Kajaria Ceramics Q2 Results Review - Low Volume, Margins To Gradually Revive By Q4: Systematix

Systematix Research Report

Kajaria Ceramics Ltd.’s tile volume growth (up ~8% YoY in Q2 and H1 versus 2-3% growth for industry) is expected to be ~10% in FY25 with likely demand revival in H2 (normally a better half). Low Ebitda margin (13.5%, down 255 bps YoY) led to 12%/22% YoY dip in Ebitda/profit after tax.

Margin impacted due to muted margins in the bathware division (~100 bps impact) owing to losses incurred in the recently commissioned sanitaryware unit in Morbi.

Additional overheads incurred by Keronite unit in the tiles division which commenced operations during Q2 also restricted margins. Management expects margins to revive gradually with an improvement in capacity utilization at new plants.

Net-working capital cycle is aimed to reduce to 50 days by end-FY25. Capex for FY25 is pegged at Rs 2 billion (including Rs 450 million in Nepal; H1 at 1.35 billion). A 5.1 million GVT capacity in Nepal is expected to ramp up in H2 FY25. Nepal is a ~Rs 25 billion tile market and Kajaria Ceramics aims 10%+ market-share in few years. After a soft Q1, we cut earnings estimates by 8-11%.

We now expect 11%/11%/ 11%/11% CAGR in tiles-volume /revenue /Ebitda/PAT over FY24-27E (FY19-24: 6%/ 9%/9%/13%), with ~28% return on invested capital and ~Rs 3.6 billion annual free cash flow.

While long-term structural drivers are intact, on low margin of safety in the scrip at ~35x FY27E P/E, we maintain Hold rating with a revised target price of Rs 1,308 (36 times FY27E P/E). Recovery in tile volume and Ebitda margin are key monitorable.

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