Ladies and gentlemen, good day and welcome to the Kajaria Ceramics Ltd Q1 FY26 earnings conference call hosted by Nuvama Wealth Management Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Sneha Talreja from Nuvama Wealth Management. Thank you, and over to you, ma'am.
Thank you, Vishakha. Good evening, all. We welcome you to Kajaria Ceramics Q1 FY26 conference call. We are today joined by the senior management of Kajaria Ceramics, represented by Mr. Ashok Kajaria, CMD, Mr. Chetan Kajaria, Joint Managing Director, Mr. Rishi Kajaria, Joint Managing Director, Mr. Kartik Kajaria, Mr. Sanjeev Agarwal, CFO, and Mr. Praveen Gupta, DVP Finance. We will now start with the opening remarks with the management, followed by the Q&A. I will now hand over the call to Mr. Ashok for his opening remarks. Over to you, sir.
Thank you, everyone. It gives me great pleasure to welcome you to the Q1 FY26 earnings conference call of Kajaria Ceramics Ltd. Joining me on this conference call is the senior management team of Kajaria Ceramics. In Q1 FY26, overall market demand continued to remain soft. Our consolidated revenue for the quarter stood at INR 1,104 crore, indicating a 1% year-to-year decline compared to the corresponding period last year, mainly due to low growth in tile volume and decline in ply sales due to closure of this division. However, the margins have improved in Q1 FY26 to 16.72% as compared to 15% in Q1 FY25. During our last interaction, I had mentioned that we had initiated certain measures to optimize our sales and marketing resources, but I had not detailed the roadmap.
Having covered some ground in implementing our strategy, I would like to take a moment to elucidate our marketing blueprint. When we entered the vitrified tile segment through trading, our ceramic wall and floor tile segment was already an established business vertical. To accelerate growth in vitrified tiles, we created a dedicated marketing channel and team. That plan worked well, and our vitrified tile business scaled rapidly. Times have changed, which mandated a rethink. Product differentiation between ceramic and vitrified tiles is marginally repressed. Ceramic tiles are more for wall and vitrified tiles that can be made in bigger sizes are more relevant for floor, though they can be used interchangeably. Considering these realities, we are in the process of integrating our three tile divisions into one. Our unified teams will drive efficiency and scale volumes.
Our combined distribution network will showcase our entire range of tiles, which is beneficial to our customers. This integration will enable us to streamline resource deployment, optimize costs, and enhance organizational agility in responding to evolving market dynamics and customer preferences. In this quarter, we initiated this transition in some states and have received encouraging feedback. Although the overall sales volume was muted due to external factors and the adoption of this unification strategy, we are confident that the complete adoption of this strategy will result in making Kajaria a lean and clean organization. With this, I take the opportunity of thanking you for joining us today. Thank you, Sneha.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to take a question may press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Shaleen Kumar from UBS Securities India. Please go ahead. The first question is from the line of Rahul Agarwal. Please go ahead.
Yeah, hi. Am I audible?
Yeah, yeah.
Okay, perfect. Good evening, sir. Thank you for the opportunity. Sir, basically, three questions. Sir, something you want to share on the current trends of the tile market? You didn't touch upon that. I just wanted to know what is the outlook for this year on both domestic as well as export market for tiles. That's the first question.
No, you can repeat. You can tell all. I will reply. I'll try to reply all together.
Okay, sure. Secondly, on the cost side, when I look at your P&L for the first quarter, it looks like gross margin expansion has actually flowed through to EBITDA. When I look at staff cost and other expenditure, they are flat YOY. So all three line items on the cost side, I think there is a fair bit of optimization. If you could elaborate a bit more, how do you see the full year in terms of cost and what kind of margins would you expect? That will be helpful. And thirdly, just wanted to know, based on now the plywood division is now shut, bathware, I think this quarter reflects only bathware revenues on the other segment. So that business looks the EBIT is about INR 4.5 crore. So some outlook on that.
What are the total savings would you expect from plywood and bathware being profitable for fiscal 2026 as compared to 2025? If you could just highlight that, that will be helpful. That's all. Thank you.
Okay. Three questions to ask. The first one is regarding the domestic and export market. The domestic market is still muted, but I think things should be slightly better as we go forward for two reasons. One, the export, which was INR 20,000 crores in 2023-24, has come down to INR 16,000 crores in 2024-25 because of high freight rates and external circumstances like the problems in Israel, Hamas, and all that. Things are basically getting neutral. So this year, exports for the first three months is about INR 4,500 crores. And going forward, it seems that the exports will definitely be between 18,000 to 20,000 crores. The moment exports pick up, the domestic market should also improve. I think the kind of government spending, which was muted last year because of various reasons, mainly because of the election year, should also pick up.
