only because the fluctuating gas price?

Chetan Kajaria — Joint Managing Director

We can give margin guidance because the gas price [Speech Overlap]…

Ashok Kajaria — Chairman and Managing Director

I think you have not listened to me before. I made myself very clear with this global uncertainties. There is no talk about margin right now. Please don’t talk about this subject. Right now it is struggling to get gas. That’s a scenario on the ground. See talking does give me gas. Let we can you the situation is very problematic on the ground. So let’s not [Phonetic] our margins. We have a short, and we have said in the last conference also that we are looking at 15% to 20% volume growth, which we are trying to do in all sincerity and we have seen normal industry growth of 6% to 7%.

Unidentified Participant — — Analyst

At least can you hold on to this margin, that’s what I trying to ask?

Ashok Kajaria — Chairman and Managing Director

No, I cannot say. I’m making myself clear, I’m not committing anything, and please don’t keep on asking the same question again and again.

Unidentified Participant — — Analyst

Okay. Thank you.

Operator

We have our next question from the line of Sneha Talreja from Edelweiss. Please go ahead.

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Thanks a lot for the opportunity sir, and congratulations on good set of numbers. Just couple of questions from my end. You’ve mentioned in your presentation that you have, it was being healthy traction in the real estate plus you’re seeing greater momentum in the Tier 2 and you know below market. Just wanted to understand how is it different this particular time and that too very different from Morbi with constantly complaining about weaker demand both in the domestic and export market and taking a one-month shutdown. How are we differentiating as such? Is it product launches? Is it going into newer geographies? And how are we seeing you know higher demand compared to them on a regular basis?

Chetan Kajaria — Joint Managing Director

So the demand is not that high but demand is there, but what we, how we are trying to gain more market share by doing these product launches and making sure that we sell more and the value of the brand, because of a brand value, we are getting that more [Speech Overlap] more share of the market and we are also increasing our distribution penetrating the network by opening more showrooms in that in Tier 2, Tier 3 parts of the country.

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Could you give [Technical Issues] there in terms of how much distribution you would have added, maybe in last one quarter itself maybe last one year compared to last year?

Ashok Kajaria — Chairman and Managing Director

So last year we added almost 50 exclusive showrooms and today we have almost about 1700 operative dealers all over the country, exclusive.

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Sure. And we also understand that you did this last product launch which was there after your new plant came into commission. How is the response, the large slab plant and where do you see the segment moving in terms of it would be a percentage of sales or it would be in terms of margin, some color on the large slab plants, sir.

Ashok Kajaria — Chairman and Managing Director

So yeah, we got excellent once. We were late in this in the entry. So with our South plant when we launched these tiles we had a great response. And so it’s just a beginning. We launched only in June. So going forward, we see good amount of sales of that. It will not be a very big volume, but we’ll give you a good realization going forward.

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Sure. Any reconsideration of coming up with the CapEx that you have right now put on hold, the own plant of [Indecipherable] you going to come up in Morbi just given the…

Ashok Kajaria — Chairman and Managing Director

That’s still on hold. In fact we are looking at modernizing all of our North plants with the same Catena plus [Phonetic] technology, but we are still working on it, but we have not put a new slab plant in Morbi.

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Anything finalized on the north plant or that’s in the process?

Ashok Kajaria — Chairman and Managing Director

We are still working on it.

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Sure. And then last question, the newly acquired units that just acquired, how well does the plan and we could see I think it was loss-making unit, any reasons there?

Ashok Kajaria — Chairman and Managing Director

The unit South Asia just open two years back and it was making losses because two years there was COVID, so the owners who are Gujarati could not run the plant at capacity. So now once we take it over, we start selling the entire production within this year and next year.

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Understood, and actually out the product profile that you mentioned, I am sorry for [Speech Overlap]

Ashok Kajaria — Chairman and Managing Director

It is making ceramic Floor Tiles of two sizes 60 x 120 cm and 60 x 60 centimeters.

