Kajaria Ceramics: Soaring Gas Prices Dent Margins

Published 18-05-2022, 11:50 am

Kajaria Ceramics (NS:KAJR): We maintain our BUY rating on Kajaria Ceramics (KJC), with a revised target price of INR 1,420/share (21x its Mar’24E consolidated EBITDA). We continue to like KJC for its market share gain and superior margin in the tiles segment (function of its robust distribution and cost controls) and its fast expansion in the bath ware and ply businesses. In Q4FY22, KJC’s consolidated revenue grew 16% YoY, led by 13% NSR surge.

However, higher gas prices pulled down EBITDA by 13% YoY. EBITDA margin cooled off 5pp YoY. KJC expanded its tiles capacity by 17% in Apr-May’22. It also hiked prices by ~2% in tiles from 1st May to pass on soaring fuel prices.

Kajaria Ceramics

Soaring gas prices dent margins

We maintain our BUY rating on Kajaria Ceramics (KJC), with a revised target price of INR 1,420/share (21x its Mar’24E consolidated EBITDA). We continue to like KJC for its market share gain and superior margin in the tiles segment (function of its robust distribution and cost controls) and its fast expansion in the bath ware and ply businesses. In Q4FY22, KJC’s consolidated revenue grew 16% YoY, led by a 13% NSR surge. However, higher gas prices pulled down EBITDA by 13% YoY. EBITDA margin cooled off 5pp YoY. KJC expanded its tiles capacity by 17% in Apr-May’22. It also hiked prices by ~2% in tiles from 1 st May to pass on soaring fuel prices.

Q4FY22 performance: Kajaria posted a lower-than-estimated margin (~200bps miss) in Q4FY22, as margin compressed QoQ on rising gas prices (crude linked). Tiles sales volumes/revenue rose 2/16% YoY (2-year CAGR 19/29%). Outsourced volume continues to lead growth (+12% YoY, 2-year CAGR 39%). Price hikes taken at end of Nov-21 drove up NSR by 3% QoQ, thereby moderating the impact of soaring gas prices. Bath ware/ply revenues firmed up 16/25% YoY.

Outlook: For FY23, KJC targets volume/revenue growth of ~15-20%/20-25%. It expects India’s tiles export to increase by ~35% YoY, as sharp spikes in gas and electricity prices in European countries have increased Indian tile’s competitiveness. This in turn should be positive for domestic players. KJC has expanded its tiles capacity by 17% in Apr-May’22, bolstering its volume growth and market share gain. Factoring in the higher gas price impact, we have cut our FY23E EBITDA estimate by 4%.

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