If the government starts investing in infrastructure more, which they will, things at the domestic level should also get better. As far as the cost scenario is concerned, since this process has started from April, we have let down a few people. We are optimizing our costs. Also, the promoters are not taking any salary this year. As for the third part is concerned, we have three divisions right now: tiles, bathware, and adhesive also. Adhesive, last year, did 75 crores. This year, we are looking at a scenario where it should be about 120 crores. This bathware division, which did last year about 400 crores, we are looking at about 480 crores. So this will also generate additional value. And last year, bathware lost some money. This year it will definitely be profitable.
Got it, sir. Got it. Is it possible to quantify the plywood loss for last year, which will be saved this year? Just to know the change YOY.
I think if you look at the numbers, you'll get all the things. Plywood also, everything has been squared off last year. This year, for the first three months, we have had a.
It's some salary expense.
Some salary expense about INR 2.25 crores. And it will also be there in July and August to about INR 1 crore, and that's it. Everything otherwise has been taken care of last year.
Got it, sir. Thank you so much. I'll get back in detail. Thanks.
Thank you.
Thank you. The next question is from the line of Shaleen Kumar from UBS Securities. Please go ahead.
Hi. Am I audible?
Yes, sir. Good evening.
Good evening, sir. Good evening, Mr. Kajaria . Congratulations on a very good set of operating profit and earnings. Sir, I just want to understand a little more what you talked about in terms of your strategy of optimizing your marketing. Sir, did I understand clearly that you had earlier different marketing people for different products, and now you are bringing them all together under one roof?
Correct. Hi. This is Chetan here. As you said correctly, earlier we had three teams. They were respectively selling ceramic, PVT, and GVT tiles, polished and glazed. Now we have started the process of unification, meaning we are combining the teams together under a common head statewise and getting more cost efficiency out there. And a single guy will go to a dealer and sell all the three products in that basket. So a dealer doesn't have to deal with three people in the long run. He just deals with one guy who sells the entire product basket when he goes to his shop.
Earlier, there were three people going to the same distributor.
Correct, and no distributor-dealers. We don't have distributor policy in our company. It was mainly dealers.
Right. All right. And, sir, how has this? What was the thought process behind unification of this, bringing them together?
You see, this dialogue has been going for a long time. And I'm happy to inform you that our CFO, Mr. Sanjeev Agarwal, he insisted we had a lot of meetings sometime in February. He insisted that we should follow this. And I'm thankful that the dialogue led us to this path. And I think going forward, we'll be a lean and very solid company as we go along.
Right. No, sir, sounds good. Just one or two questions more to it. So sir, any initial distributor feedback that you have got from when you're doing this? Can there be a concern that because distributor may be dealing with multiple people, now he's dealing with one person? Is one person adequate to offer all the products? What's the initial feedback you're getting?
Shaleen, it depends on the area and the distributor size of the distributor. Smaller areas like a Trichy or a Jodhpur or the small areas, the people are very comfortable dealing with one person. But when it comes to some large areas and where the dealers are very big, instead of three, we might be sending two people right now initially. So that strategy will change varying from dealer to dealer. But overall, the dealers are very happy. The initial feedback which we have got, they're very comfortable with the new system.
Right. So effectively, what we believe that this amount of sales and marketing people are enough, or there is still more scope you think we can bring it down?
So as we go along, we'll see. We'll see. And we'll optimize more if required. We'll also might be keeping some new people for doing business development, meeting architects and all that. But we'll optimize our resources as we go along.
Got it, sir. Got it, and sir, I think Mr. Kajaria Ceramics, you made a comment about promoters have not taken salary. Is it possible to quantify it, and is it like this year, or is there any thought process behind it? When would you like to take it or any idea on that?
I think it was a very bold decision on the part of the promoters to forgo the salary for this year, and I'm sure it was a tough decision, but we went ahead with it. I can also assure you what we have internally discussed that till we have a four-digit EBITDA figure, running figure of EBITDA, we will forgo our salary. Run rate of four-digit EBITDA, we'll forgo that part of the salary. We'll forgo our salary. Shaleen, the thing is that we'll consider taking it back only when we see a run rate of 1,000 crore EBITDA. That's a challenge we have taken to ourselves just to show the solidarity and the confidence in the company that we are bent upon to make this a very lean and clean, and see, as you say, charity begins at home. Cost-cutting also begins at home.
So the promoter has shown to the organization that when they can sacrifice the salary. So others have also followed suit. If they are not giving increment to us, so if they are not taking salary, they can say we are not giving increment. If they are taking salary and they are cutting our increment, then people say, "Why you are taking salary?" So promoters have started with themselves and then taken the cost-cutting measures across the organization.
Got it, sir. No, sir. That's a great move. So we are saying that we will not take salary till we reach 250 crores of EBITDA per quarter. And right now, we are at 187.
Yes, sir. We will consider after that. I'm not saying we will take it, but we will consider after that.
