Broker’s call: Kajaria Ceramics (Add)

| Updated on October 23, 2020 Published on October 23, 2020

Centrum Broking

Kajaria Ceramics (Add)

Target: ₹588

CMP: ₹575.20

Kajaria Ceramics (KJC) recovered strongly from the pandemic challenge as revenues reversed to ₹713 crore flat y-o-y after dipping 60 per cent in Q1-FY21.

The highlight of Q2-FY21 was while domestic tile industry contracted (₹18,000 crore from ₹23,000 crore in FY20 as indicated by management) KJC’s market share gained (flat volume y-o-y).

Sales volume also regained strength with flat growth y-o-y at 19.8 msm average realisations gained 1.5 per cent. The gross margins rose back to 41 per cent (40 per cent in Q2-FY20) while EBTIDA margins expanded to 20.4 per cent from 14.7 per cent.

We expect little deviation from KJC’s strong focus on earnings, prudent capital allocation and maintaining healthy balance sheet. This will help KJC to consolidate further its leadership position by grabbing additional market share. Healthy cash chest of ₹350 crore will facilitate expansion in newer geographies and outreaching its competition cost effectively.

Additionally, leadership position will imply KJC to be a product pricing determinant keeping uncompetitive units at bay.

Keeping in view the same we value KJC now at a target P/E multiple of 30x (earlier 24.3x) FY22 earnings (unchanged). We revise our rating to Add (earlier Buy).

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Published on October 23, 2020
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