Target: ₹1,580

CMP: ₹1,338.70

Brent Crude and Spot LNG prices spiked 25-31 per cent over the last 2-3 months, which we believe can raise fuel consumption costs of ceramics players and Kajaria Ceramics (KJC), in particular, in H2-FY24.

Brent Crude jumped 25 per cent in the last few months because of voluntary supply cuts by Saudi Arabia to maintain the demand-supply equilibrium. These supply cuts were first announced in July and would continue until December as of now since the timelines have been extended a few times.

Spot LNG price too has been on a rising trend and increased 31 per cent over July average. Gujarat Gas too hiked gas price for Morbi players by about 10 per cent in September beginning. Based on recent pricing trends, we expect average fuel price for KJC to mount about 8 per cent in H2-FY24.

We note that even after this possible rise in fuel prices, the increased average consumption price for KJC will be still 20 per cent+ lower than its average consumption price for FY23 (but, about 5 per cent higher than its Q1-FY24 consumption cost). Hence, this should lead to YoY margin improvement for the company. We expect KJC’s OPM to be at 15.8 per cent in FY24 v/s 13.5 per cent in FY23.