CSL/2023-24/299

8th November 2023

To, To,
BSE Limited National Stock Exchange of India Limited
Corporate Relationship Department Exchange Plaza
1st Floor, New Trading Ring Bandra Kurla Complex
Rotunda Building, P J Towers Bandra (East)
Dalal Street, Fort, Mumbai – 400001. Mumbai – 400051.
Scrip Code :532443
Scrip ID: CERA Scrip Code: CERA

Dear Sir/Madam,

Sub: Transcript of the Conference Call held on 2nd November, 2023

Ref: Regulation 30 of the SERI (LODR) Regulations, 2015

With reference to our letter CSL/2023-24/264 dated 23rd October 2023, intimating you
about the Q2 FY2024 Earnings Conference Call held on 2nd November, 2023, please find
attached the transcript of the aforesaid conference call.

The same is available on the website of the company i.e. www.cera-india.com

We hope you will take the same on your records.

Thanking you,
For Cera Sanitaryware Limited,
Digitally signed by HEMAL JANARDAN

HEMAL SADIWALA
DN: c=IN, o=Personal, title=1769,
pseudonym=1330138917160425167M7u3

JANARDAN
VjyWA1Zui,
2.5.4.20=6b4ec8e524e33f51a85e90684a2
83fb7298733d00b4cadaec4b37a8a541142
25, postalCode=380008, st=Gujarat,

SADIWALA
serialNumber=f2fe036f7fce318ced974ed8
837dfa1e1c2da169e5861098ce6b05679d5
c9f6e, cn=HEMAL JANARDAN SADIWALA
Date: 2023.11.08 12:11:37 +05'30'

Hemal Sadiwala
Company Secretary
Encl: As Above
 Cera Sanitaryware Limited
Q2 FY24 Earnings Conference Call Transcript
November 02, 2023

Moderator: Ladies and gentlemen, good day, and welcome to the Q2 FY24 earnings conference
call of CERA Sanitaryware Limited. 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 Mr. Mayank Vaswani of CDR India. Thank you,
and over to you, Mr. Vaswani.

Mayank Vaswani: Thank you, Sagar. Good morning everyone and thank you for joining us on the
earnings call of CERA Sanitaryware Limited for the Q2 FY24 earnings, which were
announced yesterday. We have with us today the management team comprising
Mr. Ayush Bagla, Executive Director; and Mr. Vikas Kothari, CFO of CERA
Sanitaryware. We will start with brief opening remarks from the management,
following which we shall open the call for Q&A. A quick disclaimer before we begin.
Some of the statements made in today's call may be forward-looking in nature, and
a detailed note in this regard is contained in the results documents that have been
shared with all of you earlier. I will now turn the call over to Mr. Ayush Bagla for his
opening remarks.

Ayush Bagla: Good morning, everyone. The earnings for the quarter ended September 30, 2023
were adopted by the Board of Directors yesterday, 1st November, 2023. The
earnings documents have been released to the stock exchanges.

Some of the objectives the Company has made significant progress in for this
financial year are - Number 1, enabling CERA to be further entrenched across
consumer demand trends with varied product offerings. Number 2, gaining market
share and making deeper inroads into the B2C consumer consciousness. Number 3,
capitalizing on manufacturing efficiencies to realize product differentiation while
delivering value to consumers. And number 4, upgrade and refresh consumer
perception of the brand.

I am pleased to share that we continue to make substantial progress on these

objectives. During the quarter, we witnessed steady demand for our products as
the overall replacement and project demand remained positive. CERA's product
and design emphasis allows it to focus on the B2C segment where it can truly
monetize its brand promise.

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 Over the last few years, all efforts have gone through to decouple CERA's revenue
growth from fluctuations in interest rates and housing demand, thereby insulating
it from real estate demand cyclicality. Despite the challenging backdrop
characterized by persistent inflation and inclement climatic conditions across the
country, as well as the high base of revenues and other financial parameters from
last year, we reported double-digit growth in revenues.

Q2 FY24 revenues were higher by 11.43% on a year-on-year basis. In view of our

strategic objectives to gain market share, deepen the B2C presence and deliver
value to consumers, no price hikes have been undertaken since May 2022, a period
of nearly 17 months, the leader guards the price. In view of adequate inventory
levels in Sanitaryware, where we slightly reduced the pace of manufacturing this
quarter. During the quarter, the Sanitaryware plant capacity utilization was at 91%.

The Faucetware facility expansion program could take capacity from 3 lakh pieces
to 4 lakh pieces per month was commissioned on 25th September 2023. In
Faucetware, the capacity utilization was at 122% during Q2 FY24 after considering
added capacity of the brownfield expansion. With this expansion, which was
completed within time and below cost, the Faucetware needs of the Company are
secured for the next few years. The product mix plan is coloured SKUs, quarter-turn
SKUs, PVD SKUs and a few more SKUs that can be taken in from outsourced
partners. This will enrich our product mix further.

