MANAGEMENT DISCUSSION AND ANALYSIS The Indian economy The full-year GDP growth for the fiscal ending March 2015 settled at 7.3%, up from 6.9% in 2013-14, a bit lower than the official estimate of 7.4% (figures calculated as per the new series of national accounts with base year of 2011-12). This growth was due to an improvement in the performance of services as well as manufacturing sectors. The Gross Value Added (GVA), a new concept introduced by CSO to measure the economic activity, rose 7.2% in 2014-15 compared to 6.6% in the brvious fiscal. The economy remained relatively unshackled of factors generally associated with an economic slowdown. Average Wholesale Price Index (WPI) inflation declined in 2014-15 to 3.4% (April-December) vis-avis 6% in 2013-14, as fuel witnessed a sharp decline in prices. Food price inflation also moderated to 4.8% during April-December 2014 as compared to 9.4% in 201314. Average retail inflation, measured by Consumer Price Index (CPI), moderated to 6.3% in 2014-15 (April-December) from 9.5% in 2013-14. The country's current account deficit (CAD) narrowed sharply to 1.3% of GDP in 2014-15, primarily on account of a lower trade gap. One of the heartening features was the emergence of India as a large economy with a promising outlook, amidst the mood of pessimism and uncertainties that continue to persist in a number of advanced and emerging economies. Looking forward The Reserve Bank of India projected India's GDP growth for 2015-16 at 7.6%. The International Monetary Fund forecast India's growth to strengthen from 7.2% in 2014 to 7.5% in 2015 and 2016 Technological advancements have strengthened the aesthetic appeal of tiles, leading to their becoming an integral home improvement component. Ceramic tile production makes a reasonable contribution to the country's GDP. India is ranked #3 in world ceramic tile production (after China and Brazil) and is growing annually at 12-13%, riding urbanisation and replacement of natural stone. A majority of India's ceramic producers hail from Morbi (Gujarat), accounting for ~60% of the total production from the regional sector. Morbi is possibly the second largest tile cluster in the world. Optimism The Indian tile industry is expected to sustain momentum over the medium-term for the following reasons: ? Qualitatively superior than other flooring materials In India, 47% of the population lives in houses with mud flooring, 37% with cement flooring and 11% with mosaic and tile flooring. Nearly 26% of India's urban population lives in houses with tile flooring and 46% lives in houses with cement flooring. On the other hand, only 3.7% of India's rural population lives in houses with tile flooring and 62.6% of population lives in houses with mud flooring — a huge opportunity. As urbanisation intensifies, an increasing number of people will shift from rural pockets to cities, catalysing a demand for flooring materials. (Census 2011) ? Urban India • About 10 million people are moving to Indian cities each year. • The per capita income in urban India is expected to treble from US$2,800 in 2012 to US$8,300 in 2028. ? Government policies The Government's progressive policies — Housing for All by 2022, Swachh Bharat Abhiyaan (Sanitisation for All by 2019), Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart Cities Mission — should facilitate investment, accelerate construction activities and give a fillip to the economy. These schemes aim to meet the needs of around 40% of India's population and hold significant promise for the real estate sector. ? Younger and smaller families • The average household size is expected to decline from 4.8 to about 4.4. • The fall in household size is expected to increase the demand for 10 million new housing units. • About 35% of India's population is between the 15-35 year age bracket, which is expected to drive housing demand for the next 15 years. About the segment • Preferred wall-cladding solution • Increasing affordability, superior aesthetics, multiple applications and enhanced accessibility • High porosity resulting in a stronger wall bonding • Used on exterior walls, replacing stone tiles, terracotta tiles and natural stone The ceramic tile vertical is the largest product segment for the Company, with a cumulative capacity of 25.90 MSM across four facilities. The Company possesses the largest ceramic wall and floor tile range in India, catering to a wide spectrum of customers. 