Q2 recovery masks Q1 disruption; growth capped by cost inflation

₹399.0 Cr revenue; 10.9% NPM delivered; YoY baseline unavailable

16.4% OPM and price hikes of 14% in Q1 + 3%-3.5% in Q2 confirmed on call

Delivered 10.9% NPM in Q2, above claimed floor

H1 FY27 mix: 82% GVT, 9% PVT, 8% ceramic vs H1 FY26: 75% GVT, 14% PVT, 11% ceramic

Stated as fact on call for H1; Q2 component not isolated

Took 17% cumulative price hike (14% Q1 + 3.5% Q2); 3% leeway remains

H1 FY27 vs H1 FY26: PVT -5pp, ceramic -3pp. Margin accretion from product mix of ~3.5%, supporting OPM 16.4%.

INR 17 crores difference at PAT level in first half. One-off accounting shift; does not reflect operational change.

Northeast plant ramping ahead of pace (Q4 targeting 85-87% vs earlier 75%). Morbi base stable at 72-76%.

No large capex plan despite 50.6 MSM capacity. Management cites industry headwinds (10-11 Morbi plants shut); conservative posture vs. earlier potential Northeast-plus-expansion rumors.

Within GVT, normal contribution still around 72-75%. Product mix new GVT started recently, only reached 25% so far; within that, high-margin sizes (4x2 to 6x4 feet) grew from that to 6x4 & 8x4. This mix improvement, plus utilization gain from 89% in Q2, support margins.

Peak can reach 92-93%. In next year, will improve to 80-85%. Growth will come by improving utilization (not capex).

Northeast has GST, CGST, SGST benefit. Freight INR 120/meter vs INR 2-3 locally. Plant just started—exact numbers difficult right now. Better margins than Morbi, but plant just started, so giving exact numbers right now is difficult. After Q3, will give better numbers.

If exports revive from here, then 15% value + 10% volume growth. Will try outperform industry by 2-3% if industry grows 2%.

Average price hike is 17% in H1. Input cost improved 14% (i.e., rose 14-15% vs price hikes); have 2-3% leeway. If small price increase, no need to hike. If large multi-month increase, will do another hike.

Freight was declining. US freight was 7,000-7,500 earlier, now 5,500 this month. Availability improving. Not everything available, but yes, situation improved a bit now. From next month onwards, freight will be much lower, availability also better.

No large capex announced. IST plant has one continuous press already. In other plants, no capex plan right now.

Bathware 10%, expecting 10-12% going forward. Not a very large plan—focus remains on tiles. If opportunity, will explore faucets (outsourced now). Sanitaryware in-house. Not expecting very large growth. Focus, strength in tiles.

IST is 100% replica of natural marble (vs. normal GVT where print is on top). If polish, vein visible underneath. Natural marble starts INR 4,000-6,000/sqft; IST starts INR 300, reaches INR 500-600 for consumer. Better product than marble, first in India.

PVT and ceramic mostly outsourced. GVT and big sizes in-house. Do not promote outsourcing—we outsource where margins low. Backup for low-margin sources.

East plant started; ~6.4 MSM capacity added next year. From East plant two sizes going to North Bengal, UP, Bihar. Rest large GVT, PVT, ceramics from Morbi. Northeast at 12-13%, improving next year.

Assumes export recovery by Q4 and 2-3% outperformance vs industry growth. Vague on absolute FY27 revenue target; only ambition stated. Excludes capex-driven volume.

Tied to GVT mix expansion (already 82%), utilization gains (targeting 80-85%), and product mix within GVT (high-value sizes). H1 disrupted by Q1 fuel crisis; H2 seasonal uplift expected.

Northeast plant (under execution) will add 6.4 MSM capacity in FY28. Morbi base at 50.6 MSM; no further expansion planned. Growth via utilization, not capacity.

Gas prices at INR 92/SCM; input costs rose 14-15% in H1. Management took 17% price hike leaving 2-3% buffer. If gas spikes again (e.g., geopolitical shock), pricing power limited without volume loss.

Exports down 18% H1, 22% Q2 due to freight costs (INR 120/meter premium to East plant) and container scarcity. While freight improving (US freight 7,500 → 5,500), availability still constrained. If shipping disruptions persist (e.g., Suez crisis repeat), exports remain weak.

Northeast plant started Q4 at 50% utilization; management targeting 75% by Q3, 85-87% by Q4. Tight timeline; new plant risks (product quality, market acceptance, logistics to distant regions). If ramp misses, margin benefit deferred and growth target at risk.

10-11 Morbi competitors' plants have shut down, reducing supply. However, industry still has 3-4 new lines coming online in PVT/ceramics. If large competitors consolidate, they may dump capacity at low prices to capture share, offsetting Varmora's pricing power.

Company divested Simola (subsidiary), losing ~₹20 million in annual revenue. East plant must ramp to offset. If East ramp slower than expected, net revenue growth lags FY27 target.