Sneha Talreja — Edelweiss Financial Services Limited — Analyst

Sure. Understood. Thanks a lot and all the best to your team.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Yash Khemka from Yash [Indecipherable] Securities Private Limited. Please go ahead.

Pallavi Bhalla — Investor Relations

We can’t hear anything, can you ask him to…

Unidentified Participant — — Analyst

Hello, am I audible.

Operator

Yes. Please go ahead.

Unidentified Participant — — Analyst

Congratulations, [Technical Issues]

Ashok Kajaria — Chairman and Managing Director

Thank you.

Pallavi Bhalla — Investor Relations

Again based on disconnect.

Operator

Let me check that. We have Mr. Rajesh Ravi on the call. Mr. Ravi, please go ahead.

Unidentified Participant — — Analyst

Yeah. Am I audible?

Ashok Kajaria — Chairman and Managing Director

Yeah.

Unidentified Participant — — Analyst

Yeah, hi, sir. A few questions, first on this Asian Ceramics acquisition. What is the revenue potential for this INR120 crore EV?

Chetan Kajaria — Joint Managing Director

We are looking at a revenue of INR130 crore in ’22-’23, going up to INR180 crores in ’23-’24.

Unidentified Participant — — Analyst

Okay, great. So INR120 crore itself, you are looking to achieve in this financial year and hope that to go to INR180 crores.

Chetan Kajaria — Joint Managing Director

Correct.

Unidentified Participant — — Analyst

And second, you mentioned that the demand industry growth is 6% would be growing at 15%. Last financial year, if I remember correct domestic markets Kajaria sir said that, market has contracted. So could you throw some sense that are we seeing a growth just because of the low base of last year or sequentially, are we looking at demand improving in the domestic market?

Ashok Kajaria — Chairman and Managing Director

This is a question of low base. We have grown at 33% in volume terms…

Unidentified Participant — — Analyst

No. For the industry because last year COVID it was impacted because of COVID. So this growth of 6% for [Indecipherable], is it just because…

Ashok Kajaria — Chairman and Managing Director

The industry is passing through the toughest time [Technical Issues] past two, three years, and the key aspect is the gas cost which has gone up from INR34 in August 23rd to INR69 as of today, number one, to anywhere in India, it’s is in a mess, as far as the gas is concerned, because of the geopolitical tensions. Two, all the costs have gone up — all the costs have gone up. So that’s why we are taking upgrade, we are saying we will do it just like China and Europe. You know, in China they have a Chinese New Year, they shut down their plants for four to six weeks. In Europe, they shut down. Spain and Italy, they shut down their plants in the month of August for almost a month, so [Technical Issues] for your information that every year, we will do this. Not, this is a first — this is just a first-year. Every year, they have said that we will close for one month, timing might differ. So what we are trying to do as Rishi said earlier, we are trying to penetrate in the nook and corner of India. And as I’ve said in my earlier talks that it’s a GST which is playing forward. [Foreign Speech] everybody is getting goods at 18%. Earlier, with tax [Technical Issues] smaller towns, they didn’t want to join with the big manufacturers or the organized players because of the tax player. Now, they say that we want to join whether it’s Kajaria, Somani, Johnson, [Foreign Speech]. So that’s the slogan right now from that part. And that is what we are trying to penetrate. We have thought of starting this journey two years back. Unfortunately because of COVID it could not take place. We have started in full swing from April this year, trying to meet as many dealers as possible is.

Chetan Kajaria — Joint Managing Director

Like we doubled our South plant, Srikalahasti plant, taking the South Asian Ceremics so all this will make a deeper penetration in other markets, though our plants North and West. With South plants, we can go deeper in the south market and get more market share. So that’s what we’re working on.

Unidentified Participant — — Analyst

Great. Sir. How much price increase has been taken in Q1 and Q2?

Ashok Kajaria — Chairman and Managing Director

We just took a 2% price increase. See, we can’t right now, the situation is not that the price increase can be taken because we also have to take market share in the tough market scenario.

Unidentified Participant — — Analyst

Okay, so 2% price increase has been taken this quarter Q2, right?

