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Higher costs cause EBITDA miss; outlines 3Y growth vision

Kajaria’s Q4FY24 operational performance was a mixed bag – though revenue came broadly in-line, higher than expected costs led to a miss on PAT. Overall sales grew 3% YoY (8% QoQ) to Rs12.4bn, mainly led by volume growth of 6% YoY (9% QoQ). Realizations were under pressure, down 5%/1% YoY/QoQ to Rs369/sqm, probably owing to a challenging demand environment and higher trade discounts to dealers. EBITDA margins contracted by 74bps YoY/166bps QoQ to 13.9%, with absolute EBITDA declining 2% YoY to Rs1.7bn (Emkay: Rs1.9bn). Management has outlined growth strategies aimed at achieving 12% CAGR in total sales by FY27, thus reaching Rs65bn, while targeting EBITDA margin of 15-17%. Factoring-in the recent performance, we trim our EBITDA by 5-6% for FY25-26E. We maintain ADD on the stock, with revised TP of Rs1,320/share (earlier TP: Rs1,450), based on FY26E 37x P/E.

Result Summary

Sluggish demand environment continued to loom over the tiles space, reflected in the weak realizations. Though Kajaria was able to achieve steady 6% YoY volume growth in Q4FY24 to ~30msm, realizations dipped 5% YoY (1% QoQ). Subsequently, gross margins contracted by 211bps QoQ to 36%. Revenue from the tiles segment remained constant YoY at Rs10.9bn in Q4. For FY24, volume growth was 6% YoY, at 108msm; we believe Kajaria gained market share, even as the industry is projected to have experienced nil growth. Non-tile portfolio (~12% of overall sales) continued to outperform with healthy topline growth of 24% YoY. Sanitaryware/faucets reported revenue growth of 13% YoY and surpassed the Rs1bn mark in Q4. The recent facility in Morbi (capacity: 0.45mn pieces) started commercial production in Mar-24 and will mainly cater to premium products. The Plywood and Adhesive segments recorded 74% and 24% YoY growth, respectively, on a favorable base. Kajaria continued to strength its balance sheet, as net cash improved by Rs740mn QoQ to Rs3.5bn as of Mar-24. Besides, it generated strong FCF of Rs3.1bn following the working capital release of Rs260mn and capex of Rs2.8bn.

What we liked:

Healthy FCF generation and strengthening of balance sheet.

What we did not like:

Lower than expected EBITDA margins.

Key analyst meet takeaways:

a) Current domestic industry pegged at Rs420bn; exports at Rs195bn worth, as of FY24. Domestic demand expected to grow 6-8%; Kajaria targets growth of 11-13% in FY24- 27. b) Aspires for 150msqm volume by FY27 (CAGR: 12%). c) Mgmt indicated current tile prices have bottomed out and it does not expect further decline. c) Non-tile portfolio to reach revenue of Rs10bn by FY27 (Rs5.1 bn now) and contribute 15% of sales (from 12%). d) Projected capex at Rs2.2-2.5bnpa for FY25-27. e) Focus is on penetrating tierII/III towns and aspires increasing presence to 2K towns from the current 1K. f) Gas prices stable QoQ in Q4FY24. Share of Biofuel at 22% blended and 30% in the North. g) 70% of sales now are via dealers; rest via institutional sales. h) Builders initiated launch of new housing projects post-2021; demand for tiles to recover from FY25.

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