The gross margin decreased from 55.78% in Q2 FY23 to 52.72% in Q2 FY24.

Historically, the gross margin has been between 48% and 52%, and the 55% last
year was an outlier. EBITDA was higher by 13%, as it increased from INR 77 crore to
INR 87 crore. EBITDA margins increased from 18.11% in Q2 FY23 to 18.39% in Q2
FY24.

Our stated objective was to increase annual EBITDA margins by 50 to 75 basis points
each year. We have surpassed our stated objective as the increase in EBITDA margin
in FY23 has been more than 100 basis points despite advertising spend in the year
increasing from INR 32 crore in FY22 to INR 57 crore in FY23.

In Q2 FY23, China imports were INR 18 crore or 4.3% of sales. In Q2 FY24, China
imports were INR 11 crore or 2.4% of sales. CERA was already one of the lowest
users of products made in China and with availability of manufacturing
infrastructure in-house, the percentage of Chinese imports to sales has been
continuously declining.

In a business which is brand driven, the fulcrum of success is manufacturing quality

and plant efficiency and new product-led growth. With regard to capacity
expansion from manufacturing Sanitaryware, a fully aggregated land parcel in
Gujarat, which has been historically owned by a single owner, has been in due
diligence. We expect title documents for a substantial part of the land parcel to be
executed over the next one to two months.

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 During Q2 FY24, no price hikes were undertaken. During 2021 and 2022, three
rounds of price hikes were undertaken by CERA, which were all a demonstration of
pricing power. As a strategy, the Company focuses on multiple levers to drive
profitability and does not rely solely on price hikes. At the same time, future price
hike is a continuous evaluation.

In Sanitaryware, raw materials like China clay went up by 18% and feldspar by 4%,
while plaster of paris and glaze went up by 1% and 3% in Q2 FY24 as compared to
Q2 FY23.

Operating efficiency at the manufacturing level has gone up, as have the overall
yields, which have negated a substantial portion of input cost increases. Zinc went
down by 28%. In Faucetware, brass prices went up by 2% and Zamak prices went
down by 24% as compared to Q2 FY24. Due to the availability of gas from isolated
well near our plant, the price of gas from GAIL continues to remain below market
and will remain so in the future. Average gas prices have gone up to INR 29 per
cubic meter versus INR 26 per cubic meter in Q2 FY23. Normally, GAIL supplies 50%
of CERA gas needs. However, in Q2 FY24, GAIL provided 70% of the gas
requirements of the Sanitaryware business, Sabarmati gas. So, pricing went down
from INR 75 per cubic meter in Q2 FY23 to INR 45 per cubic meter in Q2 FY24,
supplying 30% of the gas needs of the plant for Q2. The Q2 FY24 weighted average
cost of gas was INR 33, much lower than industry. Gas costs constitute 1.51% of
CERA's topline.

Our focus on ESG began in 1995 with the installation of a wind energy facility.
Capacity was gradually added and a solar plant was also installed in 2014. During
Q2 FY24, 94% of the energy needs of the two manufacturing facilities were met
through in-house renewable energy sources.

The retailer loyalty program that was launched by CERA in Q2 FY23, which has now
completed 15 months, more than 16,500 retailers have uploaded to 2.22 lakhs
invoices on the retailer loyalty app. The feedback received from retailers has helped
us in understanding the consumers' changing demand geographical segmentation
of SKUs and evolution of the rewards program to retailers. Besides standardizing
invoices in Q2 FY24, of the total retail sales of INR 251 crore, more than INR 96 crore
of sales were eligible to receive the rewards through this program. These are 38%
of retail sales.

After the success of the retailer loyalty program, a similar program was launched
for plumbers across India. CERA has been conducting training workshops for many
years now imparting installation and product knowledge to plumbers. A new
program, where rewards are provided to plumbers who recommend and facilitate
the sale of CERA products is now active.

New product introduction is one of the most important growth levers for CERA.
During FY22, 72 new products were launched. The average number of products
launched historically used to be 100 annually. During FY23, 699 new products were

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 launched. With the sharp pickup in new designs and product launches in the last
two years, a considerable amount of resources have been deployed at the
manufacturing level and at the level of customer experience. During Q2 FY24,
substantial efforts have been made to ensure the product launches in the last 24
months penetrate deeper, do the dealer network and in consumer buying
decisions. It is very similar to the route adopted by most FMCG companies.

Our highest-ever advertising spend in FY23 of INR 57 crore at 3% of sales. The

budgeted publicity spend for FY24 is expected to be at INR 65 crore at similar
percentage of sales. Cera’s share of voice was lower than its share of market. And
now with the increase in advertising expense, the share of voice is getting closer to
its share of the market. Publicity spends, which were INR 4 crore in Q2 FY23, were
INR 15 crore in Q2 FY24, an increase of 375%.

