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Volume growth recovery likely in FY25

Outlines a three-year mission; aims for strong growth across key segments

* Kajaria Ceramics (KJC)’s consolidated revenue grew 3% YoY to INR12.4b (est. INR13.1b). EBITDA declined 2% YoY to INR1.7b (est. INR2.1b) due to weak realizations (declined 4.4% YoY). OPM stood at 14% (est. 16%). PAT came in at INR1.0b (vs. est. INR1.2b).

* Management shared a three-year strategy across key segments. KJC targets increasing its tiles volume to 150msm in the next three years vs. 108msm in FY24 (at ~12% CAGR). Tiles revenue is estimated at INR55b vs. 40.6b in FY24 (at ~11% CAGR). Other than the tiles segment, revenue is estimated at INR10b vs. 5.2b in FY24 (at ~24% CAGR, aided by low base). It guided the EBITDA margin to hover in the range of 15-17%.

* We cut our EPS estimates by 3%/6% for FY25/26. In our recent report, we highlighted that KJC should benefit from the expected recovery in demand in FY25 and a reduction in gas prices. We reiterate our BUY rating on the stock with a TP of INR1,500 (earlier INR1,600) premised on 40x FY26E EPS.

EBITDA margin contracts 74bp YoY to 14% (est. ~16%) in 4QFY24

* KJC’s consol. revenue/EBITDA/PAT stood at INR12.4b/INR1.7b/INR1.0b (+3%/-2%/-2% YoY and -5%/-19%/-17% vs. our est.). Tile sales volume rose 5.5% YoY to 29.6MSM, while realization dipped 4.4% YoY to INR374/sqm.

* Energy cost/scm of production declined 9% YoY, leading to a 94bp YoY improvement in gross margin to 36.4%. Employee costs increased 11% YoY (10.5% of revenue vs. 9.7% in 4QFY23). Other expenses rose 11% YoY (12.0% of revenue vs. 11.1% in 4QFY23). EBITDA declined 2% YoY, and OPM was down 74bp YoY to 14% during the quarter.

* In FY24, revenue/EBITDA grew 4.5%/18% YoY to INR45.8b/INR7.0b. EBITDA margin was up 1.8pp YoY to 15.3%. PAT (after MI) grew 25% YoY to INR4.2b. Tiles sales volume grew ~6% YoY to 108.1MSM, while realization declined 3% YoY to INR380/sqm.

* The company’s OCF doubled YoY to INR6b, aided by improvements in working capital. Capex stood at INR3.0b (vs. INR2.3b in FY23), and FCF stood at INR3b (vs. INR639m in FY23).

Highlights from the management commentary

* The industry is estimated to grow at 6-7% p.a. over FY24-27, and KJC would grow 5-6pp higher than the industry. It remains optimistic on the tiles industry’s demand recovery in FY25.

* Gas prices, after witnessing a sharp increase in CY22, have been normalized in FY24, and the industry passed on this benefit. Now, realization across the Tiles categories is estimated to have bottomed out.

* In 4QFY24, Ceramics, PVT, and GVT contributed 38%, 26% and 36% to revenue and 43%, 26%, and 31% to sales volume, respectively.

View and valuation

* We estimate KJC’s revenue/EBITDA/PAT CAGR at 12%/16%/18% over FY24-26. We estimate its ROE/ROCE to improve to 20%/24% by FY26 from 17%/ 20% in FY24.

* The stock is currently trading at an attractive valuation of 30x FY26E EPS (vs. 38x last five-year average one-year forward P/E). We reiterate our BUY rating on the stock with a TP of INR1,500 (earlier INR1,600) premised on 40x FY26E EPS.

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