The Indian market focuses on value - Ceramic World Web

Paola Giacomini - [email protected]

CWR INDIA 201822

Although growth rates remained below the previous year’s dou-ble-digit figures, Kajaria Ceramics closed the fiscal year to 31 March 2017 with a 6% upturn in total income to approximate-ly 381 million euros (Rs. 28.5 billion) and a 9% rise in consoli-dated net profits to 33.4 million euros (Rs. 2.53 billion). “Giv-en the backdrop of a significantly higher historic growth mo-mentum, this uptick may seem marginal. But, when appraised, keeping in mind prevailing economic and sectoral headwinds during the period under review, this growth appears satisfy-ing,” commented the company’s Chairman and Managing Di-rector Ashok Kajaria. Kajaria Ceramics is the largest Indian tile manufacturer and one of the top ten producers worldwide. The ambitious expansion programme implemented over the last three years has raised total production capacity to 69 million sq.m/year (March 2017), while the expansion project at the facility in Gailpur, Rajast-han is expected to be completed by the end of September. The group aims to reach a capacity of 100 million square me-tres by 2020, a goal that may in part be achieved through ac-quisitions. For the current year Ashok Kajaria has announced a return to more sustained growth, driven by good prospects for market expansion and a further strengthening of the brand across the country.

CWR: What strategies are you following to increase Kajaria’s share of the domestic market?

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ASHOK KAJARIA: From a market share viewpoint, Kajaria is doing three things: First, we are launching new products at fre-netic speed that are aligned to customer aspirations. Secondly, we are spreading wider and deeper into the Indian landmass to strengthen our entrenched presence. And thirdly we are mak-ing significant investments in branding and advertisements (print and electronic) to cement brand recall in the minds of every aspiring Indian. These initiatives, we believe, will enable us to make inroads into the market share of regional and lo-cal players. CWR: What are the current market trends in terms of products and what new products have you launched yourselves?A. KAJARIA: Innovation has been the hallmark of Kajaria and the key reason for its success. Each year we develop new siz-es and new designs for Indian customers – some of which meet specific customer needs while others are in keeping with our commitment to bring global trends into India. In 2016-2017 alone we launched more than 500 new designs across existing product verticals. In addition, we launched new large-format tiles across product verticals (120x180 cm, 120x120 cm, 120x80 cm, 80x80 cm) to address discerning customer aspirations. We launched certain products for the first time in the Indian markets, such as 80x120 cm ceramic floor tile, 60x120 cm dou-ble charge polished vitrified tile and 120x180 cm glazed vitri-fied tile. What is satisfying is that these launches will expand the market size not just our market share. Going forward, we

Talking to... Ashok Kajariahere with his sons Rishi and Chetan

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will continue working on developing new products that en-hance customer delight and expand the opportunity matrix for sectoral peers. CWR: As for the growth prospects for domestic ceramic tile demand, is a recovery in the construction industry expected?A. KAJARIA: Regulatory roadblocks, sectoral issues and high interest rates adversely impacted the growth of the real estate sector for an elongated time period. But the priority accorded to the infrastructure sector in the Government’s recent Union Budget, declining interest rates and ambitious development programmes promises to unshackle the construction industry in general and the real estate sector in particular from the pre-vailing gloom. Moreover, the RERA (Real Estate Regulatory Au-thority) legislation which was implemented in May 2017 man-dates stronger governance of real estate development and timely delivery of projects – both factors which had plagued the Indian real estate sector for decades. This positive move is expected to drive real housing demand, leading to strong-er tile offtake.CWR: How is the Indian market evolving in general?A. KAJARIA: In India, tiles have transformed from a functional necessity into an aesthetic imperative. So when India prepares to create the largest space increment in its existence (usable and liveable), this means that more tiles will be consumed than ever. And with growing affordability, consequent to econom-ic resurgence, the average Indian aspires for large tiles, aes-thetically-appealing tiles, fashionable tiles and specially treat-ed tiles. Hence, the demand for tiles going forward will be vol-ume-driven as much as it will be value-led. Today’s Indian consumer is different from what he was a couple of decades ago. He is more aware. He is more aspiring, for he has knowledge at his fingertips. He understands product attrib-utes, aesthetics and trends. His propensity to earn has grown multi-fold which has given wings to his aspirations. As a result, he is willing to pay that little more for superior value proposi-tion. With price of tiles being relegated to just one of the fac-tors influencing the tile purchase decision (from being a pri-mary criterion in tile selection some years ago), the preference for organised players has increased significantly. As a result, growth in business volumes of organised players continues to outperform the industry average.

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CWR: Has the distribution system managed to keep up with this evolution? A. KAJARIA: The business of selling tiles in India has undergone a sea change. Today dingy shops have transformed into swanky showrooms closely resembling jewellery stores. Tiles are displayed with special emphasis on the probable customer segment in the catchment area. Dealers change display periodically to enhance footfalls. Moreover, technology solutions are leveraged to give customers an idea of their bathroom or living room with their pre-ferred tiles. Today, tile sales is not just about mentioning prices and sizes but is a knowledge-sharing engagement between the salesperson/dealer and the customer in which the former wields significant power to influence the latter’s decision. So the bottom line is that the dealer has assumed centre stage in the art and sci-ence of selling tiles in India. His importance is two-fold: generating volumes and providing feedback on customer needs and desires. CWR: In such a dynamic market, what role do you see for tile imports?A. KAJARIA: India, I believe, is in line with global standards with regards to manufacturing technology, so we can replicate and even better tiles manufactured by our global peers. As a result, import of tiles has reduced significantly over the last few years. While this is a reality, some tile volumes will continue to be im-ported primarily due to cost factors. And then there are certain tiles which are developed for niche applications and will contin-ue to be imported.CWR: What consequences do you expect from the introduction of the new Goods and Services Tax (GST)?A. KAJARIA: The Goods and Services Tax (GST) introduced on 1 July 2017 will bring a number of advantages. First, it will make In-dia a truly unified common market by creating a single indirect tax that will take the place of all taxes previously in force across the 29 states and 7 union territories of India. GST also promises to create a level playing field between the informal sector and the organized/branded players because it promises to minimise the tax and duty differential paid by the informal sector and the or-ganized/branded players. The reduction in taxes and duties for organized/branded players holds the potential to make branded tiles affordable. Moreover, with consumer affordability and con-sequently aspiration multiplying, I expect the tile demand to shift towards branded products.From the perspective of the market, GST will strengthen the sec-tor’s supply chain and will benefit end consumers, who will bear only the GST charged by the last dealer in the supply chain with set-off benefits at all the previous stages. CWR: A few years ago you decided to enter the sanitaryware and faucet sector. What are your main results to date?A. KAJARIA: Our entry into the sanitaryware and faucet space is largely in keeping with our efforts to delight Kajaria brand loy-alists. For we have noticed a trend among most customers who walk into our stores. Having selected tiles, their next question they ask is to see sanitaryware and faucets. In a short span of years, we have created a basket of more than 200 SKUs in these product segments. In 2016-17, revenue from this vertical grew by more than 50% over the previous year (albeit on a smaller base), which demonstrates increasing acceptance of our prod-uct range. Going forward, we plan to strengthen our faucets offering by introducing premium ranges and launching sensor faucets for various applications. In the sanitaryware segment, we are increasing our manufacturing capacity by about 120,000 pcs per annum through a brownfield expansion to cater to growing demand and emerging opportunities. 5