Population centers of 17 lakhs and above, which are Tier 1 city, constitute 33% of
sales. Population centers of 3 lakhs to 17 lakhs Tier 2 cities came up with 22% of
sales and centers with population centers below 3 lakhs, which are Tier 3 cities were
at 45% of sales.

We can now go over the financials. Revenue from operations in Q2 FY24 were INR
462 crore versus INR 414 crore in Q2 FY23, an increase of 11%. EBITDA excluding
other income was INR 74 crore in Q2 FY24, vs. INR 66 crore in Q2 FY23, an increase
of 12%. The gross margin came in at 52.72% in Q2 FY24 against 55.78% in Q2 FY23.
Profit after tax was INR 57 crore in Q2 FY24 versus INR 51 crore in Q2 FY23, an
increase of 12% Y-o-Y. EPS for Q2 FY24 was INR 43.74 versus INR 38.99 in Q1 FY23.
For Q2 FY24, 51% of the topline was from Sanitaryware, 36% on Faucetware, and
tiles represented 11% and Wellness 2%. On a Y-o-Y basis, Sanitaryware revenues
registered an increase of 4%. Faucetware revenues increased by 16%. Tiles
increased by 34%, and well increased by 14%. The Sanitaryware and Faucetware
verticals remain the bedrock of the business with contribution of 87% to CERA's
overall revenues.

The classification of overall sales in Q2 FY24 was 43% in the premium category, 32%
in the mid-category and 25% in the entry category. Inventory days in Q2 FY24 was
72 days compared to 81 days in Q2 FY23. Receivable days in Q2 FY24 were 29 days
versus 26 days in Q2 FY23. Payable days in Q2 FY24 was 41 days against 36 days in
Q2 FY23. Therefore, net working capital days in Q2 FY24 was 60 days versus 71 days
in Q2 FY23.

In this quarter, the availability of product ensured there was no element of lost
sales. This is the tenth straight quarter with no element of lost sales. In the current
year, the capex budget, other than the brownfield faucetware expansion and the
proposed greenfield Sanitaryware capacity expansion program is at INR 35 crore,
of which INR 7 crore was spent in Q2 FY24.

As on September 30, 2023, our cash and cash equivalents stood at INR 751 crore
against INR 573 crore as on September 30, 2022, an increase of INR 179 crore or a

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 33% increase. Positive cash flow for Q2 FY24 has been INR 57 crore, as compared
to Q2 FY23, which was INR 50 crore.

In conclusion, I would like to say that due to the combination of internal factors
such as production, throughput maximization, brand salience and design
differentiation, as well as the sustained macros of home improvement, CERA will
be able to monetize all the growth drivers that present themselves.

I would now request the moderator to open up the line for Q&A. Thank you very
much.

Moderator: Thank you so much. The first question is from the line of Sangameswar Iyer from
Consilium Investments. Please go ahead.

Sangameswar Iyer: So what I was trying to understand is the demand scenario currently for both for
Faucetware and Sanitaryware. Given the macroeconomic situation where inflation
has gone up, your discretionary spend and consumer sentiment has gone down. So
can you help us understand, how do you see the demand scenario over the next 12
months?

Ayush Bagla: So thank you for the question, and it's a very important point that you have raised.
Most important, the Company and the sector has gotten used to the tailwinds of
the last 24 months. And at CERA, we knew that the tailwinds and market being so
buoyant are not a constant feature. So, from our end, there were certain building
blocks that were put into place. First of all, we make sure that we remain the B2C
focused Company. So, demand does not fluctuate so much in the B2C end and at
the same time, pricing power can truly be exhibited at the B2C end. So, the focus
was not project orders, which were generally all available, continue to be very, very
strong. We limit that to about 1/3 of our P&L annually. That's the first thing. Second,
new product introductions and new designs. So new product introductions on
features, functionality and aesthetics. Those were the things that dealers were
given a lot of training on, which they could explain to retailers and retailers to the
end consumer. So, the discussion was not only pricing, pricing, pricing. As far as
demand is concerned, we don't see any headwinds. We see consumers who have
been hit by inflation, maybe postponing their decision. But again, the markets have
come back again in October. The trends of October are very encouraging. There's
been a dramatic increase in topline again in October. So, I think, this is just a
question of seasonality. And though we have exhibited an 11%, 12% increase in
topline, it's from a very high base. So, this year's Q2 has been the best Q2 ever. Last
year's Q2 was also the best Q2 up till that point in time. So, we are dealing with a
very high base there. But the numbers on an absolute basis of INR 474 crore are an
excellent number to have with every engine of the Company firing - manufacturing,
Sanityware, Faucetware. And then tiles, you know there's been a dramatic shift in
the tiles. Though the tiles industry has reduced some pricing power due to
overcapacity, CERA's tiles have exhibited the reverse trend, and I'll give you some
more data to give you know add more colour to that. 41% of our tiles sales are on

