Result Update: Kajaria Ceramics Ltd - BUY - TP Rs.500 - Kotak

Kajaria Ceramics results were in line with our estimates led by healthy volume growth and sequential improvement in average realization. Margins decline on YoY basis was expected due to sharp hike in gas prices. Going ahead, we expect volumes to start witnessing traction on improved demand. High gas prices may continue to impact margins but benefits to margins will come from improvement in JV performance. Company had offloaded its stake in its subsidiary Soriso Ceramics for Rs 110 mn and has booked an exceptional loss of Rs 34 mn during the quarter.

Key highlights

Revenue growth of 8.1% YoY was led largely by 12.2% YoY volume growth. Realizations from owned plants and outsourced facilities have declined only marginally which indicates that prices have largely bottomed out. However, JV plant realizations have declined sharply. Operating margins stood at 15% vs 18.2% same period last year due to higher gas prices. Net profit performance on YoY basis was impacted by fall in margins but stood in line with our estimates.

Valuation and outlook

Stock is currently trading at valuations of 24x and 20.2x P/E on FY19 and FY20 estimates respectively. We maintain our estimates and target price of Rs 500 on FY20 estimates. We believe that though the shift from unorganized to organized players post GST and e-way bill implementation has not happened to a large extent so far, but with improved compliance towards e-way bill implementation post elections, organized players like Kajaria Ceramics are likely to benefit with market leading position and wide offering of products. We remain positive on the company and maintain BUY.

We expect the sector to witness these challenges further for 1-2 quarters more and once complete compliance begins towards e-way bill, then organized players will start witnessing increased volumes and improved realizations. Key risks to our estimates and recommendation would come from further hike in gas prices.

Shares of KAJARIA CERAMICS LTD. was last trading in BSE at Rs.380.55 as compared to the previous close of Rs. 361.25. The total number of shares traded during the day was 277932 in over 10683 trades.

The stock hit an intraday high of Rs. 395 and intraday low of 359.2. The net turnover during the day was Rs. 107145032.

Source : Equity Bulls

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