Ashok Kajaria — Chairman and Managing Director

No, Q1. Q1 [Speech Overlap]

Unidentified Participant — — Analyst

Okay and nothing has happened thereafter, right.

Ashok Kajaria — Chairman and Managing Director

No.

Unidentified Participant — — Analyst

Okay, so, no, I’m asking this because gas prices are quite volatile even in Morbi around INR69 and how would be the gas situation in South, North is erratic but South?

Ashok Kajaria — Chairman and Managing Director

I think you’re not listening to what I’m saying. I have already given the gas prices to the earlier guy.

Unidentified Participant — — Analyst

No, that was for Q1, right.

Ashok Kajaria — Chairman and Managing Director

I have given everything, whatever is required. You can’t keep on asking the same question again and again. Please don’t ask that question again.

Unidentified Participant — — Analyst

I’ll check it from your transcript. Sure. That’s all from my end.

Operator

Thank you. We have our next question from [Indecipherable]. Please go ahead.

Unidentified Participant — — Analyst

Yes, sir. I’m audible now, hello?

Operator

Yes sir. Please go ahead.

Unidentified Participant — — Analyst

So, congratulations first upon on very good set of numbers. I just had one quick question that are you planning to outsource any of the faucet and sanitaryware capacity or any more capacity expansion, other than the ones announced in [Indecipherable].

Ashok Kajaria — Chairman and Managing Director

No, we are not going to outsource any faucets and sanitary. We already have a good manufacturing base. We already increasing products and we have to right now work on more sales. So we already — we already announced expansion in future and our faucet expansion is also going to come by October. So capacity is not an issue. We have to penetrate more into our sales.

Unidentified Participant — — Analyst

Okay. That helps. Thank you. Thanks a lot.

Operator

Thank you. We have our next question from the line of Pooja from TCG Advisory Services Private Limited. Please go ahead. Sorry. We have [Indecipherable] on the call. Please go ahead, sir.

Unidentified Participant — — Analyst

Hi, am I audible?

Ashok Kajaria — Chairman and Managing Director

Yes, you are.

Unidentified Participant — — Analyst

Yeah, hi, good afternoon, good evening, sir, and congratulation on good set of numbers. I just have one question and apologies if it’s a little repeatitive, but it’s basically a clarification on the demand scenario in the domestic market. There are two sort of competing region [Phonetic] of commentary. One is from the Morbi segment and the other from reorganized share. Ashok sir, I would request you — could you disaggregate the demand and tell us, for your 15% target, how much do you think the market is growing at and approximately how much are we taking market share away. I understand, there is no exact numbers, but your best estimate sir. [Technical Issues] good question.

Ashok Kajaria — Chairman and Managing Director

As I said earlier last year, the domestic market was INR21,000 crores. This year because of various reasons, which has already been explained the domestic market, will not grow more than 5% to 6% and it would be close to about quickly 2000 crore. We are around that as for the industry is concerned and as we have just talked the [Indecipherable] play are taking a one month shut down because they are not able to sell at this price since the costs have gone up. As Kajaria now the brand is playing into play because of and the key factor which have been saying in umpteen number of calls is GST. Earlier, there was a big tax play between the so called unorganized at the time or regional players whatever would you call it and the organized players. Now with GST at 18% and uniformity whether you buy, I buy or somebody else buys, the dealers who have opened more and more showrooms, they are the winners and they’re opening more showrooms.

Earlier, I guy used to have a 1,000 square feet and the dealer has a 5,000 square feet showroom [Foreign Speech] So that scenario is getting over now gradually. And I would say, 80% is finished. The bigger showroom you have, you are more able to sell, because you are selling a concept, you are not selling an individual tiles. You go and make a house every year, you make a house once in five years, so you want the best out of it. So you decide. And the price difference you are paying, if any, is because that showroom is displaying good set of products. So this is the change and this is where the branded players, be it Kajaria, be it Somani, be it Johnson, somebody, they all should grow in this line. So we are basically taking a market share. When I’m saying at Kajaria our vision is for this year 15% to 20% volume growth, we will definitely be taking a market share.

