The Hindu Business Line : Kajaria Ceramics: Buy

BUOYED by the improved business prospects and growth in earnings, the stock prices of companies in the ceramic tile industry have moved up the past few months. Industry heavy weight Kajaria Ceramics is no exception. Taking into account the company's strong position's in the industry, the commissioning of expanded capacity and growth prospects, long-term investors may include the stock in their portfolio.

Kajaria Ceramics is one of the bigger producers and exporters of ceramic tiles.

After passing though a rough patch in the late-1990s, the company and other ceramic tile producers benefited from the robust growth in demand of recent years.

The softening interest rate regime and the pick-up in the real-estate and construction sectors played a key role in bolstering demand for ceramic tiles.

Apart from the retail segment, consisting primarily of residential housing, the demand for tiles picked up from the institutional segment as well.

The increased activity in the retailing business along with the economic growth propelled demand from the institutional segment.

The positive impact of these factors is evident in the company's performance. For the year ended March 2005, revenues rose 12 per cent to Rs 280 crore while the post-tax earnings more than doubled to Rs 25.5 crore from Rs 11.8 crore.

Along with the factors listed above, the lowering of excise duty on ceramic tiles also helped the company's cause. This has effectively narrowed the price differential between ceramic tiles and the traditionally popular mosaic tiles.

To to cater to the growing demand, the company has expanded its production capacity to 18-million square metres from 14-million square metres.

This would place the company in the position to take advantage of the growing demand for ceramic tiles Kajaria is also expanding its geographic footprint and its retail presence by opening exclusive outlets across the country. The trend of healthy growth in earnings is evident in this fiscal as well.

For the quarter ended June 2005 revenues increased by 8 per cent to Rs 61.6 crore and post-tax earnings by 26 per cent to Rs 5 crore. Going forward, the company appears well-positioned to post a healthy growth in earnings.

The continued boom in the construction sector, housing industry in particular, would spur demand for ceramic tiles. With expanded capacity in place, the company would also have the option of enhance its export earnings if there is surplus capacity.

Considering that the ceramic tile penetration is still low in India, there is significant room for growth for the industry.

Kajaria and other tile majors such as Bell, Murudeshwar, SPL and Orient may continue to see robust growth in demand.

Long-term investors may consider exposure at prevailing levels of Rs 230.

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