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ICICI Securities Report
Kajaria Ceramics Ltd. and Somany Ceramics Ltd. have reported volume growth of 7.2% YoY and 8.1% YoY in Q1 FY24 as tile revenues grew 5.4% and 5.8% YoY, respectively, due to modest demand.
Consolidated Ebitda margin for Kajaria Ceramics/Somany Ceramics was up 67 basis points/59 bps YoY due to lower raw material cost (including gas cost).
With gas price now stabilising close to its 10-year average (after declining ~84% since August 2022 peak), margins may normalise going forward. Volumes, too, are expected to improve in H2 FY24 as the uptick in real estate market sustains and Morbi's focus remains on exports.
In bathware segment, Cera Sanitaryware Ltd.'s revenue grew 7.6% YoY, while Kajaria Ceramics/Somany Ceramics' grew 17.3%/7.7% YoY. Cera's margin in Q1 was up 59 bps YoY (due to lower raw material cost) and we expect it to remain flat YoY in FY24 as raw material pressures have abated.
We believe, going forward, the tile industry has margin tailwinds due to lower raw material cost and operating leverage, whereas bathware companies may continue to see healthy revenue growth with steady margins.
We remain positive on the sector with 'Add' rating on Kajaria Ceramics, 'Buy' on Somany Ceramics and 'Hold' on Cera.
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