Kajaria Ceramics Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Economic Overview

ECONOMIC STABILITY IN AN OTHERWISE VOLATILE LANDSCAPE

2024 marked more than just a phase of economic activity - it was a demonstration of global resilience in the face of unprecedented forces. Instead of a straightforward path to recovery, the global economy navigated a complex landscape, influenced by ongoing inflationary pressures, cautious central bank policies, increasing geopolitical tensions and the early yet transformative impact of artificial intelligence

In 2024, the global economy recorded a real GDP growth rate of 3.3%, reflecting resilience despite intensifying downside risks. However, a slowdown in momentum became evident as policy uncertainties and geopolitical tensions escalated, setting a cautious tone for 2025.

Despite global volatility, India has maintained stability with a GDP growth rate of 6.5% for the fiscal year 2025, which is close to its decadal average. As we reflect on the fiscal year 2025, India is positioned at a pivotal juncture, not merely as an emerging economy but as a dynamic force confidently charting its course amidst a complex global landscape. In April 2025, India surpassed Japan to become the worlds fourth- largest economy, with its GDP decisively exceeding the US$4 trillion mark. This ascent underscores Indias robust economic momentum and its increasing influence on the global stage.

Increased GST collections and enhanced e-way bill generation underscored sustained momentum, particularly in the last quarter of the fiscal year 2024- 25. A revival in manufacturing, coupled with improved rural demand supported by increased household consumption, painted a picture of strengthening economic activity and set a balanced foundation for growth.

The Index of Industrial Production (IIP) growth slowed to 4% in FY25, down from 5.9% the previous year, with modest gains in manufacturing, electricity and mining. The Reserve Bank of Indias surveys indicated stronger production, order books capacity utilisation, signalling an industrial upswing. Complementing this, the HSBC India Manufacturing PMI rose to 58.2 in April 2025, driven by a surge in international orders along with increased employment and purchasing activity.

The inflation landscape has brightened considerably, providing relief to policymakers and consumers alike Retail inflation has eased to 4.6% in FY25, down from 5.4% the previous year, marking its lowest level in six years. While a rate cut and softer food prices bolster this trend, geopolitical uncertainties remain a point of concern. (Source: https://www.pib.gov.in/ Press ReleasePage.aspx Rs.PRID=2122148)

Fiscal dynamics present a mixed but disciplined narrative. The fiscal deficit for FY25 is projected to align with the revised estimate of T15.7 trillion, or 4.8% of GDP, despite widening from the previous year. Strong tax collections and sustained capital expenditure aimed at driving consumption and job creation underpin this ambition

On the trade front, Indias total exports surged to 6.01% in FY25, propelled by services exports and a notable rise in merchandise exports excluding petroleum FY26 appears optimistic, with GDP growth projected at 6.5%. The governments fiscal roadmap, targeting a 4.4% deficit, aligns with its vision to establish India as the worlds third-largest economy by 2030. The governments commitment to fiscal consolidation remains steadfast, supporting its aim of maintaining the budget gap below 4.5% by FY26.

The Tile Industry

INDIA IS THE SECOND- LARGEST PRODUCER AND CONSUMER OF TILES GLOBALLY

Tiles have long moved out of the dingy stores to adorn stunning showrooms. Because tiles have gone beyond mere functionality, they reflect individuality, bringing personality to a space.

Whether bold, subtle, modem, or classic, they shape the mood and aesthetic of a space. Each pattern, texture colour tells a story of personal style and design sensibilities. From intricate mosaics to sleek monochromes, they showcase creativity and craftsmanship. More than decor, tiles become an extension of ones identity, making a lasting mpression

The Indian tile sector has undergone significant evolution and growth, driven by factors such as urbanisation, increasing per capita income, affordability and a shift towards aesthetics and arge-format products. Significant technology advancements and a sharp focus on innovation have also contributed to this transformation.

Additionally, the heightened emphasis on sustainability and eco-friendly materials has catalysed the development of tiles that are not only visually attractive but also environmentally responsible

WHAT TRANSPIRED IN FY25

Despite being in a soft spot, the tile industrys performance remained subdued. While volumes remained flattish, the realisation was has also declined.

THE OUTLOOK

While the domestic tile industry endured challenges, the long-term outlook remains optimistic.

