Kajaria Ceramics Ltd Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Shaleen Kumar - Ubs Inc - Analyst : Am I audible?

Question: Shaleen Kumar - Ubs Inc - Analyst : Yeah. Can we talk a little bit more -- LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Shaleen Kumar - Ubs Inc - Analyst : (spoken in foreign language)

Question: Shaleen Kumar - Ubs Inc - Analyst : Sure. Can we speak a little bit in detail exactly what happened and like how this thing has -- like what lead to it and what exactly -- what the nature of, you know, (inaudible) misappropriation of what has happened. Can we speak a little bit in detail? And what was the basic reason behind it?

Question: Shaleen Kumar - Ubs Inc - Analyst : Two questions. So using the process which you have in Kajaria was not there. So what process was there? And what issue did you find? Like you said, you found some issues, some discrepancy. Can you elaborate on that?

Question: Shaleen Kumar - Ubs Inc - Analyst : So what exactly, sir?

Question: Shaleen Kumar - Ubs Inc - Analyst : What was the vendor? So there was a -- what vendor was, like -- is it a wrong vendor? What exactly has happened, sir? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Shaleen Kumar - Ubs Inc - Analyst : Okay, so it's a vendor fraud.

Question: Shaleen Kumar - Ubs Inc - Analyst : It's a fake vendor you're saying to siphon the funds.

Question: Shaleen Kumar - Ubs Inc - Analyst : And so how confident are we that this cannot be repeated? Like you mentioned a few things, but will that sound completely -- I'd say that the concept is to replace here. Will it make sure that nothing happens again in this?

Question: Shaleen Kumar - Ubs Inc - Analyst : What's the view on this amount? Do you think if you can get back anything or how are you going to treat it in the financials?

Question: Shaleen Kumar - Ubs Inc - Analyst : Treated in the financials.

Question: Shaleen Kumar - Ubs Inc - Analyst : And any chances of recovery of any?

Question: Sneha Talreja - Nuvama Wealth Management Ltd. - Analyst : Hi, thanks for the opportunity. Just a couple of questions from my end. Firstly, how long has this employee been with you all? That's first. So that we can get to know how -- what could have been the severity and how long this incident must have happened, although you mentioned that incident is from two years, but we still would want to know that.

Question: Sneha Talreja - Nuvama Wealth Management Ltd. - Analyst :

Question: Sneha Talreja - Nuvama Wealth Management Ltd. - Analyst : Secondly, this division is actually a very small segment for you all in the overall scheme of things. You know, we only make about less than INR400-odd crores in revenues, and we've been making only about 4% margin last year in this business. So really, overall, small in scheme of things, and INR20-odd crores on that particular amount is a big number.

Question: Sneha Talreja - Nuvama Wealth Management Ltd. - Analyst : You mean in the form of all investments which is getting into place?

Question: Sneha Talreja - Nuvama Wealth Management Ltd. - Analyst : You mean in the form of investments which were going into the entire CapEx. This thing happened, so the CapEx number was big in overalls?

Question: Sneha Talreja - Nuvama Wealth Management Ltd. - Analyst : Lastly, you also have a 15% private equity stakeholder in this, which is Westbridge. Any involvement from them or what's their understanding or their comments on the situation?

Question: Sneha Talreja - Nuvama Wealth Management Ltd. - Analyst : So what has been their day-to-day -- I mean, what has been the involvement otherwise in the day-to-day operations or in the Board meetings or the same?

Question: Ritesh Shah - Investec Bank PLC - Analyst : Sir, no questions. All questions answered. Thank you so much.

Question: Praveen Sahay - Prabhudas Lilladher Pvt Ltd - Analyst : Yeah, thank you for the opportunity. So just a clarification that this is related to the working progress CWIP? Or is it just CapEx you have done to the new plant?

Question: Praveen Sahay - Prabhudas Lilladher Pvt Ltd - Analyst : So once you have said that's related to the CWIP that is related to the vendor. And again, in the last question, you have said that's a new plant you had put in. So is it related to the CapEx of the new plant? Or is it related to the CWIP related to the vendor?

Question: Praveen Sahay - Prabhudas Lilladher Pvt Ltd - Analyst : Okay, okay, okay. And is there any insurance related to that, if that is a part of a CapEx? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Praveen Sahay - Prabhudas Lilladher Pvt Ltd - Analyst : Okay. Yeah, thank you. That's it, sir.

Question: Rajesh Ravi - HDFC Securities Ltd - Analyst : Hi, sir. My question pertains to, again, the same. You mentioned that the recoverability seems to be quite difficult, and also you mentioned that most of the siphoning would have happened predominantly in the past four to five months, right? So -- and most of the siphoning would have happened through, you know, some business account of the (inaudible) right? So just want to understand, you know, where would the money would have subsequently been sent out, because this is a considerable amount. So why is there --

Question: Rajesh Ravi - HDFC Securities Ltd - Analyst : Okay, and what you mentioned is, if I heard it correct, that most of the siphoning has happened in this financial year itself?

