H. & R. JOHNSON ( INDIA) LTD.

Commercial Paper Programme PR 1

CARE has assigned a "PR1" [PR One] rating to Commercial Paper (CP) programme of H. & R. Johnson (India) Ltd. for an amount upto Rs.50 crore, for a maturity of upto one year. The Commercial Paper would be a standalone instrument and not carved out of the existing tied-up working capital facilities of the company. The rating derives strength from the experienced and professional management, market leadership position in ceramic tile industry, presence in all segments of tiles and sanitary ware, pan India presence, robust growth in turnover and positive outlook for ceramic tile industry. The rating is, however, constrained by declining trend of profitability due increased competition from organised and unorganised sector and dumping from China, low profitability margins, moderate gearing levels and high repayment of borrowings falling due within next two years. Company Background H. & R. Johnson (India) Ltd. (HRJ) was established as a joint venture in 1958 with Johnson Ceramics International, UK holding 40% and the Indian Promoters - Pedder family holding 60%. Mr Rajan Raheja bought stake of Peddar family in September 1993. Mr. Rajan Raheja increased its equity stake to 77.78% in the company by way of subscribing to two rights issues. As on March 31, 2006 the equity capital holding stands at Raheja's - 77.78% and Johnson Ceramics International, UK - 22.22%. The company is professionally managed with qualified and experienced personnel in charge of key functional areas. The day-to-day affairs of the company are managed by the Mr. Vijay Agarwal, Managing Director. HRJ is one of the leading tile manufacturing companies in India, engaged in the business of production and marketing of ceramic tiles and sanitary ware. Operations of the Company HRJ was incorporated in 1958. The company is operating since the inception of tiles industry in the

country and presently enjoys the leadership position with its presence in almost all segments of the market. The company has a market share of about 29% in organised segment and 16% of overall tile market. HRJ is India's largest tile manufacturer with a installed capacity of 34,2720 MT and has modern machinery at the manufacturing plants located at Dewas (MP), Pen (MS), Kunigal (KA) and Karaikal (Pondicherry). All the plants are ISO compliant with both 9001, 14001 certifications as well as OHSAS 18001. The capacity utilisation has risen from around 67% in 2003-04 to 80% in 2005-06. The company has made investment to the tune of Rs. 200 Cr during FY'05 and FY'06 to enhance its production capacity from 282720 mt in FY'03 to 342720 mt in FY'06 as well as setting up new unit at Rajasthan. The company has adopted the policy to concentrate on premium products which have better margins as compared to the commercial and economical products. Thus the company produces only premium and upper range of commercial products while it out- sources economical and commercial products to its dedicated suppliers and joint ventures. HRJ has entered in JV with the two firms. Antique Granito, located in Morbi cluster (Gujarat), helps the company to increase its presence in Northern region. Sentini Ceramica located at Vijaywada is a producer of commercial and economic segment tiles. The products are sold under the name of various brands of HRJ and are not produced by the company at any of its own plants. HRJ has various brands catering to different market segments. Marbonite (Vitrified tile) premium category and Porselano are being manufactured by the company. Sanitary wares and CP fittings are being traded by the company under the brand Milano. The ceramic and vitrified tiles manufactured by the JV's and outsourcing partners, catering to commercial and economic

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segment, which are sold under the brand name of Johnson tiles & Marbonite respectively. Raw material which contributed to about 40% of total expenditure during FY'06, is procured domestically from regions of Gujarat and Rajasthan. Availability of raw materials is not a concern for the company as it is available abundantly. The company uses Natural Gas and LPG as main source of energy. It also uses nonconventional sources to meet its requirement and keep control on fuel and power cost. Most of its power requirement is met by State electricity boards. The company has largest distribution network comprising 1462 dealers and 15000 sub-dealers spread across the country. Company also has 22 branches and warehouses which help them service the customer efficiently. HRJ has 18 display centres spread across India where various products along with different designs and patterns are exhibited to customers. HRJ is also total tiles solution provider. The company helps its customers to select products various designs and sizes, supervises the tiling work on request of customer and has a dedicated team for rectification and repair work as a value added service. Financial Performance HRJ has recorded high sales turnover of Rs 713 Cr in FY'06 (provisional) (an increase of 27% Y-o-Y basis) mainly on account of expansions undertaken at its main plants over the last two years and substantial increase in traded goods (products of joint ventures and outsourcing partners). The high growth during FY'06 was also aided by increase in demand from construction sector, hotel industry and growth in IT & ITES infrastructure. However PBILDT and PAT has decreased by 7% and 11% respectively during FY'06 as compared to FY'05 because of substantial increase in selling expenses and marginal increase in power and fuel costs due to limited supplies of natural gas for its plants. HRJ's gearing ratio as on March 31, 2006 was 2.24 due to increase in loans for expansion and increased working capital requirements. Current ratio has decreased over the period from 1.16 as on March 31, 2003 to 0.78 as on March 31, 2006 because the company has been raising substantial short term debt to meet its working capital requirements. Interest coverage was comfortable at 2.16 for FY'06.

Financial Results (Rs. Crore) Year ended / As on March 31, Working Results Net Sales* PBILDT Depreciation Interest PBT PAT Net cash accruals Financial Position Total capital employed Tangible net worth Key Ratios 2003 2004 2005 2006 (Prov.)

372 86 24 28 34 22 57 411 95

414 93 24 17 52 33 107 500 93

518 84 27 19 38 19 68 523 113

713 78 30 22 26 17 50 590 133

Growth (%) Increase in Net Sale Increase in PBILDT Increase in PAT Profitability (%) PBILDT margin PAT margin RoCE Solvency Long Term Debt/Equity ratio Overall gearing ratio Interest coverage ratio Short Term Current ratio Average inventory holding period (days) Turnover Working capital turnover ratio Capital turnover ratio * including traded goods

16 14 29 24 7 16

10 9 50 23 8 23

20 -10 -42 19 7 12

27 -7 -11 16 4 9

1.65 2.10 2.21 1.16 131

1.63 2.08 4.06 1.25 120

1.5 2.20 3.04 0.96 99

1.82 2.24 2.18 0.78 83

4.14 0.92

4.31 0.96

4.34 0.95

4.03 0.96

During FY'06, the company had Sanctioned Fund based limit of Rs 94.69 Cr from its consortium of banks. The company's average utilisation of fund based limit was 65% for last twelve months with maximum utilisation of 72% in September 2005. The company has applied for an increase in fund based limit to Rs 115 Cr with its banks.

CREDIT ANALYSIS & RESEARCH LIMITED

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INDUSTRY REVIEW AND OUTLOOK The size of the domestic ceramic tile industry is estimated to be Rs.4500 crore. The industry has grown at a rate of 12% in the past three years and estimated to grow at around 15% backed by increased demand from housing sector, retail sector and IT- ITES sector. The share of organized sector in the industry is presen tly about 56% with Rs.2500 crore in turnover and the remaining 44% is accounted by the unorganized sector with Rs.2000 crore in turnover. For Further details please contact at :

The tile industry is facing dumping problems from china. The margins are under pressure due to increased competition from unorganised sector and increase in fuel and freight cost. The excise duty laid on the raw material is 12% while the import duty on tiles imported is 6%; and this has resulted in continuous fall in selling prices. However with bullish growth estimates of main growth drivers of the tile industry i.e. housing sector, retail sector and IT- ITES sector; the industry is expected to do well. June 2006

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