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Expect 10% volume CAGR; maintain NEUTRAL!

Result Synopsis

Kajaria Ceramics Ltd (KJC) reported better than expected volume growth of 8%YoY (Vs est of 6%) but realizations contracted by 4%YoY which led to 5% growth in tiles revenue (in-line with our estimates) over similar period. Improvement in demand scenario reignited the growth trajectory for the company & management is optimistic of achieving a 11-12% volume growth for FY25E. However, lower realizations Vs FY24 will keep revenue growth at 8-9% for FY25E. EBITDA margins came in at 15% as compared to 15.9% in Q1FY24 & 13.9% in Q4FY24 which was dented by higher inventory cost. Management reiterated their margin guidance of 15-15.5% for FY25E. The mix of Own/JV/Outsourced in volume terms stood at 55%/20%/24% Vs 55%/18%/26% in Q1FY24 and the same in value terms stood at 56%/20%/23% during Q1FY25 as against 56%/19%/25% in Q1FY24 respectively. In other segments, sanitaryware revenue increased by 9%YoY, plywood growth was at 25%YoY while adhesives grew by 59%YoY. Margins for plywoods were lower due to higher timber cost and for sanitaryware, higher overhead of new plant impacted margins. During the quarter company commenced KERONITE TILES GVT capacity of 6msqm which will operate at peak utilization by Q4FY25E. Commencement of NEPAL JV has been postponed to Sept’24 from June’24 earlier largely due to excessive rains.

We expect demand for tiles to improve on account of healthy growth in real-estate industry & hence we believe KJC’s volumes to grow by 10%CAGR over FY24-FY26E. New up-coming plants and expansion into Tier-2&3 cities will enable the company to outperform industry growth. We reckon tiles revenue to grow by 10%CAGR over FY24-FY26E. Performance of other segments viz. sanitaryware, plywoods & adhesives should also improve, hence we expect a cumulative growth of 19%CAGR for these segments. Consequently, overall top-line is expected to grow by 11%CAGR over FY24-FY26E. Operating margins should come in at 15.5%/16.1% in FY25E/FY26E respectively, resulting into EBITDA growth of 14%CAGR over FY24- FY26E. We have valued the company at P/E(x) of 40x on FY26E EPS of Rs35.5 (unchanged), arriving at a target price of Rs1,420. Hence owing to capped upside, we maintain our NEUTRAL rating on the stock.

Result Highlights

* Revenue for the quarter stood at Rs11.14Bn (in-line with est), a growth of 5%YoY & a decline of 10%QoQ.

* EBITDA margins came in at 15% (Vs est of 15%) as compared to 15.9%/13.9% in Q1FY24/Q4FY24 respectively, Absolute EBITDA remained flattish YoY & decreased marginally by 3% QoQ to Rs1.67Bn.

* Net profit stood at 923Mn, a decline of 15%YoY & 11%QoQ.

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