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Distribution expansion to drive outperformance

Kajaria Ceramics (KJC), at its Investor meet, outlined 3 year growth plan, with an aim to a) achieve tile volume of 150msm and revenue of INR 55bn by FY27 (implying 12% CAGR in volume and revenue vs 6-8% industry growth expectation) on distribution expansion (500 dealer addition) and scale up in projects segment, particularly B2G front, b) grow its non-tile revenue to INR 10bn in FY27 (vs. INR 5bn in FY24) and c) EBITDA margin trajectory of 15- 17% on the back of cost rationalisation and scaling up in margin accretive adjacencies. The company has planned capex of INR 2.3-2.5bn each year till FY27 (largely maintenance capex). We had cut our FY25-26 estimates by 4% each post 4Q results (link for the report) to reflect the delay in demand recovery. Our estimates remain unchanged post analyst meet as KJC’s 3 year plans are broadly in-line with our estimates (FY24 volume guidance of 11-13%). We maintain BUY with a Mar’25TP of INR 1,480, basis 35x Mar’26 EPS. Key risks – Slower-thanexpected recovery in macro and any material rise in fuel cost.

* 3 year road map: Kajaria has charted a 3 year roadmap for itself, in which the company aspires to achieve revenue of INR 65bn (12% CAGR in FY24-27) and tile revenue/ volume of INR 55bn/ 150msm respectively (12% CAGR). In its non-tiles division, management expects to achieve revenue of INR 10bn (from INR 5bn in FY24, implying 25% CAGR over FY24-27). Bathware segment revenue to grow to INR 6.8bn (vs. INR 3.6bn in FY24, implying +23% on 3 year CAGR basis). In Plywood/Adhesive, company targets to grow at 19%/44% CAGR respectively over FY24-27. On the profitability front, company is optimistic to sustain its EBITDA margin at 15-17% range (baring the impact of steep gas price volatility). We believe the 3 year road map is realistic for the tile segment and slightly conservative on operating margins front.

* Domestic tiles industry to grow at 6-8% CAGR, while Kajaria to grow at 12% CAGR over FY24-27: As per the management, the current market size of the domestic tiles industry is of INR 420bn, which is expected to grow at 6-8% CAGR of FY24-27. Exports market size is c. INR 190bn, which takes the combined market size of Indian tiles industry to c. INR 610bn. Management is confident of outpacing the industry growth by delivering volume growth of 12% CAGR over FY24-27. Management expects, sustained exports momentum for Morbi player will continue to limit the competitive intensity in the domestic market.

* Premiumisation, branding and penetration into tier 2-3 cities among key enablers of growth: KJC is optimistic on achieving its guidance largely on the back of key initiatives such as a) premiumisation, where company is focusing on improving product mix through launch of large format tiles/ slabs, b) branding – creating more exclusive dealer showrooms, airport branding, IPL sponsorship, etc. c) distribution expansion into tier 2-3 cities along with increasing the pocket share in existing dealer network while removing the non performing dealers and d) digitisation through integration of salesforce automation and other IT related infrastructure. Currently, Kajaria is present in 1000 towns in India and aspires to expand it to 2000 towns over the next 3 years (total universe of 4041 towns).

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SEBI Registration Number is INM000010361