Kajaria Ceramics - Q4FY21 beat largely priced in - ICICI Securities

Kajaria Ceramics (KJC) has reported an impressive beat in Q4FY21 - recording double digit volume growth sequentially in tile segment (+12.4% QoQ) and 1.6% QoQ increase in realisation leading to overall revenue at Rs9.5bn (I-Sec: Rs9bn) led by robust demand from tier-1 and below cities. EBITDA margin continued to remain healthy at 20%, in-line with our estimates, despite sharp increase in outsourcing mix and rise in gas cost. Management has announced a large capex of Rs2.5bn (seeing strong demand and higher utilisation) in FY22 which will increase its capacity by 18% and generate Rs5bn worth of revenue. With industry tailwinds (demand and pricing) likely to sustain for branded ceramic tile players (barring one-third impact on Q1FY22 volume), we expect double digit volume growth and healthy margins to sustain in near-to-medium term. Downgrade to ADD.

- Valuation and risks: Factoring in the Q4FY21 performance, we tweak our revenue and earnings estimates by 0.9%/4.4% and -5.2%/7.5% for FY22/FY23, respectively. We now expect revenue and earnings to report 18.4% and 25.9% CAGR over FY21-23E, respectively. We downgrade KJC to ADD from BUY with a revised target price of Rs1,075 (earlier: Rs1,000) based on 35x FY23E earnings. Higher multiples are based on strong profitability and FCF generation despite higher capex over the next two years. Downside risk to our estimates: Higher gas prices and increase in competitive intensity.

- Company reports strong sequential double digit tiles volume growth: KJC posted 13.6% QoQ growth in revenues in Q4FY21 to Rs9.53bn (I-Sec: Rs9bn) driven by market share gains and higher demand from tier-1 & below markets in tile segment and 6% growth in bathware products. Realisations, too, were up 1.6% QoQ despite higher share of outsourced tiles led by price hike. Considering demand tailwinds to sustain barring Q1FY22 impact due to the second covid wave and further improving mix (on account of higher capex in value added tiles), we model-in 15.5%/18.4% volume/revenue CAGRs over FY21-FY23E, respectively.

- EBITDA margin remains healthy despite higher outsourcing mix and gas cost; KJC's EBITDA margin for the quarter was at 20%, in-line with our estimates, despite higher outsourcing mix (+82.7% YoY) and higher gas cost. Gross margins were down by 70bps/160bps YoY/QoQ respectively led by adverse product mix. However, operating leverage, price hikes and lower other expenses helped restrict the fall in margin. Despite the recent hardening in input costs, we expect the company's EBITDA margin to sustain at 19-20% over the next two years driven by expected improvement in product mix, stable employee costs and improving profitability of its JVs/bathware vertical. We model-in 19% / 19.5% EBITDA margins for KJC for FY22E / FY23E, respectively.

- RoCEs adjusted for cash to expand to 36% by FY23E: Strong FCF generation driven by sharp rise in profitability, firm cash collections and muted capex in FY21 drove KJC's net cash higher. Despite higher capex of Rs2.5bn in FY22, FCF generation is likely to be robust on the back of higher growth and profitability. RoCE adjusted for cash is likely to surge 36% by FY23E vs 25.2% in FY21.

Shares of KAJARIA CERAMICS LTD. was last trading in BSE at Rs.1000.9 as compared to the previous close of Rs. 1016.35. The total number of shares traded during the day was 13759 in over 1555 trades.

The stock hit an intraday high of Rs. 1035.9 and intraday low of 991. The net turnover during the day was Rs. 13808961.

Source : Equity Bulls

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