Managing
business
uncertainties
Risk is the face of business uncertainty, affecting corporate performance
and prospects.
As a diversified enterprise, Kajaria had a system-based approach to
business risk management. Its risk mitigation framework comprises
a study of emerging business trends, framing policies and strategies,
structured reporting and control. The disciplined approach coupled
with timely execution of proactive counter-measures strengthened our
viability across verticals, products, geographies and market cycles.
Risk mitigation
Despite the persisting
economic slowdown and
a sluggish housing sector
over the last three years, the
demand for tiles registered
healthy growth– a trend, which
is expected to continue over
the coming years as aspiration,
affordability and availability of
the average Indian continues
to scale northward. Moreover,
the investment-favouring
government policies are
expected to provide a thrust
to the housing sector which
could cascade into a stronger
demand for tiles.
Industry risk
The economic slowdown
may force the average
Indian to curtail expenses
–impacting the demand
for tiles.
Risk mitigation
The increase in energy bill
is a factor which impacts
all players of the Indian tile
industry and Kajaria is no
exception. Despite a two-fold
increase in RLNG prices over
the last five years coupled with
a sharp depreciation of the
rupee during the same period,
(increases the gas price to
the purchaser) the Company
sustained its operating margins
due to the following reasons:
Increased the proportion of
value added tiles in its sales
mix
Customers have accepted
to pay some part of the
cost increase due to the
unparalleled value-proposition
provided by Kajaria
Implemented numerous
small and critical process
improvements which optimised
consumption of gas eliminated
wastages which reduced the
cost increase
Fuel risk
Increased gas prices,
coupled with a weak
Indian rupee, could eat
into business margins.
Risk mitigation
While the rupee depreciation
will result in increased cost
(primarily fuel) and lower
margins, it will also make
imports unviable. Thus, the
industry can pass on this price
hike in the absence of imports.
Rupee depreciation risk
Depreciation of the rupee
could hamper business
profitability.
Risk mitigation
This risk is applicable for all
the players of the domestic
tile industry. For a clear
understanding, it would be
relevant to understand the
various risk elements:
Imports:
The depreciating
rupee has made imports
expensive, hence imported
volumes have dropped.
Further, the organised sector
has developed capabilities
to offer reasonably-priced,
internationally-benchmarked
products, which reduced
the relevance of imports
significantly.
Organised sector:
Kajaria is the
brand leader in the organised
sector; this position has been
retained due to its ability to
create niche products (prints
and sizes) and stunning designs
– some of which are first-time
launches in the Indian market.
This creative ability has etched
a unique recall of being a
product conceptualiser among
discerning customers allowing
it to earn a premium over
competing products.
Unorganised sector:
The
recent Government order to
ban the use of coal gas by some
of the unorganised players
will marginalise competition.
Besides, increasing disposable
income has fueled branded
aspirations. The wide and
deep distribution networks of
organised sector players have
increased branded product
availability.
Competition risk
Increased attraction to
India, the fast-growing,
third largest global tile
market could impact the
Company’s performance.
29
Annual Report 2013-14