Okay. That's a very good thing, sir. Pretty positive for the markets and for the minority shareholders. Sanjeev ji, since I have you here, can I also ask you about what happened in other expenses? We could see that they have dropped significantly. Is it just because I think part of it may be the sales, but sales may be in staff cost? So what else is happening and how sustainable?
It is more and more. Shaleen, it is more of some one-offs. Like in Q4, we had around 22. You want a comparison from Q4- Q1 or Q4- Q1? Because there is a significant variation from Q4- Q1. So whatever you say, I can explain.
Agree. No, no, but even if I look at before that, Q2, Q3, before that, you were running at 140 crores, and now you are at 113 crores, right? so even you can see 20% drop from Q2, Q3 is there, right? and obviously, Q4, I understand there were some one-offs, but even that there is a big drop, so I just want to understand how sustainable.
In Q4, we had around INR 22 crore of bad debt. That was with respect to JV and some London operation, which are four crore in this quarter. There were some fixed assets lost in the first quarter. We sold some machine in our Sikandrabad plant. That was to the extent of five crore, which is not there this time. The traveling has gone down slightly. Advertisement has also gone down. About advertisement, we are making a very. I will request Rishi Ji to explain about the advertisement, why that's gone down, how we are optimizing our advertising resources in a more meaningful way without making any impact and with the cost.
Strategically, Shaleen, what we are doing is basically we are again putting the money at the right places and where it matters the most.
We are especially driving our advertisement branding moves in Tier 2, Tier 3 cities where we'll get more market share, so we are doing a very strategic and focused approach in advertisement to make sure that the cost also don't go up and we get the maximum mileage.
Got it, sir. Got it. So fair to assume that this run rate is sustainable, 115 crore odd for the other expense? Can we work with that?
Yes.
Right now?
Definitely. Even the INR 4 crore bad debt is there in this quarter will not be there next quarter, but there may be some increase. So it's okay. We can say around between 110-120 run rate you can consider.
Right, sir. So sir, is there a?
Sir, I would like to give the opportunity to ask the question, please.
Done, sir. Done.
You can come back.
Thank you.
Yeah. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi. Can you hear me?
Oh, sorry to interrupt. Sir, your line is not clear, actually. Your voice is cracking.
Is it better now?
Still cracking.
Is it better?
No.
It's still cracking. Is it better?
I will request you to rejoin the queue, sir.
Hello.
It's cracking, actually. Hello.
Am I audible?
Yeah, yeah. You are audible.
Yeah. Now you're okay. Now you're okay.
Yeah. Thank you.
So sir, firstly, how is the fuel cost for north-south, the number which you used to give in all the calls? Can you give that?
Yeah, yeah. For north, quarter one is 38. For south, 39. For west, 36. Average is 37.
Okay, okay. And the same trend continues now, right?
Yeah, yeah. Yeah. There's not much.
Yeah. And what was the promoter salary in FY 25 for the fourth year?
What was it?
170.
For the full year, it was INR 17 crore. You can say there is around four crore in this quarter.
Okay. Got it. And sir, lastly, this Nepal? Hello? Am I audible?
Yes, sir.
Yeah. So last question, sir. This Nepal, it's a JV. So normally, you combine Nepal volume in the total volume. What do you show in PPT?
No, we are not combining it because this is 50-50. So we are just adding below the line.
Okay. And you had a plan to increase this 50% to 51%?
No, we have taken an enabling resolution, but we have not done so.
Okay. Understood. So whether this will happen this year? Because once it becomes a 51%, then possibly you will plug in the entire volume. So any plan?
It may not come even.
Understood. Got it, and Nepal, what would be the sales utilization? We can see from PPT the production, but the sales and production are probably in line or. Possibly, sales would be way lower.
The profitability is difficult to say because the volume is not much. So we have the capacity running at a capacity utilization of 60%-70%. But we have to cover a lot of things in Nepal. Some inventory built up is there. We have to take care of that. So though optically, there is some profit in that operation, but I will not consider this as a profit. So I will not guide about the profitability as far as Nepal is concerned today.
Okay. And what would be the Nepal sales volume for this quarter?
Sales volume was around 8.87 million for the quarter.
Okay. That is helpful. Thank you so much.
Thank you. The next question is from the line of Pujan Shah from Molecule Ventures. Please go ahead.
Hello. Thanks for the opportunity, sir. My first question would be a very naive question, but just wanted to understand the brief idea of the industry dynamics which is shaping up, so we have seen the last two years have been very muted in terms of growth for the industry as well, and understanding that part, while real estate cycle has been very stable, so what is happening which is not able to grow the industry? Is it about that export has been decreased, which is being right now getting used in the domestic, which is impacting the margins or the sales growth? Or what is happening in the industry sector?