Question: Rajesh Ravi - HDFC Securities Ltd - Analyst : Okay. Great. And lastly, you mentioned that three, four more months would be needed to complete the onboarding process for all the vendors, or is it already been done and this three to four month additional is for something else?

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Yeah, hi, good morning. [Thanks] for the opportunity. I just wanted to clarify a few things. We are referring to the balance sheet of Global Private Limited, is that correct? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Okay, if I look at that, March 31, the capital work in progress number was about INR8.5 crores. Is this number correct?

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Okay, so I just wanted to clarify the estimation of overall payments which were made on account of CWIP was about INR20 crores. That's an estimate as of now and that number could be lower when the inquiry is basically complete. Is this understanding correct?

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Okay. So if my understanding is correct, this INR20 crores was a payment made from Garvit Global's balance sheet to a vendor who essentially was a self-payment to the CFO, and hence, this entire transaction has to get reversed. Whatever recoveries happen, to that extent, the CWIP will get canceled as per the auditor new accounting, and then the balance will be written off in the subsidiary PIS. Is that correct?

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Against the network of Garvit Global. Is that correct?

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Okay. Perfect. And just lastly, because this was part of the CapEx, and this CapEx actually hasn't really happened, would we need to complete CapEx at the sanitary [ware] plant, or is it largely done and this was over and above? You know, this was not really necessary -- LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Rishab Bothra - Anand Rathi Financial Services Ltd - Analyst : Just wanted to understand (inaudible).

Question: Rishab Bothra - Anand Rathi Financial Services Ltd - Analyst : Is it better now?

Question: Rishab Bothra - Anand Rathi Financial Services Ltd - Analyst : So I was saying that I'll step to backward and understand whenever there is a CapEx program and apply. So is there any person other than the CFO, either from the procurement team or the inventory team? Because whenever the inventory (inaudible) coming into the system against which payments are made. So how come without inventory coming into the system, payments have been made to the supplier? And is it a single supplier fraud or a multiple supplier fraud? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Rishab Bothra - Anand Rathi Financial Services Ltd - Analyst : So he paid as advance. Got it.

Question: Rajesh Ravi - HDFC Securities Ltd - Analyst : Yeah, just a follow-up question. This INR20 crore, which was all in CWIP, as you mentioned, this was advanced payment towards purchase of some machinery. So I just wanted to understand, given that most of the CapEx was already done, so this did not raise red flags immediately when this being INR20 crore and what is the quantum of the total CapEx which was done in this subsidiary? And what could have taken such delays to identify this? This is commendable that you could have identify this and bring it to notice of everyone and do the procedural thing of raising it with the filing a complaint.

Question: Rajesh Ravi - HDFC Securities Ltd - Analyst : And when the CapEx was already over and incremental INR14 crore, advance payout in this financial year, if I understand correct -- and that would be the only CapEx or advance related to this expansion, which would have gone through this financial year?

Question: Rajesh Ravi - HDFC Securities Ltd - Analyst : Okay, and just to understand the technicalities because this is into a subsidiary which doesn't have its own large network, most of the payment for such advance payment, the money would be coming in through standard loan, the parent company? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Rajesh Ravi - HDFC Securities Ltd - Analyst : Okay, okay. So there was no technical approval or any automated approval in the online system, which would have been requiring authorization from the parent CFO?

Question: Rajesh Ravi - HDFC Securities Ltd - Analyst : Okay. Sir, and last question, the initial remark when you all mentioned that you have saved the project, you know, 2.0 which is undergoing INR100 crore savings. So could you just quantify under what heads how much savings have been accrued?

Question: Rishab Bothra - Anand Rathi Financial Services Ltd - Analyst : Okay. And what portion of these costs are recurring in nature in terms of which will continue to remain, which need not be re-incurred in subsequent year as you would also be targeting growth?

Question: Rishab Bothra - Anand Rathi Financial Services Ltd - Analyst : And so the operation (inaudible) LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Rishab Bothra - Anand Rathi Financial Services Ltd - Analyst : And so this INR150 crore run rate has been achieved in both Q1 and Q2. Is that understanding correct?

Question: Rishab Bothra - Anand Rathi Financial Services Ltd - Analyst : So what I wanted to understand this INR40, INR50 crore quarterly savings run rate given the annualized INR150 crore savings, how much of that is already in place? I'm just trying to understand H2 versus H1, what sort of cost saving number will be there?