Broker's call: Kajaria Ceramics (Hold)

| Updated on May 15, 2019 Published on May 16, 2019

Reliance Securities

Kajaria Ceramics (Hold)

CMP: ₹589.2

Target: ₹591

Kajaria Ceramics has reported a dismal performance in fourth quarter despite higher-than-expected volume and increased power and fuel cost. While revenue broadly came in-line with our estimate at ₹820 crore (about 9 per cent y-o-y and about 8 per cent q-o-q), EBITDA grew by mere 2 per cent y-o-y to ₹123 crore vs our estimate of ₹140 crore and EBITDA margin contracted by 93 bps y-o-y to 15.1 per cent. Sales volume grew by a strong 11 per cent y-o-y to 22.5 msm, while average realisation declined by 2.5 per cent y-o-y and 3 per cent q-o-q to ₹339/sm. Operating cost/tonne broadly stood flat sequentially (up 1.5 per cent y-o-y) mainly led by rise in RM cost.

Net profit stood at ₹66.9 crore (-4 per cent y-o-y and +1.5 per cent q-o-q) vs our estimate of ₹82 crore mainly due to dismal operating performance. Moderate improvement in working capital cycle during the quarter is heartening, in our view. However, factoring in soft subdued realisation, we cut our earnings estimates by about 10 per cent/about 3 per cent for FY20E/FY21E despite factoring in higher volume. Further, we do not envisage any re-rating for the stock, as its return ratio is unlikely to revert to the previous peak.

Hence, considering limited upside post recent sharp appreciation in the stock price, we downgrade our recommendation on the stock to ‘hold’ from ‘buy’.

Published on May 16, 2019
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