See, industry is muted. As you said, real estate is doing well, but real estate is not fully doing well. What was happening a year back is not the position today, number one, and number two, if exports pick up, as I said, partly they have already started picking up. If they pick up, it will definitely improve the domestic industry, so I think we can look at the internal factors, which we are working very hard, but at the external factor, still it's very difficult to comment how things will shape up.
Right, sir, but just wanted to understand we are doing everything what we can do in terms of structuring internally, but just wanted to understand on the industry side, what has happened in the last two years which have never been happened? Because ultimately, in India, the consumption story will be very strong, so what happened in the last two years?
You see, if you look at all the building material industry, they are all not growing. If you look at it, any industry which is related to the building industry, you take anybody, whether it's paints, whether it's ply, whether it's this thing, or nobody is growing exactly. So demand still remains muted as far as the domestic consumption is concerned. Whichever is doing exports will be doing all right, but as far as domestic industry is concerned, demand is still muted. In spite of the reduction in interest rates, in spite of Reserve Bank releasing the money in the system, it still is muted. So we hope it should improve from the quarter after quarter two. To add to that, our dealers tell us that the customer's footfall is very, very less in their showrooms. So unless that improves, the real growth will not happen.
Sir, ultimately, I understand each of the industries has been suffering out. I understand the pain. I understand the spikes. But all of a sudden, in the last two years, I expect that in a coming quarter, there will be a demand shaping up very well. But in the previous two years, what such things have happened that the cycle has not been shaping up very well? So what I understand.
I have tried to explain to the best of my ability. You please try to find out from the other industries also why things are not looking up. Instead of me answering all the questions, I think you should find out from related industries also. It will help us also.
Sure, sir. That is all my side. Thank you so much.
Thank you. The next question is from the line of Pranav Mehta from Equirus Securities. Please go ahead.
Yeah. Good afternoon, sir. Very heartening to see that the margins have improved solidly in this quarter. Sir, I wanted to understand on the adhesives business. So how are we seeing things picking up in that segment? And how are we placed in terms of, let's say, the strategic growth that we are targeting in this segment, along with what kind of margins we are targeting in this segment?
You spoke about adhesives, right?
Yeah, adhesives.
Yes, adhesives.
Last year, our turnover was INR 75 crore. As JMD said in the beginning of the call, we're looking at INR 120 crore plus this financial year. Our EBITDA margin currently is 17%. Now, with this adhesives division happening, we are looking at a good and positive growth going forward, utilizing the expertise of all our division salespeople. One plant is already in operation in Jaipur, Rajasthan, on the 30th of May this year. Another plant is in the pipeline in a place called Erode, which is a couple of hours from Coimbatore, in Tamil Nadu. The paperwork is going on. We expect that plant to be operational in the next three to four months to cater to the southern markets.
Okay, sir. And sir, how are we looking at, let's say, increasing the portfolio in this segment in particular? So we will be focusing more on the, let's say, tile adhesives and related segment only, or are we going ahead with some new chemistries as well?
Currently, we are focusing on the tile adhesive segment only. We have all the adhesives, epoxy, grouts related to the tiles currently in our portfolio with all the different CX1, VX1, LX, EX, all the variants available in the catalog. That's our primary focus as of now.
Sure, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Girish Choudhary from Avendus Spark. Please go ahead.
Yeah. Hi. Congratulations to the entire team for the margin performance. My first question is, again, on the cost reduction measures, right? You spoke about the various initiatives, but if you can help us guide on how to quantify this going ahead in the sense how much has been realized this quarter and how much more scope is left to be gained going ahead, that will be helpful. Basically, just to ascertain the sustainable EBITDA margins for the company post these measures.
See, in this quarter, the measures which we are taking, which we intend to take, there's not much impact of those in this quarter as far as cost cutting is concerned. So going forward, we'll be taking we are working on many issues like we are working on boxes. We have reduced the cost of our packing material. We are looking to reduce. We are renegotiating our outsourcing material. We are focusing to revisit our raw material prices. All the cost area, we are revisiting. Everything is very, very important to us. So the benefit of that will emerge going forward in the coming quarters. But I can't say whether it will result in improvement or EBITDA or not because EBITDA is a product of selling price, gas price, and cost. I'm confident about cost reduction.
Whether it will result in what type of EBITDA, that is yet to be seen.
Okay. But assuming these prices or realization remain as it is, I mean, just to understand, I mean, how much of impact can it come on the EBITDA, right? I mean, like you said, this quarter, not much has come on. We have seen a significant improvement in the margins around 16.7%.
There were some one-offs that were not there in this quarter. So even the advertisement was low. So going forward, if we see, I can say if the selling price remained the same, gas price remained the same, so EBITDA should improve.
Okay.