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 GVT. GVT is the highest end of tiles. Only 3% of CERA's sales are soluble salt, which
is the commoditized tiles. Then double charge tiles, which are the most expensive,
long slabs with the full body, sometimes half body, again, expensive tiles are 15%
of sales and wall tiles are 25% of sales. So, the more expensive tile categories for
CERA are increasing. But at the same time, we want to limit that business to 10%,
12% of our topline. Otherwise, the easiest way to buy growth were three engines
to buy growth - increased project exposure, increased tiles sales, which is easy for
us to do because we don't have manufacturing capacity. We are a buyer and seller
of tiles. It's very easy for us to do that. And three, increase credit to consumers. So,
we have not been tempted by any of the three engines for growth.

Sangameswar Iyer: Right. As a follow-up, given that we have expanded the capacity for Faucetware,
can you again and in your commentary, you mentioned that now will be expanding
capacity to take care of growth for the next two years, three years. Can you just
give a flavour in terms of what kind of growth are you embedding here for the initial
take say, for the next two years to three years?

Ayush Bagla: See growth is available when the company was at 1,250 even there, there was a
question of growth, and we hit 1,440 then 1,800. So, till we reach 2,900, growth will
always be a challenge and it will not be linear. So, markets are not linear, and
companies grow, then topline increases is also not linear. So yes, capacity is now
available both on Sanitaryware and Faucetware. In Faucetware, the expansion
program is complete, and the plant can be expanded further as and when required
at minimal cost. So, I would say, for the next three years to six years, Faucetware
capacity is done and dusted. At the same time, for low-end Faucetware, our
outsource partners are very active and there is no dearth of Faucetware capacity in
the vendor ecosystem.

As far as Sanitaryware is concerned, we were operating at 115% capacity utilization.

But once we take certain adequate inventory level, we decided to tone it down to
91% this quarter. So even in Sanitaryware, though the new plant is still in the works,
there is adequate capacity available currently. And Sanitaryware, you know the
vendor ecosystem is not as well developed as the type of Faucetware vendor
ecosystem. At the same time, we are taking in a lot of products in-house. We are
moving the consumer to higher aesthetics, higher price points, changing the
product mix. That is the aim. So capacity was never a constraint except during the
brief period of COVID, let's say, 2020 and some part of 2021. Other than that, this
is a 10th straight quarter of no capacity constraint.

Sangameswar Iyer: Got it. And final question before I jump back to the queue. In the 11% revenue
growth, given the premiumization has moved up to 41% overall in your revenue,
how much has ASP blended in this improvement and how much is your volume
growth?

Ayush Bagla: See now volume growth is a secondary objective, distant secondary objective
versus product mix improvement. So now you'll ask me the next follow-up question

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 on how we were able to do that. We held prices for 17 months. We absorbed all
the raw material price increases; the labour cost increases and overall inflation in
the Company just by improving the product mix. So, ASP normally, because it's
sensitive data that can impact our competitiveness in the marketplace that is not
disclosed to the market. But ASP continues to go up every year. The range of
products that will also change and volume is not at all an objective currently.

Sangameswar Iyer: Okay. Thank you. I will come back in the queue.

Moderator: Thank you so much. The next question is from the line of Onkar Ghugardare from
Shree Investments. Please go ahead.

Onkar Ghugardare: Good morning. My question was regarding just now you mentioned that, till the
time you hit INR 2,900 crore, the growth will be not linear. I know at INR 2,900
crore, INR 3,000 crore, you will be hitting a certain size. But apart from that, what
would be the change that you are stating that, till that time the growth will be non-
linear and after that, it would be linear?

Ayush Bagla: So, the best way to look at it is, when it went up from 1,220 to 1,440, we hit about
19% to 20% growth, which was an outlier that time. Then from 1,440 to 1,780, that
was also a 25% growth, which is also an outlier. And this year, on a higher base, if
the percentage is, whatever, 16%, 17%, in absolute terms, it will be a great number
to have. Because to reach 2,880 by September '25, we have to do something around
2,500 by March '25, which is easily on track. But that journey will not be linear.

Onkar Ghugardare: Okay. But after hitting a certain size, you will be gaining certain advantages, right?
So can you articulate some of them? What can exactly change operating a certain
price?

Ayush Bagla: Yes. So first, let me start with Sanitaryware. We are the number one player in
Sanitaryware. We have pricing power. All other companies resort to price increases
to up their revenues. We have not done that. We are the only Company which has
held our price for 17 months, forcing other companies also to relook at their pricing
decision for the last 17 months. So, the market leader can do that, the second
largest player cannot do that. And of course, those further down the chain have to
increase their discounts, do other things and down-trade sometimes also because
their pricing is now out of tune with the market. So that's our way of consolidating
and staying ahead is Sanitaryware.

