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Expect 12% volume growth, Upgrade to ADD

Result Synopsis

Kajaria Ceramics Ltd (KJC), reported decent volume growth of 10%YoY & 8%QoQ to 28.02msm (2-year CAGR stood at 2%). Own-manufacturing (54% of vols) grew by 5%YoY & 9%QoQ, JVs (22% of vols) increased by 62%YoY & 17%QoQ. Outsourcing vols (24% of vols) registered a decline of 13%YoY & a growth of 8%QoQ. In terms of revenue, tiles (90% of total revenue) reported a growth of 8%YoY & 10%QoQ, Sanitaryware biz registered a growth of 9%YoY & 14%QoQ, Plywood biz remained flattish sequentially & declined marginally by 2%YoY. P&F cost came in at 20% as %sales Vs 26% in previous quarter & 21% in Q4FY22 owing to fall in gas prices which stood at Rs45-46/scm for the quarter. This enabled KJC to expand their EBITDA margins from 12% previous quarter to 15% in Q4FY23

Management was optimistic on overall demand & expects to grow volumes/value by 13-15%/14-16% in FY24 on the back of strong industry tailwinds coupled with company’s expansion in Tier II&III cities & shift in demand from unorganized to organized segment. In order to cater the demand, KJC will incur annual capex of Rs2.5Bn. On margins, company guided for a 14-16% EBITDA margins for coming fiscal.

We reckon, KJCs volumes to grow at a CAGR of 12% over FY23-FY25E & revenue to report a growth of 13%CAGR over similar period. With falling gas prices, we believe that though company will pass-on partial benefit to trade-channels, EBITDA margins will expand gradually. Hence, we reckon EBITDA margins to come in at 15%/17% in FY24E/FY25E respectively. At CMP, KJC trades at P/E(x) of 42x/30x on F24E/FY25E EPS of Rs28/38.8 respectively. We continue to value the company at P/E(x) of 35x on FY25E EPS & upgrade our rating from NEUTRAL TO ADD

Result Highlights

* Revenue stood at Rs12.04Bn (Vs est of Rs12.07Bn), a growth of 9.4%YoY & 10.4%QoQ.

* EBITDA margins came in at 14.6% (Vs est of 14.5%) as compared to 15.1%/12.2% in Q4FY22/Q3FY23 respectively. Absolute EBITDA grew by 6%YoY & 32.2%QoQ to Rs1.76Bn.

* GP margins contracted from 59%/56% in Q3FY23/Q4FY22 to 55% in Q4FY23. However, EBITDA margins were better due to savings in P&F cost which stood at 20% as %sales in Q4FY23 as compared to 21%/26% in Q4FY22/Q3FY23.

* Net profit stood at Rs1.10Bn, a growth of 14%YoY & 50%QoQ

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