But I can't say about the like in this quarter, the selling price has slightly gone up. Whether it is sustainable next quarter or not, because the volumes have also not gone up. So we don't think the selling price will go up. So we'll focus more on volume. So might be we may have to give some discount to the market. So we don't know that. That's why it's unable to comment on the margin. But if the selling price hypothetically remains stable, then we'll get some benefit out of cost optimization.
The other thing is, can we assume the current quarter margins are the base case minimum going ahead from here on?
So it's difficult to calculate, as you said, because we also might have to reinvest back in the market. So we also have to reinvest back in the market to maybe gain some more market share. So we are doing our work, but it's very difficult to give you the calculated numbers what it will be. But you'll see an improvement every quarter.
Okay. Got it. I mean, given these my other part of the question is that given the streamlining of resources and integrating the divisions, right, I mean, have you seen any revenue impact because volumes have not gone anywhere or, I mean, it's not impacting the volumes or revenues?
So as you said, the demand is muted, and it has not impacted any volumes. I think we have remained flat-ish in this quarter.
Okay. So you don't see any impact to volumes because of the integration?
So it has slowly come. This is more of a we are right now consolidating, so right now, we'll have more of a cost benefit, and slowly going forward, that volume impact will come, and this year, focus will be to make this happen because the big change we are doing in the organization, so the focus will be though we would like to go nobody would leave the sales growth. We are also trying to for the sales growth, but the primary focus would be to implement the biggest strategy change which we have undertaken in the organization, make the organization lean and thin, and whenever the growth comes, then it will be very equality growth.
Got it. Got it. So my last question on the capital allocation, now that we have close to INR 500-odd crores of cash, I mean, if you can just guide us on the CapEx for the year and the dividend payout numbers as well?
So there is hardly any CapEx. This year, CapEx would be around INR 100-150 crores. That is also because of the new office we are making and some normal CapEx. We are not adding any capacity in this financial year. So there will be some increase in cash. So as of now, we have no option but to keep the cash. But we might, subject to board approval, me as a finance person is okay to return the cash to the shareholder. If we need to increase our dividend policy, we will put it to the board. Either we need to give the return to the shareholder, or we will not keep their money in our bank account beyond a point.
Okay, but any thoughts on any, let's say, inorganic acquisitions and all? I mean, just.
No, we are not looking for any big thing. We are just being very conservative and very.
Consolidating.
Consolidating ourselves.
Got it. Thank you, sir. All the best.
Thank you.
Thank you.
The next question is from the line of Akash Shah from UTI Mutual Fund. Please go ahead.
Hi, sir. Thank you for the opportunity. Am I audible?
Yeah, yeah. Very much.
Yes, sir, just wanted to ask regarding the management structure. So earlier, if I remember correctly, Chetan sir used to look at ceramic tiles division as well as plywood. And Rishi sir used to look at Bathware and GVT, PVT. Now we are trying to combine ceramic, PVT, GVT, and I mean, all the tiles division. And plywood is shut now. So sir, how would the management team I mean, how would the promoter look at the business? I mean, who would be managing which division, if you can share?
See, as far as tile division is concerned, now there is no such thing as ceramic, PVT, GVT. It's a unification. Between Chetan and Rishi, they will look after the entire division. And geographically, they will work on divisions. But basically, these two are the day-to-day bosses of the division. As far as adhesives concerned, my grandson Karthik is looking after that. And he's in charge of that area. As far as bathware is concerned, Rishi is looking after the bathware division.
See, the whole tile has been distributed area-wise. It's not division-wise now. So one person, Chetan, would be looking like say 50% of half of India, and half of India will be looked after by Rishi ji. So the both are working together in close coordination with each other.
Right. Right. Sure. Sure, sir.
Yeah, yeah.
Earlier.
Sorry.
Earlier, no. Let me clear also. Earlier, one was looking after ceramics. The other was looking after PVT, GVT. Now with this thing, both have to know exactly what is happening in both areas. So as a result, it is a great, great unification which has happened. And as you said, the year is where we unify, we consolidate, and volume will come secondly because volume is also necessary. But the key focus will be unification, unification, and unification.
Right. Sure. Sure, sir. Thank you. I'm yeah.
Thank you. The next question is from the line of Shaleen Kumar from UBS Securities India. Please go ahead.
Yes, sir. Just one or two clarifications, right? Volume impact, when you're talking about positive, or there can be negative volume impact of this catalog?
No, there will definitely be a positive impact. You see what happened, Shaleen. First quarter, the partly experiment went through because partly was done on first week of April, partly was done in mid-May. You will definitely see a volume growth from here on. Exact numbers we can't decide right now. But I can only tell you that it will be positive growth going forward. I think, Shaleen, your question is because of the unification, the volume will go or down. So my answer, and what sir also wants to say, that unification is good for volume growth. It will help us to take even better market share. But there are some external factors which we are not unable to say anything. So unification is a growth aggregative. It's not growth degradative. But external factors, we are not committed.
