Kajaria Ceramics Q2 Results Review- Lower Volume Guidance, Margin Improved: Prabhudas Lilladher

Prabhudas Lilladher Report

Kajaria Ceramics Ltd.’s downward revised its volume growth guidance between 9-10% (earlier 13-15%) and maintained higher Ebitda margin (around 16.0%) with lower power and fuel costs for FY24, while expecting sequential improvement in volume growth in coming quarters.

Management indicated gradual pick-up in volumes post September-23 and expected improvement in demand environment emanating from rub-off of strong growth in real estate sector to drive better volume growth in H2 FY24. The company reported improvement in Ebitda margin (+400 basis points YoY) with reduction in fuel expenses through decrease in gas prices and use of alternate fuel.

Kajaria Ceramics reiterated that off gas price reduction benefits will be used for -

• promotions/discounts to drive volume,

• passing it on to joint venture partners, and

• margin improvement.

We are cautiously optimistic on the company for long term given-

1. Its largest player positioning in domestic tiles market,

2. focus on brand building (advertisement spends at 3% sales),

3. expanding distribution network (1,840 active dealers in FY23 and expected to touch 2000 in FY24),

4. reduction in fuel expenses with gas price correction and alternate fuel uses, and

5. exponential growth in bathware/plywood/adhesive businesses.

We expect revenue/Ebitda/profit after tax compound annual growth rate of 12.0%/20.0%/24.3% over FY23-26E and downward revise our FY24/FY25E/FY26E earnings estimate by 5.8%/5.3%/5.3%.

Maintain ‘Accumulate’ rating, as we value the stock at 35 times FY25 earning per share to arrive at revised target price of Rs 1,368 (earlier Rs 1,445).

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