Domestic demand: Economic resurgence, increased disposable income and growing development in Tier 2 & 3 cities, positioning them as new economic hubs, should improve tile demand.

ECONOMY

Indias ambition to double its economy to US$7 trillion by 2030 will be driven by reforms, infrastructure development, investment in human capital, a focus on innovation consistent investment in key growth sectors such as manufacturing, exports agriculture.

DISPOSABLE INCOME

Indias disposable income is expected to surge by 2030, fueled by a growing middle class and increasing consumer spending. Per capita income is forecast to exceed $4,000, with the number of Indians earning over $10,000 a year predicted to triple.

REAL ESTATE

Indias real estate market is projected to reach US$1 trillion by 2030 (~US$ 650 bn in FY25), driven by factors like urbanisation, increasing disposable incomes government initiatives.

WHAT WILL DRIVE REAL ESTATE DEMAND

TIER 2 & 3 TOWNS HAVE EMERGED AS ACTIVITY HUBS

Indias real estate market is silently witnessing a significant shift, with tier II and III cities emerging as key players in shaping the sectors future.

A total of 60 cities accounted for 44% of the 3,294 acres of land acquired by developers during FY25.

GOVERNMENT INITIATIVES

• The Central Government has announced a five- year plan to develop and expand more than 50 airports across smaller cities.

• The Amrit Bharat Station Scheme (ABB) is the governments effort to modernise and redevelop more than 1,300 railway stations across the country.

ABOUT THE BUSINESS

WE HAVE NURTURED BRAND THAT HAS BECOME AN ASPIRATION FOR EVERY INDIAN.

Kajarias capacity to fulfill customer and market requirements has rendered the Company synonymous with quality The Company provides a comprehensive array of ceramic and vitrified tiles polished vitrified tiles. These tiles are available in a wide range of colours and textures, making them particularly suitable for enhancing spaces. Each design is grounded in the philosophy that a home should reflect the beauty of its environment. With an unwavering commitment to quality, Kajaria consistently embraces new technologies and standards to remain aligned with evolving trends.

BUSINESS VERTICAL

TILES

Kajaria, a name synonymous with elegance and excellence, continues to command attention with its ever-growing appeal in the realm of Tiles. Over the years, the Company has established a strong presence in all tile variants, namely Ceramic Wall and Floor Tiles, Polished and Glazed Vitrified Tiles.

The Company produces these tiles at its facilities located pan-India while maintaining strategic partnerships with select, quality-oriented manufacturers in Morbi (Gujarat). Through the ^ integration of in-house production and strategic outsourcing, Kajaria effectively meets market demands while upholding exceptional quality standards.

Throughout the year, the Company introduced multiple product collection ranges across all verticals, effectively aligning with changing aesthetic preferences. Simultaneously, targeted upgrades to product displays in existing showrooms contributed to a rise in customer footfall and an enhanced in-store experience. Additionally, the Company expanded its dealer network by establishing large showrooms in Tier 2 and Tier 3 towns, which are increasingly recognised as emerging construction hubs throughout India. To augment brand equity, region-specific marketing initiatives were implemented, thereby deepening engagement with key decision-makers and opinion leaders.

BUSINESS VERTICAL 2

BATHWARE

Under the prestigious Kerovit brand, the bathware division has carved a distinct niche for itself, earning recognition for its refined design sensibilities and uncompromising quality, with a product portfolio that rivals global standards.

Its dedicated manufacturing facilities in Gailpur, Rajasthan (faucets) and Morbi, Gujarat (sanitaryware), are instrumental in crafting uniquely designed, aesthetically superior bathware collections that reflect both innovation and functional excellence.

During the year, the bathware division launched high-end sanitary ware from the Kerovit Global Private Limited plant and introduced special multifunction showers designed to complement its premium Aurum Range. It also expanded its customer engagement footprint by opening six new state-of-the-art customer experience centres, with three more in the pipeline for future launch.

BUSINESS VERTICAL 3

TILE ADHESIVES

Building on its legacy in the tile industry, Kajaria expanded its portfolio with the launch of GresBond-a premium suite of tile adhesives, grouts surface care solutions engineered for excellence. Combining competitive pricing with global-quality standards, GresBond delivers enduring performance across diverse applications. Our robust dealer network ensures widespread availability, while its commitment to longevity and precision empowers professionals and homeowners alike to achieve flawless, lasting finishes.

