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Kajaria Ceramics has, over the years, solidified its presence as the primary panIndia tiles player, selling over 100msm in volume (industry size: ~2,070msm) in a highly competitive & fragmented market. Kajaria’s leadership position, strong brand salience, and large distribution network have helped it gain market share in the last decade (revenue CAGR: 10%, 300bps above industry). We expect market-share gains to sustain, with nearly doubling of capex intensity in FY23-26E (average spend: ~Rs3bnpa) vs. the past 5 years. Besides, Company focus is on value-added projects for improving margins/return ratios in coming years. We bake-in revenue/PAT CAGR of 13%/19% over FY24E-26E. Higher growth, better return ratios (over 15%), and a healthy balance sheet have resulted in premium valuations, though current valuations adequately reflect the strong outlook for earnings. Accordingly, we initiate coverage on Kajaria Ceramics with ADD and TP of Rs1,450/sh, based on FY26E 37x P/E. Any correction in stock price should be considered an opportunity to accumulate.

Accelerated capacity expansion to propel industry-leading volume growth

Over time, Kajaria has maintained an equilibrium between investment in growth capex and asset utilization, as capacity has consistently operated at over-85% levels. Company has seen a substantial uptick in capacity expansion in the last three years (by 23%, from 70.4msm in FY21 to 86.5msm FY24). We anticipate capex intensity to remain high (Rs3bnpa vs FY16-21 average of Rs1.5bn) in coming years, as Company looks to gain market share with a 500-600bps higher-than-industry growth rate. Besides, Kajaria has strategically elevated its emphasis on value-added products, such as glazed vitrified tiles (GVT) and large-slab tiles, resulting in industry-best realization and EBITDA margin (16- 18% vs. industry average of 8-10%).

Balance-sheet strength to fund capex requirements

Kajaria has a consistent cash generation profile, recording cumulative CFO (operating cashflows) worth Rs20bn during FY18-23 (average CFO/EBITDA: ~65%). With OCF generation of over Rs6bnpa in FY24E-26E, Kajaria’s capex is likely to be largely funded via internal accruals. Accordingly, we expect Kajaria to remain net-debt free. Company’s industry-best EBITDA margin, coupled with stringent working-capital cycle (65-70 NWC days), has enabled the company to consistently clock a healthy RoCE (above 15%).

Increasing exports by Morbi players to maintain discipline in domestic market

In the last 7-8 years, Indian tile manufactures (mainly Morbi based) have significantly enhanced focus on exports, which have grown over 10x in the last decade, to 590msm as on CY23. Despite near-term challenges (Red Sea crisis), the long-term outlook for exports remains on a solid footing, as volumes are expected to surpass the 1bn-msm mark by 2026 (as per Ceramic World Review). Higher exports by Morbi players are likely to ease the supply pressure for domestic markets

We initiate coverage on Kajaria with ADD; TP: Rs1,450 at 37x Mar-26E P/E

Kajaria, given its net cash balance sheet (BS) and superior brand, is a solid play in the tiles sector, with expanding reach to tier 2/3 cities. We like Kajaria’s leadership position, strong branding, and higher growth visibility, owing to expansion plans and a robust BS.

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