In Faucetware, we are the second largest player. But our incremental capacity is
1.5x our current capacity. So, we are capturing a larger share of the growth in the
market. And Faucetware is, where the opportunity lies simply because the
unorganized market is equal to the size of the organized market. And the overall
Faucetware market industry size is double the Sanitaryware market.

So those are the two things in place. Again, if you look at our catalogue, which is
there on the website, and physical catalogues are available with the Company, you

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 will see Black Matt, PVD, the kind of product introductions that have taken place,
the quality parameters, you can compare them with any of the Western European
or American brands, even in their geographies, and we are selling at a fraction of
their price.

So, the headroom to take price up and for the brand to grow, keep changing its
perception and move upwards in the consumer psyche is tremendous. You will see
our latest advertising reach. The positioning of the brand is completely different
from what it was earlier. It is an aspirational aesthetic brand appealing to a younger
audience. So those are the building blocks that we have put in place.

Onkar Ghugardare: Okay. Thank you. On a second question is on the Faucetware sales. You mentioned
that around 36%. So that is INR 170 crore approximate sales have come from
Faucetware. So, after the capacity expansion, what kind of incremental sales are
you looking at from that at 100% capacity?

Ayush Bagla: First of all, unlike a typical fertilizer or cement business, where capacity expansion
is directly linked to topline, there was no capacity constraints in Faucetware or
Sanitaryware for the last 10 quarters. So, there was enough outsourcing capacity
available. There was flexibility in the in-house infrastructure to keep on changing
the mix of SKUs being made at the shop floor. So topline growth will be a large
function of new product introductions and retailer, dealer and finally, the consumer
accepting these new products, new design at higher price points.

So let me give you some numbers. Last year, Faucetware was INR 611 crore, which
grew at 28%. This quarter, Faucetware was INR 164 crore, which grew at 16%. So
even if you take 16% or 20% of INR 611 crore, it will be closer to INR 750 crore for
the year-end.

And the industry is growing at single digit, and we are growing at 20%. So that is
exactly the phenomenon that's most important, who is capturing a higher share of
the incremental growth in the market? Are we taking from the only player larger
than us? Are we taking from those players behind us? That's the most important
aspects of this business rather than only capacity because capacity is one of the
ways to gain an advantage on cost and design and of course, quality. Then of course,
your, the sales and marketing team takes over, the brand perception takes over.

Moderator: Thank you so much. The next question is from the line of Sanjaya Satapathy from
Ampersand Capital. Please go ahead.

Sanjaya Satapathy: Yes. Sir, thanks a lot for the opportunity. So, you mentioned that October has been
much better. But at the same time, you keep referring to the high base restraining
your growth capability. So, net-net, what are we saying that is it like a 15% to 17%
annual basis is your sustainable growth and that is something which will pan out in
second half as well?

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Ayush Bagla: I would say that the best way to look at it is a medium-term growth target of
between 19% to 21%. Now some year will be an outlier, like last year was 25%. This
year might be 18%. So, within that band of 19% to 25% is where we would ideally
like to be, and some years will be outlier. But at the same time, the driver of that
growth will be new products and how the consumer accepts new designs. It will not
be manufactured in capacity alone. Yet lack of capacity can hurt growth, but having
capacity doesn't mean that whatever you produce will be sold.

Sanjaya Satapathy: Understood. And sir, my last question is that we are hearing about many new
players coming in, including Astral and others. And you also are trying to get into,
let's say, tiles and some of the other things. So net-net, in medium terms, how do
you perceive competition and where, what are new categories that you can really
get into?

Ayush Bagla: See, normally, on a call like this, we don't talk about other companies. But I mean,
you have studied this sector more than me. You will know how the new players,
pipes players and other tile companies have been struggling in Sanitaryware and
Faucetware. The numbers that they have shared with the markets, they are very
disappointing numbers. In fact, if you see our transcript from four quarters, five
quarters ago, I said that new players coming into the industry will be good for the
industry. But that has not prudent so because these new players in the race to bulk
up only approach project players and offer huge discounts. So that ruins their
brand. In this kind of short-term thinking, the industry has not benefited, the
consumer has not benefited and let these companies show their seriousness by
putting up a plant first because that is the first question that any consumer asks us,
where is your plant?

As far as CERA is concerned, we have no plans to get into any unrelated

diversification, even related diversification, if you want to call 'tiles’ that, it is a fully
outsourced trading business where we operate on zero inventory days, zero
inventory on our books and zero inventory kept in our warehouses.