Unidentified Participant — — Analyst

Understood, sir. Very clear, Ashok. Just if I may follow-up with one question. This 5% to 6% market volume growth that we are expecting, if I were to back up, say, three to four months ago or maybe even six months ago, was this what the expectation was or has that expectation also sort of come down a little bit with time? I just wanted to know if there is an update on overall underlying market.

Ashok Kajaria — Chairman and Managing Director

See, as far as the industry is concerned, industry was hoping for a better scenario, because if you recall, the Honorable Finance Minister has said that I’ve spent so much of money, big money on infrastructure development. This geopolitical tension, this war has make a mess of everything because the gas prices have gone up haywire. Now — and not only the gas, every single raw material has gone up. So as a result, today, the customer is not ready to accept this kind of a price increase. There was a — the gas prices on 23 of August was INR36 there. Today, it is INR69 per SCM. You see in a difference of about five months and almost a year. So this is — and gas is something like 30% at that time, today it is 38% of our cost of production.

Unidentified Participant — — Analyst

Understood, sir. Thank you so much. Thank you for that.

Operator

Thank you. We have our next question from the line of Pooja from TCG Advisory Services Private Limited. Please go ahead.

Pooja Pawar — PCG Advisory Services Private Limited — Analyst

Hello, sir. Congratulations for a good set of numbers. Sir, I just wanted a check on how the shutdown on the Morbi is working well, but then would not they like to dump their products here at lower market prices since your penetration is more into Tier 2 and there are much more macro conditions impacting the purchasing power of the people there? So how would you look at it?

Ashok Kajaria — Chairman and Managing Director

See, they have taken a shutdown so that they can clear their old stock and get better realization. Purpose is not to dump material in the market. That is the least thing what they want. They also want to earn some money by manufacturing their products. The purpose is to clear their stocks, lighten their inventory and make better margins going forward. That’s the whole purpose of the shutdown.

Pooja Pawar — PCG Advisory Services Private Limited — Analyst

Okay. So you do not see any threat on price realization point of view from this event?

Ashok Kajaria — Chairman and Managing Director

It will going forward because they will try to increase the price a little bit if the supply — if the demand is there and increase the market. I’ll take you a year back. In July, August, September last year, if you would recall, Morbi had a one-month shutdown for polished vitrified tiles and one month shutdown for ceramic tiles after that. And that was in the last financial year was our best quarter if you look at the numbers and otherwise. It was the best quarter where our EBITDA margin was close to about 22%. So that scenario of course was different, but that is what, as Chetan said earlier, they’re trying to correct so that the inventory reduces and they start afresh with so that they can also make money. Nobody — they are spending so much of money in putting up these manufacturing facility, it’s not for fun. They also want to make money.

Pooja Pawar — PCG Advisory Services Private Limited — Analyst

Okay, sir. Got it. Okay. Thank you, sir.

Operator

Thank you, Ms. Pooja. We have a next question from the line of Shrenik Bachhawat from LIC Mutual Fund. Please go ahead.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Hi, sir. Thanks for the opportunity. Sir, mainly I want to understand that as we are the most premium player, and I assume you have been having our best and largest stores in metro areas, but our update highlighted that we are seeing better demand from Tier 2 and below cities. So is there any specific reason that metros are weak currently?

Ashok Kajaria — Chairman and Managing Director

Metro has less of a construction. They are more of a replacement market and real construction is happening in Tier 2, Tier 3 cities as of now.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Okay. Got it. And sir, in this quarter, we delivered a strong growth of…

Ashok Kajaria — Chairman and Managing Director

Sir, since you asked this question, I want to give you two examples. Two of our dealers here did a dealer meet on 10 of May. I think for the benefit of everybody, I would like to share these two instances. There was this dealer from Bihar, a place called Bhagalpur. And out of that nearby…

Chetan Kajaria — Joint Managing Director

Darbhanga.

