Kajaria Ceramics - Gas Price To Increase; Industry Dynamics Improving: Motilal Oswal

Motilal Oswal Report

Kajaria Ceramics Ltd. has been generating free cash flow since FY16, which is likely to continue going forward as well. The company turned net cash in FY19 and we expect it to remain so going ahead as well (net cash is estimated at Rs 3.9 billion in FY26 versus Rs 1.8 billion in FY23) despite higher capex (Rs 10.2 billion over FY24-26).

Return on capital employed is projected to be at 22%/25%/27% in FY24/FY25/FY26 versus 18% in FY23 (average of 20% over FY18-22).

We reiterate our 'Buy' rating on Kajaria Ceramics with a target price of Rs 1,580 based on 42 times June-25E earnings per share (versus 35 times last five-year average one-year forward price/earning).

We believe that:

1. 26% earnings compound annual growth rate over FY23-26E,

2. strong return ratios (return on equity of 23%, RoCE of 27% and return on invested capital of 32% in FY26E), and

3. healthy balance sheet will help Kajaria Ceramics maintain its premium multiples.

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