Ashok Kajaria, chairman and managing director, Kajaria Ceramics expects the company's revenues to take a ten percent hit in Q3FY14 owing to the Gujarat High Court's decision to switch to natural gas from coal. Speaking to CNBC-TV18, Kajaria says while the move is a long-term positive for the company, in the short-term it will impact the company.
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However, Kajaria is bullish on the next fiscal. "The industry is growing at 13-14 percent, but we are working at 18-20 percent revenue growth and I am sure we will be able to do 18-20 percent without any problem as far as FY15 is concerned," he explains.
Below is the edited transcript of Kajaria's interview to CNBC-TV18.
Q: I am reading from Credit Suisse report which talks about the Gujarat High Court's decision on switching to natural gas from coal and they talk about the potential implications for Kajaria Ceramics both in the short-term and in the long-term. If you could explain the whole issue and how it would impact your company for this quarter and over the next three-four quarters?
A: The Gujarat High Court has taken a decision to disallow coal gas and asked our plant in Morbi to shutdown for three days around October 27, 2013. The units had a problem as to how to switchover to gas because some other units didn't have a gas connection.
They went to Gujarat State Petroleum Corporation (GSPC) for gas. GSPC said they have two-third of gas, whatever is required and do not have one-third. So, they went into cutting of gas in various units. Ultimately, the units went on strike. They had a number of issues; coal gas, reduction of VAT at the state level, anti-dumping duty and other issues.
So, they are in touch with the state government as well as central government. The unit went on strike from November 27, 2013 and they opened on December 21, 2013. All the units in Morbi and Himmatnagar were shutdown which affected out units also.
Therefore, short-term it is a problem but long-term it is a win-win situation because two things happened- because of coal gas there was lot of pollution in the industry, people did suffer and coming to gas, everybody will be at same footing, be it organized sector or Gujarat.
However, other issues are being tackled with the state government and central government. I think the end result will be positive in the long run and industry will be in a winning position.
Q: The units were shut only for one month which was end November to December and as of now they are operating?
A: Most of the units have started operating. There were some labour issues because lot of labour went off but they have started operating and roughly about 20 percent of the unit will not be able to operate because of gas.
Q: How many of your units are currently in Morbi and other districts and what was the production loss on account of shutdown in Q3?
A: From November 27 to December 21, 2013 everything was shutdown, so we lost production, which is roughly about 1.5 million square meters. All the units were closed but the plant situated out of Gujarat were operating and the Gujarat plants were closed during that time and after December 21 they started operating after three-four days. So the vitrified unit suffered less.
Q: Two part question: what would be the financial loss in Q3 because of shutdown and for a longer term perspective, how much of a share do you think you will be able to garner from the unorganised players?
A: It is long-term positive for a simple reason that the units have started working and we are back to where we were. All the units at Kajaria at working at 100 percent plus capacity. However, short-term we have some loss because all the three units which were there, didn't produce and short-term it will have some impact on Q3.
Q: You gave a number of 1.5 million square meters. What is that as a percentage of your quarterly volumes?
A: Roughly about 10-15 percent.
Q: In revenue terms, is it likely that your revenues in Q3 would be lower by 10-15 percent as to what you were earlier anticipating or you managed to offset some of the production loss in Morbi by producing more or increasing your capacity in other plant like Secunderabad?
A: Revenue in Q3 will be affected by about 10 percent. Some increase in production has been there in the Gailpur plant but overall the revenue will be down by 10 percent. Whatever loss we have here, we can partly make it up but cannot be made up fully. So, there will be some loss of revenue, about 10 percent.
Q: Would this lower base act as catalyst for FY15. What would be the outlook for FY15 if you could quantify for us in terms of topline and bottomline?
A: We are very positive on FY15. We are looking at a growth and as we have always said that industry is growing at 13-14 percent as far as ceramic tile industry. Kajaria is working at 18-20 percent revenue growth and I am sure we will be able to do 18-20 percent without any problem as far as FY15 is concerned.
Q: Could you tell us in FY15, will there be any margin gains because you said the move is positive for you in the medium-term. So, will there be any margin expansion and if yes, how much?
A: We are looking at a positive scenario in FY15 for two reasons, after the strikes the units have switched over to gas, they have increased some prices, which should be felt in the market shortly. Additionally, there will be some marginal gain in margins in FY15 because overall '13-14 has been a tough year for real estate and for all of us.
