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Better outlook; maintain Buy
* Kajaria Ceramics’ Q4 operating performance was below estimates, with EBITDA at Rs1.2bn vs. Rs1.3bn estimate and OPM at 15.1% vs. 16.3% estimate. The sequential decline in OPM was led by higher sales from JVs/Outsourcing.
* Sales volume of Tiles was up 11.2% yoy (12.2% in FY19). Blended realization was down 3.3% yoy. Gross margin declined 2.3pp yoy/1.9pp qoq despite lower gas prices, which in turn led to 93bps yoy/85bps qoq decline in OPM.
* Management sounded optimistic on volume growth in FY20 and expected growth to be 15% in FY20. Price hikes of 4-6% in Wall tiles in few markets in Apr-19, and expectations of further price hikes in Q2FY20 should help improvement in margins.
* We largely maintain our FY20/21 estimates and expect organized players to benefit from the challenges faced by Morbi-based unorganized players due to the coal gasifier ban. We maintain Buy with a target price of Rs661 (28x FY21E EPS).
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