Kajaria Ceramics Ltd

Dear Shareholders,

We trust you and your families are safe.

FY21 has been one of the most eventful years in living memory. The Covid-19 impact on lives and livelihoods can be regarded as one of the most significant black swan events of our time. Through these tough times, we have witnessed remarkable resilience of our fellow Indians, government responsiveness and multi-faceted co-operation – much of which have changed the way we live and interact.

FY21 was a year of contrasting halves. The first half witnessed economic erosion. The second half saw an equally remarkable recovery assisted by the efforts of the Government and the banking sector. The story for us at Kajaria, was largely similar.

Our performance remained tepid in the first half owing to subdued business opportunities consequent from dampened consumer confidence. In the second half of the fiscal, demand re-surfaced steadily owing to the buoyant Tier II and III towns as they emerged as activity pockets. Supply, on the other hand, was lower owing to reduced presence of the informal sector, a number of players increased their focus on addressing export opportunities emanating out of new and large markets.

Hence, increasing volumes coupled with our cost optimisation strategies resulted in a satisfactory performance. Revenue from operations stood at B2781 Crore in FY21, against B2808 Crore in FY20, a marginal decline of 1%; Net Profit grew by 21% over the previous year. We surpassed the budgets set at the beginning of the year, with relative ease.

FY21, in one sentence, was a dismal start with a remarkable finish.

To the current year: FY22 was a good start, but our momentum was constrained by a more fatal and aggressive second wave. What is heartening is that India once again came together to fiatten this curve in a shorter period than the first wave. Unfortunately, though the losses were more painful. Even as we pen our thoughts, the nation has opened in a phased manner, with an aggressive push for inoculating its people, which holds the promise of reducing economic adversity from a probable third wave.

Barring this roadblock, FY22 appears to be promising with India expected to report a GDP growth in excess of 9%. This positive resurgence is expected to provide interesting opportunities for India Inc. across sectors.

This time around, metros, urban and Tier I cities are expected to spearhead the resurgence. A number of projects which were stalled in FY21 are expected to commence in FY22. New avenue of growth such as Data Centers and organised warehousing projects are expected to create demand. The pent-up demand from Tier II and III towns should surface towards the second half of the current year.

Moreover, the informal sector should continue to look West - towards solidifying its presence in the new and large market destinations namely, the US, the UK and Europe – providing a healthy opportunity for the branded players to gain market share in the domestic market.

The pandemic has opened interesting growth opportunities beyond the domestic boundaries. As global consuming markets are working on strengthening their supply chain, with a China+1 sourcing strategy, they are considering India as reliable and dependable supplier.

We assure our shareholders that our Brand, our Team and our Balance Sheet will drive us to outpace the industry.

Over the medium-term: The way we look at it is that the pandemic is not a roadblock to India's resurgence, it has only delayed it by a period of time. The positives that India holds remain intact. The focus to becoming better has only sharpened. The policy impetus to catch up on the time lost will be more aggressive. As such opportunities, going forward, will only abound.

Having said that, the origin of opportunities, in our opinion, could shift a little.

Over the coming years we expect, the accelerated urge to urbanisation will temper down. Tier II and III towns will emerge as new age economy drivers owing to their demonstrated resilience during the health emergency. This transition will attract considerable investments in these towns, positioning them as new age construction hub. We are reasonably confident of this shift because of the silent change transpiring here.

In keeping with these realities, we are augmenting our manufacturing capabilities – our three brownfield projects at Gailpur (Rajasthan), Morbi (Gujarat) and Srikalahasti (Andhra Pradesh) – which will take our total installed capacity from 70.4 MSM to 82.8 MSM. These projects should commence operations by the end of FY22.

We are also strengthening our dealer network further to ensure that we are able to effectively capitalise on the exciting future and deliver healthy returns to our shareholders.

Statement of gratitude

In closing, we would like to thank the Board for guiding us to execute our responsibilities in the best possible manner. We would like to extend our appreciation to our team for their relentless efforts in facing and overcoming challenges.

Our deep appreciation to our shareholders for their confidence and support. We also place on record our gratitude to our other stakeholders – vendors, dealers, customers, bankers and Central and State government authorities – for their consistent support and assistance in our journey.