So, our vendors dispatch directly to the market, and the market sells, and we don't
conform to the typical credit guidelines of the tiles industry. So, we have tried to
keep our receivable days dramatically lower than the norms in the tiles industry.
We don't sell soluble salt more than 3% of our overall ‘tiles’ revenue. Then ‘wall
tiles’, which also is more of a bulk item rather than a very specialty, very profitable
item, is limited. Our focus is large slabs, GVT and double charge full bodies. So, we
are in a very niche segment in tile. We don't want to be a very large tiles player. We
want to be a very profitable tiles player whereby, we limit our topline in tile by
remaining in a small part of the tiles industry. Other than that, Sanitaryware and
Faucetware are our only businesses.

Sanjaya Satapathy: Understood. Thanks a lot, sir.

Moderator: Thank you so much. The next question is from the line of Mithun Aswath from Kivah
Advisors. Please go ahead.

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Mithun Aswath: Yes. My question was you mentioned that your designs and products on the
Faucetware are world-class now. I just wanted to understand and you mentioned
that you sell it for a fraction of the price. Is there a potential outsourcing
opportunity that you see there using the know-how of CERA and exporting this in a
large way? Is that an opportunity that you, see?

Ayush Bagla: Yes, there is a huge opportunity, and we do have our export business. We sell to
almost 40 countries. But what we have not done is put up retail touch points in
those geographies with our own warehouse on our own books and kept inventory
in those markets, nor have we promoted the CERA brand in those markets. The way
we have currently been selling is, we have appointed agents and dealers in those
markets who open letters of credits on CERA. Once we get fully paid, only then we
export. So that's a very conservative way of exporting. But that's how we have
started the business. As it bulks up, yes, there will be a need to keep inventory in
those markets, keep our own sales staff and then, of course, promote the brand
aggressively in those markets. Yes, so the opportunity is very huge. There is a
significant cost advantage that we will continue to have in those markets. Now the
aim is to see how the brand does over time. But as far as outsourcing is concerned
on a white label basis, we have tried it a few times for one very, very high-end niche
brand in North America. But that is not really our business. So that is, from an R&D
experiment, it proved to be very interesting because we learned that we could
make SKUs which sell for a few thousand dollars. But at the same time, it didn't, it
wasn't our business to manufacture for someone else.

Mithun Aswath: Right. I'm just trying to understand, obviously, you mentioned the unorganized
market for faucets is large, you know headroom for growth in India itself is very big.
But do you have some aspiration to go beyond India as well once you cross that INR
3,000 crore revenue size and beyond? Is there some sort of target of a percentage
of revenues coming from exports?

Ayush Bagla: See, currently, that number is between 1% and 2% of sales, and this will continue
to increase even before we hit INR 3,000 crore in revenues. So yes, there is a plan.
There is an opportunity waiting both in Faucetware and in Sanitaryware. So, it is
now up to us how we take that forward. I'm sure, over the next two years, you will
hear a lot of new announcements of new geographies being entered and this 1% to
2% number also going up. But we are not waiting for any milestone of INR 3,000
crore to happen before we take up this opportunity.

Mithun Aswath: And the last question, your Sanitaryware plant, when it will be operational?

Ayush Bagla: See, the plant, the land acquisition will happen sometime in November and then
the approval. So, I would say that ground-breaking can happen any time after
March '24. So post ground-breaking about 18 months. But I mean, though we can
talk about it, and I'm happy to answer any question about the Sanityware plant,
that is not moving the needle. So, as you heard, we reduced our capacity utilization

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 from 115% to 91%. So, there is adequate capacity available even in the current
plant. So, capacity constraint is not there in the foreseeable future.

Mithun Aswath: Understood. But what is the reason then that you are looking for setting up this
plant? This is going to be, to take you to much higher levels in terms of revenue?

Ayush Bagla: See, this plant is looking at the next five years, 10 years, 15 years. It's a matter of
time where the industry size in Sanitaryware changes dramatically. So, the industry
size currently is too small. It will change dramatically as the consumers start
adopting a shorter life span for their products.

Mithun Aswath: Thank you and all the best, sir.

Ayush Bagla: Thank you.

Moderator: Thank you. The next question is from the line of Akash Shah from UTI Mutual Funds.
Please go ahead.

Akash Shah: Yes. Hi, Ayush, sir. Thank you for the opportunity. I just wanted to ask, what is the
sustainable growth rate that the Company can deliver in Sanitaryware segment?
The reason behind asking you this question is actually, we have seen about 6%
growth in Sanitaryware segment, and it contributes to around 52% of the topline.
So, what is the growth rate that we can deliver in Sanitaryware segment?

