Shares of Kajaria Ceramics Ltd. jumped to a record high after channel checks of tile dealers suggested a recovery in demand.
Based on channel checks with 20 tile dealers across India, UBS found Kajaria to be the preferred brand, it is gaining market share in south, owing to its improved availability and new Andhra Pradesh plant, according to the note. Its other findings include that with better export demand for ceramics, the availability of outsourced production units in the domestic market is falling, potentially impacting smaller brands/companies; improving preference for branded over unbranded tiles due to narrowing price gap and demand pick-up after lifting of the Covid-19 lockdown.
“Kajaria's tiles sales volume recovered faster than our expectation in Q2. We expect the momentum to remain strong in Q3, with a marked pick-up in demand in tier-II, III and IV cities,” UBS said in the note.
JM Financial, too, conducted channel checks that suggested a sustained demand recovery aided by diversion of Morbi players' volumes for exports, pent-up demand in the renovation segment and demand improvement in metros, along with tier-II and below cities. “We expect Kajaria to deliver healthy double-digit volume growth,” the research firms said in a Jan. 14 note.
Shares of Kajaria Ceramics have nearly doubled over the last six months. Still, UBS thinks the street is not fully pricing in the company's potential market share gain and the likely uptick in the real estate sector. UBS has retained its ‘buy' rating on the stock and raised its price target to Rs 925 apiece from Rs 700. “Companies such as Kajaria, which have their own manufacturing capacity and strong balance sheets, are well placed to gain market share as domestic demand picks up.”
JM Financial expects the recent increase in gas costs to be passed on to consumers. It also raised Kajaria's price target to Rs 820 apiece from Rs 605, citing improved performance, industry tailwinds, market leadership position, brand equity and distribution strength, along with healthy return ratios and cash flow generation.
Shares of Kajaria Ceramics gained as much as 3.3% to a record high of Rs 769 apiece. The stock has recovered more than 2.5 times from its 52-week low of Rs 295.4 in May 2020. Of the 31 analysts tracking the company, 23 have a ‘buy' rating, five suggest a ‘hold' and three recommend a ‘sell'. The stock trades 11.6% higher than its Bloomberg consensus 12-month price target of Rs 675.5 apiece.
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