2014-15 in retrospect • Introduced an exclusive range of wall tiles in a new size of 25x75 cm and more than 200 new designs in existing sizes • Expanded its dealer network pan-India; it opened 50 large exclusive Kajaria Prima showrooms with state-of-the-art display Looking forward Even as the business environment for this product segment turns competitive, the Company expects to sustain momentum through the following initiatives: • Deriving increased volumes from the newly commissioned capacity • Implementing capacity expansion initiatives, leading to cost optimisation • Widening brsence and deepening penetration to carve out a larger share of the market • Widening the customer choice by introducing new sizes and designs About the segment • The segment comprises three categories - soluble salts, double charge and full-body vitrified tiles. • A brferred flooring solution, the product is designed to withstand abrasion, chemical resistance, fire and staining. • The product possesses a polished surface, high gloss, extraordinary quality and durability. For Kajaria, polished vitrified tiles comprise the fastest growing product vertical due to two factors: Demand perspective: Polished vitrified tiles are fast replacing natural stone and other flooring solutions. Company's perspective: The Company has focused on increasing capacity of this product through organic and inorganic initiatives. 2014-15 in retrospect • Launched two new sizes (80x80 cm and 80x120 cm) for the first time in India, well-received in the market • Introduced 48 new designs in existing product sizes • Strengthened brsence in key central Indian states; added a number of new dealers pan-India • Added 7.8 million square metres per annum capacity which is expected to deliver healthy revenues, going forward Looking forward • Supplement the production of double-charged tiles (value-added variant) over soluble salts; commence production from Taurus, a new joint venture of Kajaria Ceramics • Increase brsence in Tier-II and Tier-III locations • Strengthen display points across central and eastern India • Setting up a 6.50 MSM greenfield facility in Rajasthan by Q4/FY16 • Entered into a joint venture with Floera Ceramics Pvt Ltd., which plans to put up a 5.70 MSM polished vitrified tile facility in Andhra Pradesh, to be commissioned in 2016-17 About the segment • These are vitrified tiles with a glaze coating on the surface. • They rebrsent the brmium segment in the tile value chain, marked a flexibility to impart unique designs and textures. • The digital printing technology used for these vitrified tiles widened design-related and textural options. • These products enjoy traction from urban customers. Kajaria, the dominant player of glazed vitrified tiles in India, offers customers the largest product basket in terms of designs and sizes. These high-end products are marketed through Kajaria World, Kajaria Galaxy, Kajaria Studio and other dealers. 2014-15 in retrospect • Launched a new size, 40x80 cm, which strengthened offtake • Increased sales volumes of large-format tiles (60x120 cm, 20x120 cm and 80x80 cm) • Increased display points - launched 12 new Kajaria Galaxy showrooms and 25 new Kajaria Studio showrooms • Stabilised operations at the 3.4 million square metre new production line at Sikandrabad (Uttar Pradesh), which strengthened supplies to dealers • Initiated exports to key destinations, namely the USA, UK, Germany, Spain, Belgium, Australia, Taiwan and the Middle East Looking forward • The Company intends to enhance capacity and brsence in key global markets. • The Company expects to widen customer choice by introducing new sizes like 13x80 cm and more designs in existing sizes. Tiles, sanitaryware and faucets are complementary products, positioned as bathroom solutions; hence, they are sold in the same store pan-India. Our dealers mentioned that an increasing number of customers wanted the entire basket of products - an opportunity awaiting Kajaria. We decided to enter the sanitaryware and faucet verticals through our subsidiary Kajaria Bathware Pvt Ltd. The Company commissioned a 7-lac-piece facility at Morbi, Gujarat, in May 2014, the operations of which will reach the optimum level in the current fiscal. The product range comprises 65 SKUs catering to diverse customer requirements. The Company put up a 1-million-piece faucet facility at Gailpur (Rajasthan), which commenced commercial production in July 2015. Jaxx, in collaboration with the Italian major LB, commissioned the 'vibrating hopper and belt feeding method' to create the exact, or at least the closest, replica of granite and marble with natural random variation. This is the first installation of its kind in India and the second in the world. Taurus Tiles Private Limited The Company's joint venture partner, Taurus Tiles Pvt. Ltd., has put up a 5 MSM polished vitrified tile capacity at Morbi (Gujarat). The commercial production commenced in June 2015. |