Ayush Bagla: So, Akash, you know this Company better than anyone else and you also know this
industry better than anyone else. The Sanitaryware industry historically has been
growing at 6% to 9%. And CERA has been growing at 2x, 2.5x that number. You'll
have to look at the Company over a period of time over a number of quarters. And
in isolation, one quarter growth number won't give you the correct picture or the
complete picture. So Sanitaryware will continue to grow for us anything between
12% to 17%. And this quarter, it grew by 4.5%. Last year, it grew by 27%. So, if you
equate this growth over any kind of period of 18 months, 24 months, that will give
you a more informed picture. But yes, 12% to 15%, 17% is definitely possible. And
we've achieved more than that over the last 36 months consistently, and we'll
achieve it in the balance two quarters of this year. October numbers are very, very
promising. And Q3, Q4 is historically the best two quarters for us every year. So,
you will see us achieve the same numbers on a 12-month basis.

Akash Shah: Sure, sir. Just two follow-ups. Sir, if you can share, what is the growth rate in
October month versus last year October month? And second is, you said 27%
growth in Sanitaryware segment. I could not pick that. What was it that you were
referring to?

Ayush Bagla: Last year's growth numbers. So, FY23 over FY22 was a growth of 27%.

Akash Shah: In Sanitaryware segment?

Ayush Bagla: That's right.

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Akash Shah: Okay. Understood. Sir, but that also included some element of price hikes primarily
because...

Ayush Bagla: Yes. Which is a normal phenomenon every year for the last 40 years. How else will
you look at revenues?

Akash Shah: Right. Okay. Sure. Understood. And sorry if you can share October month's growth
rate?

Ayush Bagla: See, that is not possible. Akash, you know better than me, that is not possible.

Akash Shah: Sure. No problem, sir. Thank you so much, sir.

Ayush Bagla: Thank you.

Moderator: Thank you. The next question is from the line of Hrishikesh Bhagat from Kotak
Mutual Funds. Please go ahead.

Hrishikesh Bhagat: Hi, good morning. Thank you for the opportunity. My first question is in the starting
comments, you did spoke about the gross margin band. If you can repeat that, that
will be helpful?

Ayush Bagla: See, I’l give you the gross margin numbers for the last many years.

Hrishikesh Bhagat: You spoke about the band, it will about 48% to 52% or 48% to 55%, and I wanted
that.

Ayush Bagla: I have the gross margin numbers for every quarter from 2020 to now. In 2020, the
gross margin was between 42% to 49%. So, FY21, between the four quarters, the
variation was from 42% to 49%. FY22, it was between 51% and 56%. FY23, it was
between 53% and 56%. And FY24, the lowest is 53%, the highest is 55%.

Hrishikesh Bhagat: So is this also a function of how your Sanitaryware and Faucetware mix change or
incremental sales basis, I'm asking. Just wanted colour on that?

Ayush Bagla: And with no price increases, so this is a unique year of Q1 in Q2 of this year is a
unique year. Normally, every March and every October, there is a compulsory price
increase. So, this is a unique year, where we've said that we will not increase prices.
We'll gain market share. We'll establish our dominance in Sanitaryware. We got a
lot of extra room in Faucetware. And at the same time, just by operational
efficiencies in shop floor yield increases, we will try and keep our gross margin as
close to the previous year as possible.

Hrishikesh Bhagat: Ayush, the other question is fairly on the shorter time frame now. I do understand
to the initial participant, you spoke about the medium-term guidance of moving
between and growing, aspiring to grow between 18% to 25% or 19% to 25%. Now
also in the start comments, you did mention that first half had the impact of high
base, which I do appreciate that. But effectively, when I look at the second half of

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 this fiscal, rather second half of FY23, we are looking at fairly much higher base
effectively from the growth perspective. Then effectively, do you feel that the
growth should moderate at least for FY24 and before we start kicking in the aspired
growth from FY25 onwards?

Ayush Bagla: No. In fact, the growth is accelerating. So, because of the high base effect, the
percentage might be decreasing.

Hrishikesh Bhagat: I am talking about percentage only. Okay, absolute, yes.

Ayush Bagla: On an absolute number basis, the growth is very health.

Hrishikesh Bhagat: Yes. I meant up on percentage, what I meant to discuss...

Ayush Bagla: Percentage again, our requirement is a linear growth of 19% to get to our stated
objective. Last year, we got 27%. This year, even if we get close to 17%, we are fine.

Moderator: Thank you so much. The next question is from the line of Namita Dige, who's an
individual investor. Please go ahead.

Namita Dige: I wanted to understand in the value chain, what is the kind of margins that dealers
and retailers make from CERA products? And the second question is that there is a
Perito, which is that Top 500 dealers contribute to 80% of the revenue. So, when
you look at this statement, how do you think about it? Is there any plan to make
the sales more granular in terms of larger base of dealers accounting for growth in
revenue? Thanks.

Ayush Bagla: So Top 100 dealers are 42% of sales.

Namita Dige: Right. And 500?