We commissioned a new Adhesive Plant at Gailpur, Rajasthan, with an installed capacity of 9,000 MT per month in last year, which commenced production in May 2025. In line with our growth strategy to further strengthen our presence in South India, we are also setting up another plant of equal capacity in Erode, Tamil Nadu, which is expected to be commissioned by the end of this year. Engagement initiatives gained momentum, with widespread adoption of the GRESBOND Rewards Mobile App and nationwide Mason Meets reinforcing brand presence. The product portfolio was enhanced with advanced cement-, epoxy- and polyurethanebased adhesives tailored for modern tile formats and complex substrates.

ANALYSIS OF FINANCIAL STATEMENTS

"Pricing pressures offset modest revenue gains in a turbulent macro environment"

In FY25, we delivered a subdued financial performance. Although sales volume increased by 6% (114.69 MSM vs 108.14 MSM), revenue from operations recorded a marginal increase of 2 % (T4.683.24 crore vs T4.578.42 crore) and sustained pricing pressures weigh on profitability.

EBITDA declined to T597.50 crore (12.76%) from T699.69 crore (15.28%) in the previous year. A significant drop of 252 bps. Profit After Tax (PAT) declined by 30% and dropped to T294.36 crore in FY25, down from Rs.422.11 crore in FY24.

The decline in margins was primarily due to lower realisation, muted performance in the Bathware division, losses in the UK operations and provisions for doubtful debts in the Plywood division. The decline in PAT was primarily due to bad debts and an additional provision for settlement with JV partners and vendors in the plywood division.

Shareholders Fund and Return

Shareholders Fund rose to Rs.2,744.34 crore as on March 31,2025, up from Rs.2616.53 crore a year earlier, driven primarily by retained earnings

Return on Capital Employed (ROCE) moderated from 21.90% in FY24 to 16.28% in FY25, while Return on Equity (ROE) declined from 17.08% to 10.98% over the same period, reflecting the impact of subdued profitability.

Debt Position & Liquidity

Total Debt (net of cash & cash equivalents) stood at T-423.84 crore as on March 31,2025, compared to T-348.75 crore in the previous year. The net debt- equity position was strong at (0.15)x as on March 31, 2025, against (0.13)x as on March 31,2024.

Working Capital Cycle

The working capital cycle decreased from 58 days as on March 31,2024, to 51 days as on March 31,2025, primarily due to the reduction of receivables in the plywood division, resulting from the decision to close this division and the reduction of loans extended to other companies

HUMAN RESOURCE

Kajaria is committed to build a collaborative and nclusive workplace, recognising its role in long-term growth and operational excellence. People-focused initiatives support every stage of the employee journey, fostering engagement and well-being Competitive compensation and a culture of respect help attract and retain diverse, high-quality talent

The Company also prioritises continuous learning, offering structured development programs that build future-ready skills and encourage personal growth. By nvesting in capability-building, Kajaria supports both individual advancement and collective progress.

Risk Management

NAVIGATING UNCERTAINTIES WITH PRUDENT PLANNING

Our comprehensive risk management policy has been duly approved by the Business Process and Risk Management Committee, the Audit Committee and the Board of Directors. This policy provides an extensive framework for identifying and mitigating risks within our business operations. We engage in ongoing reviews and refinements of this framework to ensure its adaptability to the evolving scale and complexity of our business, as well as to the changing regulatory landscape. Periodic reviews facilitate the maintenance of effective and responsive risk mitigation strategies in alignment with our operational context.

GROWTH RISK

The Companys growth momentum has slowed considerably in recent times.

Mitigation measures

The unification strategy of merging the tile verticals into one will eliminate cannibalisation between the verticals and provide a wider range of tiles for dealers to showcase and customers to choose from. This single initiative will drive volumes over the coming years.

PROFITABILITY RISK

Elevated costs were impacting the Companys margins badly.

Mitigation measures

The Companys aggressive cost reduction drive is expected to yield appreciable results in the current year and beyond. The unification strategy is expected to help eliminate considerable flab within the marketing and sales function. The use of technology will further streamline operational costs. Additionally, the ongoing cost optimisation efforts at all plants are also expected to yield benefits to the overall cost structure. These combined efforts should help in improving business profitability.