IGI Logo

Favourable industry tailwinds and capex to support growth:

The Russia-Ukraine war had major repercussions, resulting in a surge in gas prices due to its unavailability. This impacted the margins of all the tile manufacturers, including KCL. However, in CY24, gas prices have reduced substantially with an improvement in the supply and it should result in an improvement in the margins in FY24-25. With the improvement in the real estate sector in India and favourable industry dynamics for the tile industry, KCL announced a capex of Rs.250cr in the current fiscal to support growth.

Strong brand recall & wide distribution network help maintain a leadership position:

KCL probably enjoys the best brand recall in the industry, which can be characterised as a highly price-sensitive industry. This is built over the years through consistent investments in branding & marketing which helps the company in maintaining its dominant market share in the industry. The company has made significant investments in advertisements in print media as well as television commercials. KCL has successfully been able to create strong visibility through massive advertising in airports, social media, newspapers & magazines as well. With such strong brand visibility and dealer network (1800), KCL is the market leader in tiles in the domestic market.

Robust fundamentals & superior financial position as against peers make a good base for growth, going forward:

Apart from leading market share, KCL also enjoys superior profitability than its peers; it is net debt free with a gross debt-equity ratio of 0.07x; Furthermore, KCL has witnessed strong cash generation over the years resulting into strong balance sheet. Lower debt-equity & healthy profits have resulted in comfortable interest coverage and robust return ratios.

OUTLOOK & VALUATION

KCL enjoys the highest market share in the Indian tiles industry & also occupies a prominent position in the world. This leadership has been maintained over the years with consistent investments in branding & marketing and establishing a robust distribution network. In light of the anticipated switch from an unorganized to an organized industry, we expect KCL to be the key beneficiary. In addition, KCL is well placed as compared to its peers in terms of fundamentals. The net debt-free company has been reporting stable return ratios, strong cash generation & has been paying dividends consistently for years. Going forward, we expect the company to deliver an EPS of Rs.34.8 in FY27; assigning a target multiple of 51x (which is the median P/E of the last 5 years) we arrive at a target price of Rs.1,792 showcasing an upside potential of 21% from current levels with an investment horizon of 18-24 months.

Please refer disclaimer at https://www.sushilfinance.com/Disclamier/disclaimer
Member : BSE/ NSE/ MSEI. SEBI Registration No.-INZ000165135