Hold Kajaria Ceramics Ltd for the Target Rs. 1,288 By Prabhudas Liladhar Capital Ltd
Cost reductions leads margin expansion
We have revised our FY27/28 earnings estimates upward by 0.4%/0.7% 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 maintained our rating to ‘HOLD’ we value the stock at 36x Sep’27E EPS to arrive at revised TP of Rs1,288 (earlier Rs 1,281). 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 5.2% CAGR in tiles volume over FY25-28E with EBITDA margin of 17.0% in FY28. 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 to outperform the sector in volume growth once again through 1) increase outsourcing volume, 2) increase in dealer penetration & showrooms, 3) expansion in product portfolio, 4) intensify focus on govt. projects, and 5) improve business efficiency. We expect Revenue/EBITDA/PAT CAGR of 7.1%/15.7%/21.5% over FY25-28E. Maintained ‘HOLD.’
Revenue grew by 2.1% YoY, PAT grew by 42.5% YoY:
Revenues grew by 2.1% YoY to Rs 11.9bn (PLe: Rs 11.9bn), mainly due to flat volume growth of 0.6% YoY. Tiles segment revenue remained flat YoY to Rs 10.5bn (contributes 89% revenue) and other segment revenues grew by 7.0% YoY. Bathware division (contribute 9% rev.) grew by 13.6% YoY to Rs 1.0bn. Adhesives grew by 77.0% YoY to Rs322mn. Gross margins contracted by ~30bps YoY to 57.0% (PLe: 58.0%). EBITDA grew by 30.6% YoY to Rs2.1bn (PLe: Rs2.0bn). EBITDA margins expanded by ~390bps YoY to 18.0% (PLe: 17.0%). Fuel expenses (as a % of sales) stood at 18.1% in Q2FY26 from 19.3% in Q2FY25. PBT grew by 43.4% YoY to Rs1.8bn (PLe: Rs1.7bn). PAT grew by 42.5% YoY to Rs 1.3bn (PLe: Rs1.2bn).
Con call highlights: 1) KJC has refrained from providing FY26 guidance due to near-term soft demand, it remains confident of outperforming the industry. Domestic demand remained muted in H1FY26, but management expects a recovery in the coming quarters, supported by increased government infrastructure and development spending. 2) Exports in the tiles industry grew by ~10% YoY to Rs 83bn, primarily due to easing in freight rates. However, for FY26, management expects exports to reach to Rs 180bn. 3) EBITDAM expansion was aided by the consolidation of the dealer network and integration of Ceramic, GVT, and PVT tile divisions into one. This move, currently implemented in select states, has led to cost optimization, with full benefits expected as it scales pan-India. 4) KJC retail-to-project revenue mix stood at 70:30, with a growing focus on expanding participation in both government and private project segments. 5) Nepal JV having an annual capacity of 5.1 MSM, operated at 86% utilization levels in Q2 with a volume of 0.7 MSM. 6) The company has hired a management consultant to devise strategies for increasing market share, including revising incentive structures, conducting a state-by-state deep analysis to identify underperforming dealers, and mapping white spaces for expansion. 7) Additionally, a dedicated team of 18–20 professionals has been formed to engage with architects and interior designers, enhancing brand visibility across Kajaria, Kerovit, and Gresbond. 8) KJC currently has 1850 dealers, out of which 450 are exclusive dealers aiming to expand both networks. 9) The pricing gap between Morbi players and KJC has been consistently maintained at around 20%, reflecting the company’s strong brand positioning and premium product offering.
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