Kajaria Ceramics - Profitability back on track; Buy - Anand Rathi

Robust volumes drive revenue growth. Kajaria Ceramics (Kajaria) reported strong revenue growth of 20.5% during 4QFY13 due to robust volumes of 14%, yoy. For FY13, the company posted revenue growth of 22.8%, with volume up 15% yoy. Production growth during 4QFY13 and FY13 was 23% and 24%, yoy, respectively, led by ramp-up in JV production (thus reducing the share of outsourcing/imports). The share of low-margin category of outsourcing/imports in total sales (by value) has reduced from 35% in FY12 to 27% in FY13 and from 28% in 4QFY12 to 21% in 4QFY13. We expect this trend to continue, led by continuous acquisition/JV approach, resulting in revenue CAGR of 22% over FY13-15e.

EBITDA and PAT higher than estimated. The company reported 15.1% EBITDA margin in 4QFY13 versus 15.7% yoy and 14.4% qoq. Better realisations (6% yoy), reduced outsourcing/imports, and stable power & fuel prices have improved margins qoq. For FY13, the company posted EBITDA margin of 15.1% even as realisation grew 7% yoy. Lower interest, depreciation, tax rate and higher other income raised PAT by 41.6% yoy in 4QFY13. For FY13, the company declared a dividend of `3/share.

Acquisitions to aid growth going forward. Kajaria's subsidiary, Jaxx Ceramics, acquired a plant in Morbi, Gujarat in Apr'13 with capacity of 2.6m sq. mt, taking Kajaria's capacity to 43.6m sq mt. Its previous four acquisitions are ramping up well with utilisation rates ranging between 69-100%.

Our take. We expect growth momentum to continue, led by acquisitions, (leading to capacity expansions), strong OPM and lower gearing. Key positives are strong brand & distribution network and robust FCF & return ratios. At CMP, the stock trades at 11.9x FY14e consolidated earnings. At our target, it would trade at 17x FY14 consolidated earnings, in line with its average multiple of eight years. Risks. Slowdown in real estate sales, high Chinese competition, forex fluctuation.

Source : Equity Bulls

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