No, no. Yeah. Got it. No, I just wanted to clarify because of the, I think, the previous participant question was impact. So just wanted to clarify on that, which side of the impact we're talking about. And then why are we not committing towards the margin, right? If we think that if the price remains where they are, if grass roots remain where they are, you are doing some cost initiative. You are looking at the positive benefit of the strategy. Then why this can't be a base margin, right? The margin should get better only from here.
See, what you said earlier, our cost will be coming down. That's one part. That we can commit you that cost will come down during the course of the year. If all factors remain the same, two things you said. That if gas prices remain the same, it is not our hand. If the selling prices remain the same, margins will go up. If there is any turmoil in the industry, it will affect the margins. And as I said also myself, that if the exports pick up, the domestic market will definitely start looking up because domestic market, as one of the participants asked, has been very muted for the last two years. It should not remain the same. So with that, definitely things should look up. So we are just not giving any guidance at this stage, but we'll keep on working in the positive manner.
Also, Shaleen, to reiterate, remind me to reinvest as Rishi ji said, back in the market to gain volume share also. So based on all these factors, giving a concrete guidance for margin is very tough as of now.
Shaleen, we have learned over our past thing that it is better to say less and perform better. So we will always try to surprise the market rather than giving more guidance than what we perform.
Sure, sir. Make sure. Right. I understand. No. So we just wanted to understand on the cost side. I think that we are comfortable on the cost side. That's fine from my side. Yeah. That's it. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity, sir. A couple of questions. Sir, first is, in the last quarter, you had indicated rebranding exercise. And I think you had hinted towards what we have announced this particular quarter. But sir, my question is, what is it that prompted us to do this? Why is it that we are doing now? I think you did thank Sanjeev ji for pushing you on this. But what was the underlying reason why we are doing this particular exercise right now?
Ritesh, see, earlier, it was required to have different people selling those different tiles to the same dealer. As in the last two years, there was so much of product. The products have become so common that it was not making sense. So finally, after a lot of discussion, internal deliberations, especially the Jhatka we got from the last quarter, the downturn, we all really sat down on the table and we discussed what is the way forward. And after a lot of deliberation and all, we took out that the way forward is that we have to unify and we have to optimize our resources. And going forward, this is what we plan to do. So that is why it took us time. It took us a Jhatka, but now we are on the right path.
Right. But sir, to whatever limited understanding I have of our strategy, I think we were always aware that there are certain SKUs in a particular store which will not be available, and we will ask the buyer to go to the next store for that particular size, say from PVT to GVT. And historically, we have maintained that there is no negative volume impact because of that. So what is it that has changed? Is it the underlying volume growth was lower?
So no, I'll tell you. There's no negative growth in terms of volume, but there's a lot of cost impact. I'll tell you, for example, in any place, we're having three showrooms, three experience centers. It is not required, right? So now going forward, like in Bombay, we have combined all the three experience centers into one. Banaras, we opened a single experience center. So we are now optimizing ourselves. And yes, as you said, that this year, we might not see a spot in volumes, but we'll definitely have an impact of consolidation and a lot of cost optimization will happen. And going forward, definitely, a volume increase will also happen. When it will happen, we can't comment yet because it's not in our hands.
But what is in our hands, which is the cost and everything, that is definitely we are working a lot on that.
Sure. Sir, this is helpful. My second question is, we had different stores: Star, Prima, Prima Plus, Eternity, Eternity World, Gres Universe. We have been adding the type of stores. So when it comes to the end distribution, how should we look at the consolidation over there? And if you can help us with the number of stores that we have and what is the roadmap on consolidation over here?
See, right now, we have about 1,850 dealers, where about 440 dealers are exclusively selling Kajaria tiles. Right now, they might be selling one vertical, two verticals, three verticals, maybe ceramic, PVT, GVT, or either of the three. Going forward, as we go on, definitely, things will get better. The same store will be maybe selling all the three verticals, all the three ranges. So as we go along, the consolidation will happen. With the same network, we'll be able to get more value out of them. So sir, sorry to just. As we go along, the branding will also change.
Right. Sir, sorry to dig a little bit more. I think underlying strategy for us, what was earlier is we have more shelf space. It helps us display more. And that effectively helped us sell more. Now, when we are consolidating the end distribution network, we are seeing in the same store, we will have ceramic, GVT, PVT, which essentially means that the number of SKUs on display will be lower. So it's something counterintuitive to what we had always indicated. So how should one understand on the asset turn at the store level? And second is the inventory and working capital.
So shelf space is not going down. That shelf space, whatever it is, still remains. In fact, now we are motivating the same dealer that maybe was only selling ceramic tiles earlier. And now with the same consolidation, we are motivating the same dealer that you open another store and you sell vitrified tiles as well. So the dealers which were under pressure from a single vertical, now they want to grow, which they always wanted to grow, now getting this opportunity to grow now with this unification. So it's a win-win strategy going forward all the way. Shelf space will not go down. It will only go up.
