Hold Kajaria Ceramics Ltd For Target Rs.1,192 by Prabhudas Liladhar Capital Ltd
Cost reductions leads margin expansion
Quick Pointers:
* Tiles volume grew 0.7% in Q1FY26
* EBITDA margin expanded by ~160bps YoY, while reduction in realization.
We have revised our FY26/27 earnings estimates upward by 18.0%/13.1% mainly with improvement in margins on account of cost saving with distribution consolidation, integration of tiles divisions and the discontinuation of low margin tiles. We had downgraded our rating to ‘HOLD’ from ‘Accumulate’, we value the stock at 36x FY27E EPS to arrive at revised TP of Rs1,192 (earlier Rs 1,171). The management has refrained from providing guidance due to prevailing low demand conditions but expects to outperform the industry in FY26. KJC expects decent growth in Bathware and Adhesives segment in FY26 and gradual pick up in domestic volumes as exports is expected to reach to FY24 levels. We have considered 4.8% CAGR in tiles volume over FY25-27E with cons. EBITDA margin of 16.0% in FY27. Management indicated gradual pick-up in FY26 volumes, revival in exports due to lower freight rates, and expected improvement in margins, as the company works on cost rationalization and exits the low-margin plywood business. "KJC expects healthy earnings growth driven by margin expansion, though volume growth is likely to remain challenging. We expect Revenue/EBITDA/PAT CAGR of 6.6%/16.1%/24.0% over FY25-27E. Downgrade to HOLD.
Revenue grew by 0.6% YoY, PAT grew by 13.1% YoY: Revenues grew by 0.6% YoY to Rs 11.0bn (PLe: Rs 11.6bn), mainly due to single digit growth in volume (0.7% YoY). Tiles segment revenue decline by 0.3% YoY to Rs 9.9bn (contributes 89%sales) and other segment revenues declined by 5.0% YoY. Bathware division (contributes 8%rev.) grew by 0.5% YoY to 915mn. Adhesives segment grew by 64.0% YoY to Rs 249mn. Gross margin expanded by ~160bps YoY to 59.9% YoY (Ple: 57.0%). EBITDA grew by 9.3% YoY to Rs1.9bn (PLe: Rs1.7bn). EBITDA margin expanded by ~130bps YoY to 16.9% (PLe: 14.5%). Fuel expenses (as a % of sales) stood at 20.3% in Q1FY26 from 19.4% in Q1FY25. PBT grew by 13.9% YoY to Rs1.5bn (PLe: Rs1.3bn). PAT grew by 13.1% YoY to Rs 1.1bn (PLe: Rs 0.9bn).
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