Buy Kajaria Ceramics Ltd For Target Rs.1355 - ICICI Direct
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Fundamental View: Kajaria Ceramics (KAJCER)
* Kajaria is the largest manufacturer of ceramic/vitrified tiles in India with current annual capacity of 82.8 million square metre (MSM). It has clocked 7.8%, 8.3% revenue, PAT CAGR, respectively, in FY17-22. Going forward, Kajaria is likely to benefit with growing tiles demand in the domestic market (to improve 5-6% during FY23) driven by revived consumer sentiments, improved real estate demand in Tier-II, III cities and upped reconstruction/renovation activities in metro regions
* Kajaria is taking capacity expansion across product portfolio. It has commissioned 4.4 MSM of PVT capacity at its Morbi (Gujarat) plant during April 2022. The other two projects i.e. 4.2 MSM of ceramic floor tiles at Gailpur (Rajasthan) and 3.8 MSM of glazed vitrified tiles at Srikalahasti (Andhra Pradesh) have also been commissioned during May 2022. Further, the company is investing | 80 crore to set up a 8 lakh pieces/ annum sanitaryware manufacturing facility in Gujarat, which is expected to be completed by December 2023. Further, it is adding new capacity of 6 lakh pieces/annum in their faucet plant at Gailpur, which will take the total the capacity to 16 lakh pieces/annum and expected to be completed by October 2022. These capex are likely to benefit Kajaria during improved demand scenario
* We expect 16% CAGR in tiles volume and 3.5% CAGR in realisations, resulting in tiles revenues CAGR of ~20% over FY22-24 (to | 5,351.6 crore) to be driven by a) expected rise in demand from Tier II and below cities, b) healthy capacity utilisation, c) expected increase in Kajaria’s capacity, d) enhanced distribution network and e) strong brand recall. Margin is likely to hover at the current range of 16.5% despite ongoing volatility in gas prices, increased global uncertainty and higher freight and packaging cost
* At CMP, Kajaria is trading at ~34x FY24E P/E. With net cash balance sheet and superior brand, it is a quasi-play on improved scenario of real estate and expanding reach to tier II/III cities
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