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Growing volumes despite industry slowdown

Kajaria Ceramics limited manufactures glazed and unglazed ceramic tiles. The company sells its products in India and it also exports them to other countries.

* During Q3FY22, revenues grew 27.4% YoY (+9.7% QoQ), driven by robust sales volumes (+13.5% YoY to 25.6 MSM).

* Resultantly, EBITDA rose 1.1% YoY to Rs. 184cr, despite margin contracting 450bps YoY to 17.2% on account of higher power and fuel costs (+69.6% YoY) and cost of raw materials (+16.1% YoY). PAT rose 2.6% YoY to Rs. 122cr.

* While concern remains around higher fuel costs, company’s long-term outlook remains promising with strong economic revival despite the supply chain constraints and lockdown, increased sales volumes, ramp up of construction activities and low interest rates regime. Given current upside potential at current price levels, we reiterate our ACCUMULATE rating on the stock with a rolled forward target price of Rs. 1,400 based on 35x FY24E adj. EPS.

Resilient growth across segments

For Q3FY22, consolidated revenue surged 27.4% YoY to Rs. 1,068cr (+9.7% QoQ), primarily led by higher sales volumes of 25.6 MSM (+13.5% YoY). Production volumes also increased to 18.6 MSM (+8.2% YoY). Revenue from tiles business rose 26.8% YoY to Rs. 962cr, with own manufacturing, subsidiaries and outsourcing businesses contributing Rs. 552cr (+18.9% YoY), Rs. 138cr (+11.2% YoY) and Rs. 271cr (+60% YoY), respectively. Sanitary ware and plywood business revenue also climbed up 33.1% YoY to Rs. 107cr.

Higher gas cost puts pressure on margins

With robust topline growth, company managed to post 1.1% YoY increase in EBITDA to Rs. 184cr, although, EBITDA margin shrank 450bps YoY to 17.2% due to higher power and fuel costs (+69.6% YoY to Rs. 223cr) and raw materials costs (+16.1% YoY to Rs. 225cr). Also, staff costs were up 19.1% YoY to Rs. 107cr. PAT rose 2.6% YoY to Rs. 122cr benefitted from lower tax outgo (-4.2% YoY) during the quarter.

Key concall highlights

* Company is undertaking capacity expansion at three sites across Rajasthan, Gujrat and Andhra Pradesh to add ~12.4 MSM total capacity with an overall capex of Rs. 250cr. All three expansion projects are expected to be completed by April-2022.

* Company continued to hike prices for its products. YTD, prices were hiked cumulatively by 5-6% for tiles, ~15% for faucet and ~8% for sanitary ware.

* Low channel inventory has reduced inventory cost. The inventory days have reduced after GST and faster payments.

* Management has approved acquisition of further 26% stake in Cosa Ceramics

Valuation

While concern remains around higher fuel costs, company managed to pass on the input cost to market by hiking its product prices. Company’s long-term outlook remains promising with strong economic revival despite the supply chain restrictions and lockdown, increased sales volumes, ramp up of construction activities and low interest rates regime. Hence, we maintain our optimistic view on the company’s performance and reiterate ACCUMULATE rating on the stock with a rolled forward target price of Rs. 1,400 based on 35x FY24E adj. EPS.

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