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19
Annual Report 2011-12
18 Kajaria Ceramics Limited
Just when most outsiders reconciled to
subdued growth from Kajaria, we
pleasantly surprised our stakeholders
with a record that exceeded our year-
start guidance.
Our topline grew 39% against our
initial guidance of 30%. What is
particularly satisfying is that we
strengthened business returns despite
being plagued by margin-eroding
adversities. Our return on equity and
capital employed improved 255 bps
and 634 bps respectively, vindicating
our commitment to grow shareholder
value in good times and bad.
Doing the unexpected
How did we achieve the unexpected?
Let us explain.
The industry-led slowdown cascaded
across India but its impact was more
pronounced on the realty sector in
metro cities for an important reason:
speculative demand is significantly
higher in these areas. Interestingly,
opportunities continued to manifest in
the largely under-penetrated markets
of Tier-II and III towns, which remained
liquid, supported by largely user-led
non-speculative demand. Two factors
worked in our favour - our incremental
capacities (organic and inorganic) came
on stream just at the right time and our
robust and deep distribution network
assured that our products were always
proximate to demand pockets.
Accelerating growth
The AAA phenomenon will accelerate
tile demand pan-India over the
medium term.
Aspiration:
The number of Indians
exposed to a high-end lifestyle is
increasing substantially through
increased travel (domestic and
international) and frequent visits to
malls and entertainment centres.
Affordability:
Robust economic growth
and favourable policies are increasing
disposable incomes.
Availability:
The bottom of the
pyramid story is known to all. Few
corporates have effectively capitalised
on this opportunity, creating product
visibility.
We believe that tile demand will not
be confined to urban pockets but will
extend pan-India; players with
adequate capacities and an
entrenched presence will capitalise on
this unique opportunity.
Blueprint
Proximity + Innovation = Profitable
growth is an equation that pretty much
encapsulates our strategic blueprint.
Proximity
We are getting closer to consumers
through a two-pronged approach. In
doing so, we understand consumer
preferences better, develop products
that suit their aspirations with speed,
enhance our visibility and emerge as
the preferred brand.
We are working towards a pan-India
manufacturing base.
North:
We strengthened our base in
the North. We expanded capacities at
our existing units – Gailpur by 6 MSM
and Sikandrabad by 2.30 MSM.
West:
We doubled our Soriso unit
capacity (ceramic tiles) in West India to
4.60 MSM within a year of acquisition.
The full impact of this will be visible in
2012-13. Additionally, we invested
`
62.65 million for a 51% stake in Jaxx
Vitrified (Gujarat), resulting in the
ownership of a 3.10 MSM new
polished vitrified tile unit. This unit
commenced operations in March,
2012.
South:
We acquired 51% in Vennar
Ceramics, Andhra Pradesh, a brand
new ceramic tile facility (2.30 MSM
capacity) to manufacture digitally
printed high-end wall tiles. The unit
will further benefit from economies of
scale when on-site capacity increases.
The unit is expected to commence
operations in June 2012.
Following the commission of this
capacity, we will be possessing
manufacturing facilities in the north
(28.30 MSM), west (7.70MSM) and
south (2.30 MSM).
We continued to extend our
distribution network deeper into
under-penetrated pockets – primarily
the Tier-II and III towns pan-India –
creating a ‘demand pull’ for our
products. In doing so, we expect our
sales mix to remain retail-dominant.
Innovation
Our key growth engine has been our
undying passion to offer unique
products which are a first for the Indian
customer – increasing the market size
and our share in it. We were among the
first few to introduce the game-
changing digital printing technology in
ceramic and vitrified tiles in India,
enhancing realisations over vanilla
variants.
In ceramic tiles, we launched large-
format digitally printed ceramic wall
(30x90 cms) and interlock tiles (30x45
cms) for the first time in 2011-12. We
will strengthen volumes and product-
showcasing on a pan-India basis. Our
Soriso unit will focus on the large-
format 60x60 cm floor tiles while our
newly acquired Vennar unit will focus
on digitally printed high-end wall tiles.
In the vitrified tiles business, we
launched digitally-printed, glazed
vitrified tiles – ‘EternityHD range’ - in
various finishes to an enthusiastic
response. These and other innovations
planned for 2012-13 will distance us
from competitors, in addition to
strengthening business profitability.
Optimism
India’s per capita tile consumption at
0.46 sq mtr is among the lowest
globally. This is expected to multiply
over the coming years. There is a large
latent demand in India, which will be
increasingly leveraged.
• City limits are expanding; not too
long ago, Delhi and Gurgaon were
differentiated by vast empty tracts,
whereas it is now difficult to delineate
where Delhi ends and Gurgaon begins.
The same holds true for most metros in
India. A large number of corporates are
moving to these areas to optimise
overheads.
• Liquidity at the bottom of the
pyramid is multiplying faster than ever
before consequent to the
government’s appetite for land for
infrastructure projects and favourable
policies which increased disposable
incomes.
• Corporates are setting up operational
units in Tier-I cities and Tier-II towns,
particularly the BFSI and the IT & ITeS
sectors, to leverage these low-cost
havens to sustain margins. This realty
development is expected to trigger a
huge commercial and corresponding
residential demand.
Message to shareholders
The value that we deliver to
shareholders will now be accelerated
by a significant increase in production
volumes, a widening manufacturing
presence proximate to large
consumers and rising value addition
derived from new products, sizes and
designs.
Regards,
The Management Team