Buy Kajaria Ceramics Ltd For Target Rs. 1185 - ICICI Direct
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Strong growth ahead…
About the stock: Kajaria Ceramics is the largest manufacturer of ceramic/vitrified tiles in India with current annual capacity of 70.4 million square metre (MSM).
* The company has announced a large capex of | 250 crore (seeing strong demand and higher utilisation) in FY22, which will increase its overall capacity by 18% and generate ~| 500 crore worth of additional revenue
Q1FY22 Results: Kajaria reported weak Q1FY22 sequential results as expected.
* The topline was up 102% YoY, down 41% QoQ at | 561.7 crore. Tiles sales volumes were up ~99% YoY, down 40% QoQ at 15.3 MSM while tiles revenues were up 101.5% YoY, down 40% QoQ at | 519.3 crore
* EBITDA was at | 80.4 crore vs. loss in Q1FY21 but decline of ~57% QoQ. The resultant margins were at 14.3%
* PAT was at | 43.2 crore vs. loss in Q1FY21 but down 66% QoQ
What should investors do?
Kajaria’s share price has grown at ~10% CAGR over the past five years (from ~| 625 in August 2016 to ~| 1028 levels in August 2021).
* We maintain our BUY rating on the company
Target Price and Valuation: We value Kajaria at | 1185/share.
Key triggers for future price performance:
* Increased exports demand for Morbi based unorganised players provide better opportunity to organised players focusing on domestic markets
* Kajaria has announced a large capex of | 250 crore (seeing strong demand and higher utilisation) in FY22, which will increase its overall capacity by 18% and generate ~| 500 crore worth of additional revenue
* We expect 18% CAGR in tiles volume and realisations CAGR of ~2.5%, resulting in tiles revenues CAGR of 20.6% over FY21-23 to | 3684 crore
* The increased dividend payout (~40-50% vs. 20-25%, earlier) is likely to improve return ratios (RoCEs to expand to 27% in FY23E vs ~20% currently)
Alternate Stock Idea: Besides Kajaria, we like Century Ply in building materials
* A play improving growth of plywood/MDF
* BUY with a target price of | 490
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