Buy Kajaria Ceramics Ltd for Target Rs. Rs. 1,650 - Sushil Finance
Highlights from the Quarter (Q4 FY26)
Consolidated sales were at Rs.1,373 cr (multi quarter high sales), recording a 12.4% yoy growth. Tile revenue grew by 9% yoy, after almost 5 quarters of flattish to negative growth. Higher revenue was account of healthy volume growth in the tiles of 11% yoy in Q4FY26. Higher gas prices resulted in a big vaccum in the domestic markets, as it became very unviable for the unorganized players in Morbi to continue their operations. Going ahead, Management indicated that organized players like Kajaria, with multi-location plants, are expected to gain a significant advantage and benefit from the disruptions in Morbi for FY26-27. Kajaria has implemented price hikes of 12-13% in North plants and 16-17% in Morbi, covering increased gas costs and adding some margin, while maintaining a competitive advantage due to already higher prices and lower average fuel costs from biofuel use. In Q4 FY26, Kajaria Ceramics achieved an EBITDA margin of 19.2%, a significant improvement from 11.3% in Q4 FY25, driven by cost optimization, improved sales realization, and overall efficiencies in production, sales, and supply chain management
Kajaria plans to do 40-50% higher advertisement spend this year to increase brand presence. The Board is considering the expansion of the Srikalahasti manufacturing facility at an approximate cost of Rs.210 crore for putting up 10 MSM capacity of Glazed Vitrified Tiles, increasing its total capacity by ~12%. This expansion is expected to be completed by March 2027 and will be funded by internal accruals.
The management have announced the buy back of 21.5L equity shares, with the buy back price of Rs.1,380, for an amount upto Rs.296.7 cr.
OUTLOOK AND VALUATION
With the cost optimization measures by the company and improvement in consumer demand, we expect the bottomline to grow faster clip, at 22% CAGR in FY25-28, with FY28E EPS to be Rs. 39.8. We arrive at a Target Price of Rs. 1,650, showcasing an upside potential of 55% from current levels with an investment horizon of 18-24 months, with a BUY rating on the stock.
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