Ashok Kajaria — Chairman and Managing Director

Darbhanga, Darbhanga. And the guy said, look, sir, last year I did a business of INR8 crores with Kajaria, this year I will do INR12 crores. Now that’s a small thing. The important thing he said is that I have a 4,000 square feet showroom and I’m making a 16,000 square feet showroom. It’s in a small town, which is one hour drive, where the population is only 70,000. Then we have another dealer from Punjab, a place called Rayya, which is about one hour from Amritsar airport. The guy has a 10,000 square feet showroom. He is in our top 10 of Kajaria. He said, sir, I’m making a 38,000 square feet showroom. I said, why. He said, look, lot of showrooms have come in my area, I’m facing a competition, I want to make a bigger showroom. So I asked him what do you keep — what will you keep? Sir, I’m dealing in Kajaria, I will only keep Kajaria. So that’s their vision. That’s what we are seeing on the ground. So that’s why we are saying this that Tier 2 and below, and that’s where the real growth is coming.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Sure, sir. So to ask on that, sir, on the development of large stores, what is the contribution of our company? Like do we just we help on designing the store or we also incur some capex for the store? What is our contribution in the development of the store?

Ashok Kajaria — Chairman and Managing Director

So we give our expertise in designing the store. We give them the tiles. And we give them some mock-ups and all that. Rest, everything they take care of.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Sure, sir. And sir, for this quarter we delivered around 6% volume on three year CAGR basis. So to understand the expectation over next three to four years, what will be your share expectation for Kajaria’s volume growth? Is a 10%, 12% more realistic or we can assume a 14%, 15% volume CAGR for the next three to four years for the company?

Ashok Kajaria — Chairman and Managing Director

See, we have always said in our earlier two briefs that this year we are looking at 15% to 20% volume growth. Next two years, we are looking at 15% plus volume growth. That’s our vision.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Sure, sir. Thanks so much.

Ashok Kajaria — Chairman and Managing Director

Thank you.

Operator

Thank you. We have our next question from the line of Nikhil Agarwal from VT Capital. Please go ahead.

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Yeah. Good evening, sir, and thank you for the opportunity. Sir, I just wanted to understand, like, do you have any provision for shifting to propane gas in any of your plants?

Ashok Kajaria — Chairman and Managing Director

See, as far as our own plants are concerned, Gailpur, Secunderabad and all, we have no reason to go to propane because what you are seeing today, it’s not, there is something which will be there for all times to come. We all understand that because of this and Russia-Ukraine war, the gas prices have gone up haywire. The full prices, Brent prices are close to about $100, but gas is not easy to transport. So propane is an alternative. The kind of volumes we are doing, we can — see, in Gailpur, we have run that plant. Well, we have some propane from 98 to 2010. With the volume what we are having, we cannot use propane or LPG. We have to run on line gas.

As far as the Morbi plants are concerned, there is a scenario we can look at who have propane tents because sometimes propane in a year is about three months cheaper than gas. That’s the expectation what Morbi people have said, we could look into that in the Morbi plants. And Chetan said, the South Asia is already running on LPG.

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Okay. Great, sir. And sir, just one more question. Like given that U.S. is the biggest market for tiles. And with the recessionary fears that we’re currently over having on the U.S. and Europe market. Do you see exports — do you want to see exports taking a hit like you projected for a INR16,000 crores export. But don’t you see any impact on the exports because of the lower demand from U.S. and Europe?

Ashok Kajaria — Chairman and Managing Director

No,no. The exports, I am saving INR16,000 crores is the minimum we’ll do. We are today very, very competitive, because in Europe, the gas prices are electricity prices. Electricity prices have gone up 300%, gas prices have gone by 400% and they are also very elective, they’re not getting enough gas. So now the plants are closed in Spain and Italy. And India in spite of everything is still very, very competitive. Even China there is a — gas prices have gone up by almost 60%, 70% which I shared with you last time. So India is positioned and we are the number two producer in the world after China as far as is capacity. So India is very competitive. And I’m sure this year the export will not be less than INR16,000 crores, it could be even more.