Yeah. Shelf space is the same as the number of yeah. Sorry.
I will answer that.
Sorry, sir.
Shelf space, the question which you asked two years back. If I take you, the average size of the showroom was between 3,000-5,000 sq ft for a dealer. Today, that showroom size has gone up from 5,000-10,000 for certain dealers because they are saying, "How can I start displaying a lesser store? I have to have a bigger outlet." As Rishi said just now, either he's opening a next store or he's expanding the existing area. The shelf space has gone up by 50%-100% in the last two years of the dealers, of the dealers themselves. The range has become bigger and bigger and bigger.
Okay and sir, last question. Kajaria ji, sir, you had indicated in the last call that we had our focus on government orders. That number will actually increase from 4% to around 10% in FY26. And we had special teams in North which were doing licensing. Sir, where do we stand over there? Is this part of the business moving as desired?
Currently, it has gone up from 4% to 6%. But going forward, it can increase further.
Okay. And sir, just last one question I would like to squeeze. We had come up with a Karonite brand, which I presume was economy tiles, probably better than Morbi, but we were giving a value proposition which was there. Sir, where do we stand on our strategy over here?
So we have discontinued our strategy. We tested our strategy in a couple of markets. It didn't do that well. So we have now and now with this unification, anyways, that problem is solved. So now we have discontinued that strategy and that brand is over. We have hardly any stocks left. In the next one or two months, it will be completely finished. So it was a test market which didn't work well. I think the new strategy is any day better. So we have discontinued that. And now we are only focusing on Kajaria, Kajaria, and Kajaria.
Correct. Possibly, can I squeeze one more question?
Yeah, please.
Or I'll join back at you. Okay. Thank you. Sir, just to understand, what do we make of Infra.Market as a marketplace? We understand they are now the second largest player in the country, getting into JVs, multiple JVs in Morbi. How do you rate the competitive intensity because of this? Is it good, bad? And how does it change things for us?
Intensity-wise, it really hasn't affected us that much. It's just a shared swap they're doing with those companies in Morbi where they're picking up the stakes. It's not a real cash transaction taking place, and to answer that, see, Infra.Market is really not impacting us as a brand. See, Kajaria is a known brand in the market. Any project we go to, we are the first preferred brand if you can compete on the prices. So Infra.Market, although it is the second largest player, has really not impacted us in any way. They are more of an aggregator rather than a competitor. Yes. Yes. So if you ask me to respect Simpolo, I will respect Varmora more than Infra.Market. So Infra.Market is not a real tile player. They are not into tiles. They are into many other building products. So they are working as an aggregator.
That's not a brand. But have you seen any brand like Infra.Market as far as tile is concerned or any product is concerned? So we will refrain. I think we will refrain from making any comment on Infra.Market.
Sure, sir. This is quite useful. Thank you so much, all the very best. Thank you.
Thank you. The next question is from the line of Amit Purohit from Elara Capital. Please go ahead.
Yeah. Thank you for the opportunity. Sir, just on if you could highlight some of the regional trends in the demand that you have seen. And also, second, on the gross margin, there has been sequential improvement. I understand Q1, if I'm not wrong, mix-wise, is a better quarter than the rest of the quarter. Is that the case? One should think about it? Or is there something which is changing, helping you to maintain this kind of gross margin?
In terms of the first question, regional demand, north accounts for 35% of our sales, followed by south, which is 30%, west is 15%, and east is 20%. Tier 1 dealers account for 15% of our sales. Tier 2 and Tier 3, 30% each, and Tier 4 is 15%. So we are seeing a more uptick in Tier 2, Tier 3 cities where people are coming forward and making bigger showrooms also. So that's the regional split of our demand scenario. Question two, I will let our CFO answer the question.
What was the question? How about the gross margin?
Sir, gross margin, if I look at it, this quarter has been pretty strong. Sequentially, it has improved, although YOY broadly similar or slight improvement. So I just wanted to understand, is this that the mix is favorable during this quarter and going forward?
Yeah. It was a slight, as I said, there was a slight improvement in the sales realization. And there was a reduction in the expenses. Raw material was also slightly. There is some saving in raw material as well. So gross margin should remain in this. I don't see any much change as far as gross margin is concerned going forward. So a lot of saving will come out of operating leverage, out of cost cutting, cost optimization. So that will add to the margin, if any.
Okay. I mean, if I just do a rough calculation of assuming high single-digit growth trends, a 16.5-17% margin probably will help us to achieve that.
We have already discussed enough on margin. So please ask other questions. And I will request you to allow some other gentleman to ask the question.
Thanks, sir.
Thank you. The next question is from the line of Rahul Agarwal from Ikigai Asset. Please go ahead.
