Industry has passed on the price rise to the dealer and the customers: Himanshu Shah, Asian Granito

Himanshu Shah, Finance – Head, Asian Granito, talk about recovery in the industry, expansion plans, target to achieve revenue of Rs 2,000 crore, the impact of price rise, warrants conversion to equity and growth opportunities among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Do you think that the recovery that was seen during the festive season is continuing, if yes, what kind of momentum is seen? We are moving to FY22, so how bullish you are about business prospects?

A: In the ceramic industry, as you said, there is a good and positive environment in the market after the COVID situation. So, the rally on the demand side – in domestic as well as export market - was seen in the second and third quarter, particularly after the COVID and we have also converted it in the result. This demand rally in the domestic market will be more robust in the fourth quarter and the next financial year, i.e. FY22. The export market opportunities have opened due to the anti-China movement. This movement has also benefitted the Indian ceramic industry a lot. Today, the US market has moved in the favour of India and the demand outlook has turned quite positive. India has benefitted itself in a sizeable quantum, due to which many units in the Indian ceramic’s Morbis or Morbi clusters are also focusing on exports. Even in our company in terms of export, we have given a YoY growth of 41% in the third quarter. Going forward, the growth in the top line - in exports – will range between 20-25%. Also in the domestic market, the momentum has been positive and there has been an improvement in the retail markets. Even the replacement market has improved, and a good improvement has been seen in the affordable housing segment. At the same time, there is an increase in the working capital size and this improvement has had a direct impact on the demand cycle and a good momentum has been seen here. 

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Q: What are your expansion plans? The company had a target to achieve Rs 2,000 crore in revenues. What is the plan and when will it be achieved?

A: Definitely, as we touched Rs 1,225 crore in top line last year. This year, we have grown by 29% in the third quarter. Accordingly, throughout the year, although we have faced a negative impact of the COVID in the first quarter - we gained well in the second and the third quarter and can see a good momentum on the demand side in the fourth quarter. So, the improvement that we have seen on the demand side in the market and the positive momentum gives a sense that the momentum will continue in the ceramic industry in the next 3-4 years and more movement will be seen in the domestic and export markets. We have an export vision of our company and accordingly we will post growth above 20% this year and we will reach Rs 200 crore compared to the export revenue of Rs 165 crore posted last year. So, the target of revenue of Rs 2,000 crore – following the market momentum – will be achieved in the next three-four years and we are quite confident about it. 

Q: The prices of the commodity are going up for the past few months and the prices of oil & gas have increased, substantially. How are you seeing this development and what impact the increased gas prices will have on your business?

A: The gas prices of GSPC and Sabarmati Gas – our major suppliers – has increased at present. In fact, the price of imported gas has increased. If seen from the perspective of impact, then the ceramic industry - due to the positive market conditions – has passed on the price rise to the dealer and the customers. What used to happen earlier when the demand momentum was not good then had an impact on the bottom line. But today, if you have a look at the ceramic tiles or GVT segment then we have raised our prices according to the gas price increase. Even the cluster Morbi plants – the unorganized sector – has also taken a price rise. So, it will not have a major impact on the bottom line. 

Q: There were some warrants which were converting into equity shares on March 8, 2021, but the company has asked SEBI to extend the date of the warrant conversion. What is the reason for this and what is the extended warrant conversion date?

A: Our preferential warrant, which is convertible to equity and the capital that should be infused in the company to bring some additional cash. Due to this, as per SEBI guidelines, the 18-months deadline ended on March 8, 2021. Due to this corona, we as well as the promoters made sincere efforts in the process that was continuing but it was necessary to extend the deadline. It was needed for support and future growth of the company. So, looking at the present circumstances, we have requested to SEBI and it has been granted on genuine grounds. We have received an extension of a month to April 7, 2021. And the promoters have a right of the preferential warrant in which they can infuse in the equity and bring the money to the company and the process is continuing. And, by the end of this deadline, the money will be brought into the company by the promoters in form of equity. 

Q: Are you looking at inorganic growth opportunities along with organic growth, if yes, what is the ticket size? Also, you are bringing new products, like AGL Tuffguard Antibacterial Tile for better hygiene. What kind of response you are getting on the product and what are the new launches?

A: Our business model is a mixed model in which we have also tied-up for outsourcing with some good plants of Morbi. We have set a growth target for 3-4 years. For this purpose, we have kept a growth momentum and for the same, we have adopted an asset-light model. Due to this, we will not have a big CapEx because we will focus on our brand to make it stronger and increase our top line and bottom line. Accordingly, on the back of the asset-light model, we have not kept any plan for major CapEx in the internal manufacturing capacity. As of date, the nine to ten plants that we have – all the plants are present in Gujarat – are running at 92-95% capacity utilisation. And if seen from that perspective then whatever incremental growth is to be taken then in the coming time, we will take the products from the good technology plants at the lowest cost and based on our R&D and technology, we will sell it with our brand at a premium. Accordingly, we will move ahead with growth in the top line and bottom line.