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Volume growth aids topline; Outlook positive

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 Q4FY21, revenues grew 46.1% YoY (+13.6% QoQ), driven by robust sales volumes (+39.2% YoY to 25.4 MSM).

* EBITDA surged 104.5% YoY to Rs. 191cr, with margin expanding 570bps YoY to 20.0% on account of lower input cost (-530bps YoY) and power and fuel costs (-630bps YoY). Resultantly, net profit surged 156.3% YoY to Rs. 127cr.

* Company has undertaken capacity expansion at its brownfield sites.

* Continued traction seen in export business. Additionally, company is well positioned to pass on the cost inflation to its customers. We expect the domestic business to bounce back as economic activity rises. With an optimistic outlook, we upgrade our rating to ACCUMULATE with revised target price of Rs. 1,110 based on 36x FY23E adj. EPS.

Topline growth driven by demand rebound

For Q4FY21, Revenue growth surged 46.1% YoY to Rs. 953cr (+13.6% QoQ), primarily led by sales volumes of 25.4 MSM (+39.2% YoY) with urban demand rebounding back to normal levels. Production volumes also have been uplifted to 17.3 MSM (+10.5% YoY). Revenue from tiles business rose 43.1% YoY to Rs. 866cr, with own manufacturing, subsidiaries and outsourcing businesses contributing Rs. 469cr (+34.8% YoY), Rs. 183cr (+30.7% YoY) and Rs. 214cr (+82.7% YoY), respectively. Sanitary ware and plywood business revenue climbed 84.7% YoY to Rs. 87cr.

Margin improves on cost efficiency

Company reported strong EBITDA growth of 104.5% YoY to Rs. 191cr, with margin improving 570bps YoY to 20.0% supported by lower input costs. As % of revenue, the cost of materials dropped 530bps YoY, while Power and fuel costs declined 630bps YoY, and employee costs by 320bps YoY. Resultantly, PAT rose 156.3% YoY to Rs. 127cr despite higher tax outgo (+109.0% YoY) during the quarter.

Key concall highlights

* Exports business saw rapid growth, while the domestic market fell 20% during Q4FY21 owing to lockdowns.

* Company expects to pass on the inflation in gas prices (up nearly +20% YoY) to consumers with a time lag of 45 days.

* Company achieved capacity utilization of 98% for the quarter.

* Ongoing capex plans are as follows: 1) Gailpur plant – Rs. 60cr by Mar 2022, adding 4.2 msm capacity; 2) Srikalahasti plant – Rs. 110cr by Dec 2021, adding 3.8 msm capacity; and, 3) Jaxx Plant - 80cr capex by Jan 2022, adding 4.4 msm capacity.

Valuation

Company stands to benefit from rising traction in export business. Moreover, passing on the cost inflation to its customers should help improve margins. Also, the domestic business is expected to bounce back as economic activity rises. Hence, we remain optimistic on the company’s performance in the medium term, and upgrade our rating to ACCUMULATE with revised target price of Rs. 1,110 based on 36x FY23E adj. EPS.

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