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Okay, great. And sir, just one last clarification. In an earlier comment, you said that you are struggling to get gas. Like, did I hear it correct or was it — did you mean something else?

Ashok Kajaria — Chairman and Managing Director

You absolutely heard it correct because gas is having lot of problems. Some of the cargos have not been delivered, as you might be aware. But I said, but you might be aware more than me as you are tracking many other companies. There is a difficulty right now in getting gas. But we are managing somehow because some you have to buy at spot market to make sure that your plants run. That’s why I’m saying I can’t give you the price which will be in the second quarter as of today.

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Okay. Okay, great. That’s it from me. Thank you so much, sir.

Ashok Kajaria — Chairman and Managing Director

Thank you.

Operator

Thank you. We have a next question from the line of Saumil Mehta from Kotak Life. Please go ahead.

Saumil Mehta — Kotak Life — Analyst

Yeah. Thanks for the opportunity. Sir, first is on the clarification. When you gave us 15% to 20% volume guidance for this year, does it include the revenues from the newly acquired unit or that should be over a number of the normal guide of 15%, 20%, which is…

Ashok Kajaria — Chairman and Managing Director

[Foreign Speech]

Saumil Mehta — Kotak Life — Analyst

Perfect, perfect. And sir, second question is, with respect to propane, now what we hear is obviously the last month that was about INR9 to INR10 cheaper. Now apart for a larger player like us, does it really impact because the cost of production for the Morbi guys will be down about 5%, 6% of the total production level because of the gas?

Ashok Kajaria — Chairman and Managing Director

I think you are not able to understand the scenario when you put this question. First of all, we have already discussed that Morbi players are shutting down their plants for one month from 10 of August to 10 of September. If they are cheaper by 5% to 6% then why they are not running their plant, my question would be. So it is not only propane or gas, all kinds of pressures are there as far as prices are concerned, that’s why they are taking this. And as Rishi said earlier, they are trying to clear their stock so that they can make more money in the future, because ultimately, if they don’t make money, how will they run their plants. So it’s a very wise decision. They are also saying, has said earlier, that they will do this every year one month in a year so that there is no undue pressure.

Saumil Mehta — Kotak Life — Analyst

Okay, perfect. And sir, what would be channel inventory very roughly versus historical levels given one month shutdown? It seems like the channel inventory would have gone up. So very roughly number of days will be what, 15, 20 days higher than what usually we have as around this point in time?

Ashok Kajaria — Chairman and Managing Director

Only they don’t, we don’t know. We are not Morbi. Only they know there are 600, 700 plants here, they would only know, how would we know. We only know that they are shutting down their plant for one month. No supply from 15 of — 10 of August to 10 of September. No supply from 15 of August of 15 September. We know that much. And we have already said and I think other organized players may have said that our JVs will run because we are able to sell based on our JVs.

Saumil Mehta — Kotak Life — Analyst

And sir, last question is, are we seeing some sort of increasing again credit given by the Morbi players, at least from our channel partners and from our dealers?

Ashok Kajaria — Chairman and Managing Director

No, no, they are not giving any credit anymore. I think when Chetan was the Chairman of ICCTAS about two and a half years back, we had a meeting during the first pandemic, that was some time around July 2020 where the organized players and mobile players had a good chat and after that they have stopped giving much credit to the market. And let me tell you and you can record that, they are giving much, much less credit what used to be happened earlier. They can give a discount, they can give a [Foreign Speech] but no credit beyond a certain period. They are very, very tough on that.

Saumil Mehta — Kotak Life — Analyst

Okay. That is very helpful. Thank you so much, and all the best.

Ashok Kajaria — Chairman and Managing Director

Thank you.

Operator

Thank you. We have our next question from the line of Pooja from TCG Advisory Services Private Limited. Please go ahead.

Pooja Pawar — PCG Advisory Services Private Limited — Analyst

Sir, I have one or two questions. First, would you like to share your after sales services data, if you have any? What is the progress? And what steps are taken to minimize that with respect to that? And secondly, I would also like to know that if export is such an opportunistic market, with such high gas prices, why are Morbi players feeling that — I mean, witnessing that the supply has exceeded demand, it should have run well for them? So I would like some idea on that too.