Rahul Agarwal: 77% of sales.

Namita Dige: Right. 500-plus dealers.

Ayush Bagla: So that is very, these are the dealers who have made maximum investments in the
brand. They have spent crores in working capital. They have spent crores in
receivable financing. They spent crores in putting up a very large infrastructure, of
showrooms, three-wheelers, four-wheelers, salespeople, developing clients. So,
they read the benefits accordingly.

Namita Dige: Okay. I mean so then, I mean then as a Company, I wouldn't invest in being more
dealers, right? I would just like to make the 500 bigger and stronger to increase my
growth?

Ayush Bagla: That's right. But with one addition. Suppose a large cement dealer approaches us
or a large plywood dealer approaches us, that I have this ready infrastructure of 30
salesmen, 10 three-wheelers, 5 four-wheelers and 11 showrooms, what I can do

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 with you? Then we will present to them a fantastic opportunity of leveraging all
that infrastructure into a new business of Sanityware and Faucetware. Because he
doesn't have to be taught that business. He knows exactly what it takes. So, the
new dealer acquisition of substantial size will be from adjacencies, and adjacencies
could be as far away as cement and plywood.

Namita Dige: Just my first question is not answered, which is margin for retailer and dealer?

Ayush Bagla: I'll give you that. So typically, the MRP is, let's say, INR 100, and the Company
transacts with a dealer above INR 70. And the dealer, in most cases, transacts with
the retailer above INR 77, INR 78. Then the retailer keeps some margins for himself
and shares some margin with the consumer.

Namita Dige: Okay. Okay. So 70, 77 and then MRP is INR 100. Okay, got it. Thank you.

Ayush Bagla: Yes.

Moderator: Thank you so much. The next question is from the line of Lokesh Maru from Nippon
India Mutual Fund. Please go ahead.

Lokesh Maru: Sir, just one question on, we have been able to contain our fixed expenses, like the
operating expenses and the employee costs. So just wanted to understand what
goes into (inaudible 0:52:37) 5%-odd. So many operating cycle or number of
employees have changed? Or how does it work? How have we been able to manage
this?

Ayush Bagla: So Lokesh, some of the voice was muffled. But what I understood was you're asking
about R&D expense and how it gives us an edge in the marketplace. So, I'll give you
some color on that. R&D expense, we have R&D department with senior personnel.
It is recognized by the Government of India as a center of excellence. Now we have
more than 20 people, and this R&D center is fully funded. They come up with new
design. Their new innovation as far as flushing systems in Sanitaryware is
concerned, rimless design and the outside straight-line aesthetics that are
preferred by most consumers in Sanitaryware currently. That provides us a huge
edge in design and aesthetic in the marketplace. So, R&D, yes, though you might
say that nothing dramatic has changed in Sanitaryware manufacturing in the last
many years. But yes, as far as prototyping is concerned, 3D printing, CAD/CAM
designs, all those things have been implemented in the Company for many years.

As far as Faucetware is concerned, because you're dealing with a more robust raw
material like a metal, there is machining and CNC work, and robotics have
completely taken over the entire manufacturing process. So yes, R&D spends, and
automation have dramatically helped quality upgradation for the products.

Lokesh Maru: So, on employee expenses and fixed costs, we have been able to manage and
contain this cost very well for the first half and for the quarter. Like for example,
our employee expenses have gone up by just 5%, right? So, wanted to understand

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 how were we able to put a check on expenses, which usually would arise on the
order of 10% and 20%, right? So, any colour on that?

Ayush Bagla: Yes, please. And the shop floor level yields have gone up dramatically, which more
than negate, which dramatically, in fact, beat the inflation of wages. So, wages is a
very large component of employee expenses. And the fixed portion is one
component. The variable component is, of course, linked directly to output. So that,
there is a variable component that doesn't worry us so much. The fixed component,
we have to beat each year with increase in yields and throughput in the factory and
also changes in the mix. So that is why the Company thinking was completely
reoriented. And price hike is not the lever for growth was the new way of thinking.
And we've achieved that over the last 17 months.

Moderator: Thank you so much. Ladies and gentlemen, we would take that as our last question.
I would now like to hand the conference over to the management for closing
comments.

Ayush Bagla: Thank you everyone, for attending this call and for showing interest in CERA
Sanitaryware Limited. CERA remains positive that its strong positioning in the
industry, overall economic growth would help it deliver steady and consistent
growth going forward. Should you need any further clarification or would like to
know more about the Company, please feel free to reach out to me or CDR India.
Thank you once again for taking time to join the call. Thank you.

Moderator: Thank you. On behalf of CERA Sanitaryware Limited, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines.

Disclaimer: This is a transcription and may contain transcription errors. The transcript has
been edited for clarity. The Company takes no responsibility of such errors, although an
effort has been made to ensure high level of accuracy.

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