Guided for 14-16% revenue growth in FY24 to be led by higher volume growth
Kajaria Ceramics (KJC) reported consolidated revenue/EBITDA growth of 6%/ 10% YoY to INR10.6b/INR1.7b (in line) in 1QFY24. OPM stood at 15.9% (vs. est. 15.5%). PAT was at INR1.1b (vs. est. INR1.0b) driven by lower-than- estimated depreciation and finance costs during the quarter.
Management expects demand to pick up from Sep’23 and guided for 14-16% YoY revenue growth along with an EBITDA margin of 14-16% in FY24. Exports of tiles have picked up from India and are likely to grow 20% YoY in FY24. Higher exports will ease pressure in domestic markets from Morbi-based players.
We initiated coverage on KJC with a BUY rating. We believe that 33% earnings CAGR over FY23-25E, strong return ratios (RoE of 22%, ROCE of 26% and RoIC of 31% in FY25E), and healthy balance sheet will help KJC maintain its premium multiples. We reiterate our BUY rating with a revised TP of INR1,580.
Lots of positive triggers are being witnessed on the ground, which should help a strong demand pick-up. Demand should improve from Sep’23 led by demand growth from real estate and infra segments. Prices were largely stable and should remain steady going forward.
Lower gas prices to result in savings of INR1.5-1.75b, of which KJC will pass on INR500m to the dealers and will retain the balance of ~INR1b.
Ad spends in FY24 will be at INR1.3b-INR1.35b as against INR1.1b in FY23. It spent INR250m in 1QFY24 and will increase spends from early-Aug’23.
Tiles exports have seen green shoots with ~23% YoY growth in 1QFY24. Higher exports should ease pressure in the domestic markets and we believe KJC, being the leading domestic player, should benefit.
We expect 33% earnings CAGR over FY23-25 and project improvement in return ratios (RoE to be at 22% in FY25E v/s 15% in FY23). We expect KJC to maintain its premium valuations. We value the stock at 42x FY25E EPS to arrive at our TP of INR1,580. Reiterate BUY.