Result Update: Kajaria Ceramics Ltd - BUY - TP Rs.648 - Kotak

Kajaria Ceramics results were marginally lower than our estimates due to rise in power and fuel cost and pressure on realizations. Management has reduced the guidance for margins going forward owing to higher gas prices but expects to grow volumes by 12-15% going forward. Loss making JVs have now achieved break-even and are now expected to make profits going forward.

Key highlights

Revenue growth of 4.2% YoY was led largely by volume growth as realization growth remained largely subdued. Operating margins were under pressure due to higher gas prices and higher proportion of outsourced tiles. Net profit performance on YoY basis was impacted by fall in margins.

Valuation and outlook

Stock is currently trading at valuations of 27.2x and 24.5x on FY19 and FY20 estimates respectively. We revise our estimates to factor in slightly lower realizations and higher costs while keeping the volume growth intact. We arrive at a revised price target of Rs 648 based on 30x FY20 estimated earnings (Rs 694 earlier). We believe that though the shift from unorganized to organized players post GST implementation has not happened to a large extent so far, but with e-way bill implementation, organized players like Kajaria Ceramics are likely to benefit with market leading position and wide offering of products. This is likely to be reflected in 1-2 quarters. We remain positive on the company and upgrade the stock to BUY from ACCUMULATE earlier.

Shares of KAJARIA CERAMICS LTD. was last trading in BSE at Rs.539.5 as compared to the previous close of Rs. 530.8. The total number of shares traded during the day was 71911 in over 1630 trades.

The stock hit an intraday high of Rs. 548.5 and intraday low of 535. The net turnover during the day was Rs. 39149717.

Source : Equity Bulls

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