Yeah. Thank you so much for the follow-up question. Sir, any initiatives also happening on the Bathware side, if you want to talk about that? How do you look at Bathware profitability going forward? It's going to be a INR 500 crore business. And I understand Bathware profitability could be better margin than tiles. So that could easily be like a 15% EBITDA business. Any thoughts on this division, please?
So, Bathware industry, right now, we didn't get any demand. It was a flat quarter in terms of Bathware sales. The losses have gone. But yes, the profits are still to come. I think this year, if we work hard and we get our achieved numbers, the top line which we're looking for, I think the profits will improve. Until our costs are high, I think the more we scale up with the same cost, the margins will improve. We'll not get the desired margin right now, but going forward, our top line has to increase much more because we already made our base very heavy with all the costs. And we have to work more on the top line.
We are also revisiting our cost structure in Bathware as well.
Yeah. That's what I wanted to check. I mean, what could be levers there for Bathware? It could also be like an INR 75-80 crore EBITDA number.
So we'll take everything one by one, and again, Bathware, the main focus has to be they have to increase sales. As the sales increase, the things will get better. There's no growth happening right now. The growth has to happen.
Okay. Okay. Got it. Thank you so much, and all the best for the rest of the year.
Thank you.
Thank you. The next question is from the line of Sneha Talreja from Nuvama Wealth Management. Please go ahead.
Good evening, sir. And thanks for the opportunity. Firstly, we've been hearing a lot on Morbi or basically even the listed players taking price increases. Is that really happening on ground, price hikes? And what are the reasons for price hike at this point of time?
See, they have issued surplus, but it's actually not happening on the ground. So we are waiting for that and watching very carefully because the vision of Kajaria is to take a market share as far as volume is concerned, and as already said in so many words that we are on the cost-cutting drive. At the same time, we want to have better market share, and for market share, you have to have patience. Let not the price increase take place because without that, also, the margins are better, and take a market share, so that is our mission, not looking at a price increase, and even otherwise, the prices have not gone up in any case.
Understood. The second question was with other Morbi-based leading players expanding capacities geographically. How do we see our market share at that point of time? Does the competitive intensity increase from those players?
If you look at it, only one player is expanding geographically. That is Simpolo and South, but we only have a plant. We already have a plant just very close to our Kajaria plant is there. But other than that, nobody is moving out. It's very difficult for them to move out of Morbi and expand anywhere in India.
Understood, sir. Thanks for the opportunity.
Thank you. Thank you.
Thank you. The next question is from the line of Shilpa Sharma from Prabhudas Lilladher Capital. Please go ahead.
Yeah. Sorry. I'm Praveen Sahay from PL. So my question is related to the realization because if I look at the last several quarters, the overall realization is on the correction. And at the same time, if you can give a color, with the correction in the realization, your gross margin has improved significantly for this quarter, 160 basis points on the YoY side. So how is it that RM cost has significantly decreased?
We have already discussed gross margin. Next question.
Related to realization, sir? Realization? That's where you see this realization.
We have already said there is a slight improvement in realization. We have discussed this. Can we take the last question?
Slightly.
Thank you. The next question is from the line of Ashwath from Arihant Capital. Please go ahead. Hello, Mr. Ashwath. Your voice is not audible. Hello.
Hello. Can you hear me now?
Yes. It's audible. You can speak now. Thank you.
Thank you. Thank you for the opportunity. So since we don't have any CapEx on our cards right now, what percentage do we see of our sales coming in from subsidiary and trading?
Sorry. It's coming from subsidiary and trading. That is the same number which we have right now.
What's the question?
How much is the question?
It's given in the presentation.
Yeah. Going forward, sir, going forward, what do we see for FY 2026?
As I said, we are not going to expand our capacity. So whatever the growth will come, that will come out of the unused inventory, unused capacity utilization. Look, we are working on the full utilization. So some growth will come because of the reduction in inventory and when needed from outsourcing. We are not going to put up any CapEx in this financial year. So the growth comes, that will also reduce our working capital because it will result in liquidation of some inventory.
Got it, sir. So have we seen any market share improvement already in terms of Q1? What do we target for going forward? You did mention market share. So do we have any improvement?
We already discussed this. We are not commenting on top-line growth. So there is no point of commenting on market share. But one thing we have made clear that this strategy will help us to take market share subject to external conditions.
Okay, and on our Nepal plants, have you seen any improvement in terms of volume and?
We've discussed Nepal.
Okay. Thank you, sir.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Thank you, Sneha. It was very well organized, and thank all the participants who have been there, who asked questions or otherwise, and thank you for this conference call. Thanks a lot from the management on my behalf.
Thank you.
Thank you. Thank you.
Thank you. Ladies and gentlemen, on behalf of Nuvama Wealth Management Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.