Kajaria Ceramics Ltd. - Q2FY14 Update, CMP Rs.241, Retain Hold, Target Rs.253 - Sushil Finance

Kajaria Ceramics Ltd (KCL) has reported decent set of numbers which were slightly lower than our expectations due to higher power & fuel cost. The highlights of the same are summarized below:

- For Q2FY14, KCL has posted total sales on consol basis of Rs.4783.5 mn, registering a growth of 23% YoY & 9% QoQ (driven by volume growth of 22% YoY). EBITDA grew by just 10% YoY to Rs.655.9 mn while the EBITDA margins contracted by 168 bps YoY to 13.7% due to higher power & fuel cost as % of sales (+297 bps YoY) whose impact was offset somewhat by lower raw material cost as % of sales (-175 bps YoY). PBT (incl. other income) increased by 16% YoY to Rs.444.1 mn. APAT stood at Rs.269.2 mn registering a growth of 1% YoY with net profit margin at 6% which contracted by 120 bps YoY due to higher tax rate. Its AEPS for Q2FY14 stood at Rs.3.7.

SORISO CERAMICS (Morbi, Gujarat):- Soriso Ceramics with an annual capacity of 4.6 MSM has operated at 96% capacity utilization in Q2FY14.

JAXX VITRIFIED (Morbi, Gujarat):- Jaxx Vitrified with an annual capacity of 5.7 MSM has operated at 97% capacity utilization for 1st plant (3.1 MSM) & at optimum level for 2nd plant (2.6 MSM) in Q2FY14. Plans to add 4.5 MSM capacity of high-end polished vitrified tiles at the existing location.

VENNAR CERAMICS (Vijaywada, Andhra Pradesh):- Vennar Ceramics with an annual capacity of 2.3 MSM has operated at 93% capacity utilization in Q2FY14.

COSA CERAMICS (Morbi, Gujarat):- Cosa Ceramics with an annual capacity of 2.7 MSM has operated at 96% capacity utilization in Q2FY14. Plans to add 3.0 MSM capacity of polished vitrified tiles at the existing location.

- Rs. 150 Cr funds will be raised through issue of fresh 2 mn equity shares at Rs.250/share & 3.9 mn warrants convertible into equity shares at Rs.257.37/share to WestBridge Crossover Fund, LLC.

- KCL plans to do capex of Rs. 425-450 Cr over FY13-FY16E and thereby projecting revenue of Rs. 3000 Cr plus by FY16E. Additional 7.5 MSM capacity at JV's (Jaxx & Cosa) is expected to get commissioned in Aug 2014 with a capex of Rs. 120 Cr.

OUTLOOK & VALUATION

KCL has performed exceedingly well in the past few years on the back of rising tiles demand, leveraging its strong brand & distribution network, focus on value added products & consistent expansion in its capacities organically as well as inorganically. Given its strong market positioning, increased capacities of its vitrified tiles, foray into new product lines, we expect KCL to deliver strong growth over the medium term. In the near term, we believe weak economic environment, high capex & gas prices and equity dilution may exert pressure on KCL's margins and cash flows. After incorporating its Q2FY14 numbers, price hike taken from 01st Oct 2013 & equity dilution, we expect its Revenues & APAT to grow by 15.0% & 1.1% in FY14 and 15.3% & 27.9% in FY15 resp. At the CMP of Rs.241, the stock trades at a valuation of 13.3x its FY15E EPS of Rs.18.1. We retain our "HOLD" rating on the stock with a TP of Rs.253.

Source : Equity Bulls

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