Brokerages are divided in their views on Kajaria Ceramics Ltd., post first quarter of fiscal 2025-26. UBS has upgraded its rating to 'buy' from 'neutral' and hiked the target price to Rs 1,600 from Rs 925.
Meanwhile, Jefferies has downgraded Kajaria Ceramics' rating to 'hold' from 'buy' and hiked the target price to Rs 1,225 from Rs 1,120.
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UBS believes that the market is not pricing in the sustainability of the improvement and may be positively surprised.
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The brokerage highlighted that an uptick in demand should lead to improved operating leverage, which would help margin expansion.
UBS has increased its FY26/27/28 EPS estimates 36%/25%/31% based on the improved margin. "Their price target is based on a higher target PE of 35 times from 28 times and close to the five-year historical average," it added.
Jefferies estimates 13%/16% sales/PAT CAGR. Margins could be sustained at healthy approximately 16% levels over FY26-28. "With revival in earnings growth, we slightly raise the target PE to 33 times vs. 30 times earlier, in line with its historic 10-year average. After a 52% sharp rally in the last three months, the risk-reward appears stretched," it added.
Despite leadership in the tiles industry, Kajaria Ceramics has been posting single-digit sales volume growth for eight quarters now.
The brokerage had expected gradual volume revival from H2-FY25, but the company's volumes stayed lacklustre, likely impacted due to higher freight rates, leading them to divert supply to the domestic market.
Going forward, Jefferies estimates Kajaria Ceramics' volume growth to stay weak at 5.6% year-on-year in FY26, which led the brokerage to cut its FY27-28 EPS by 3.4%.
Key downside risks include a slowdown in construction and housing demand, a spike in fuel costs, and rising competition from Morbi. While key upside risks include a sharp recovery in tile volumes and lesser competition from Morbi.
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