Ashok Kajaria — Chairman and Managing Director

I didn’t get your point. I didn’t get your point. See in tiles, there is no after sales service like that. We have set your dealers. There is no complaints. There is no issues as such.

Pooja Pawar — PCG Advisory Services Private Limited — Analyst

Okay.

Ashok Kajaria — Chairman and Managing Director

So, yeah. And what is the second question?

Pooja Pawar — PCG Advisory Services Private Limited — Analyst

The second question was if export is such an opportunistic market with high gas prices all around the globe, with India having an opportunity to get more and more exports, than how are Morbi people not grabbing that opportunity and going for a shutdown? I mean, they can…

Ashok Kajaria — Chairman and Managing Director

[Foreign Speech] was last year and this year they will do 16,000 plus. So they are grabbing every single opportunity. Whatever they are trying to do, it will even crossed 16,000 plus. Believe me, this export will be much, much more because first quarter is always tough and this geopolitical tension is lot of problems with there. The moment things slightly improve, the exports from India — right now the current exports are INR1,200 per month. The moment the situation improves, believe me it will be anywhere between INR1,500 crores to INR1,700 crores per month at the first opportunity.

Pooja Pawar — PCG Advisory Services Private Limited — Analyst

Okay, okay. Thank you, sir.

Operator

Thank you. We have our next question from the line of Dhanush Mehta, an Individual Investor. Please go ahead. Mr. Mehta, please unmute your line.

Dhanush Mehta — Individual Investor — Analyst

Hello.

Operator

Yes, sir. We can hear you. Please go ahead.

Dhanush Mehta — Individual Investor — Analyst

Yeah. Sir, I had a couple of questions. The first question…

Operator

His line is disconnected. We have our next question from the line of Ritesh Badjatya from Asian Markets. Please go ahead.

Ritesh Badjatya — Asian Markets Securities — Analyst

Yeah. Thanks for the opportunity, and congrats team for a decent performance. Sir, just one question. Based on the overall conversation, I understand incremental demand is coming more from Tier 2, Tier 3 cities. So just wanted to understand, is there any meaningful difference when we are serving metro and Tier 2, Tier 3 market in the terms of cost structure? And product-related, what can be the difference when we are serving metro and Tier 2, Tier 3 markets?

Ashok Kajaria — Chairman and Managing Director

So there is no difference in the product or anything like that. And Tier 2, Tier 3 the most growth is coming, but that does not mean that Tier 1 is not selling. Tier 1 is also selling, but Tier 2, Tier 3, there more volumes are coming, but the product lines is similar. And it is just because of a deeper penetration in the market by opening more showrooms and displays, that’s how we are getting that market share.

Ritesh Badjatya — Asian Markets Securities — Analyst

Yeah. But how — is there any meaningful difference when we are compute the cost to serve metro and Tier 2, Tier 3 market? Like in the metro we have higher manpower cost and other warehousing or other shop-related cost is also higher compared to Tier 2, Tier 3 market?

Ashok Kajaria — Chairman and Managing Director

We have no cost because we don’t have any shops, all the shops are of dealers. And it comes to manpower, they’re all similar. We have manpower all over India. So whether it is a Tier 1 or Tier 2, Tier 3, the manpower cost is more or less very — it’s a very small cost, small difference.

Ritesh Badjatya — Asian Markets Securities — Analyst

Okay. So not any meaningful difference?

Ashok Kajaria — Chairman and Managing Director

Not at all.

Ritesh Badjatya — Asian Markets Securities — Analyst

Okay, thanks. That’s all from my side.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to the management team for closing comments.

Ashok Kajaria — Chairman and Managing Director

Thank you very much. I think good questions were answered. We tried to do our best to answer them in the right manner. So thank you very much for organizing this call. And if people have more questions, our team of Sanjeev Agarwalji and Pallavi are there to take care of those questions. Thank you very much.

Operator

[Operator Closing Remarks]