Kajaria Ceramics Ltd share Price

BSE Consumer durable index has given a breakout from falling channel signalling end of corrective phase and resumption of structural uptrend. Going ahead, We expect consumption space to remain resilient in the ongoing Festive session, leading to outperformance in coming quarters. Within this space, we remain constructive on Kajaria Ceramics as it is a proxy play of the consumption theme. The stock has generated a breakout above the last seven weeks range (₹ 1214-1107) as buying demand has emerged from previous major breakout area signalling continuation of the up move

Kajaria is the largest manufacturer of ceramic/vitrified tiles in India with current annual capacity of 82.8 million sq. meters (MSM).  It has clocked 7.8%, 8.3% revenue, PAT CAGR during FY17-22. Going forward, Kajaria is likely to benefit with growing tiles demand in domestic market (to improve by 5-6% during FY23) driven by revived consumer sentiments, improved real estate demand in Tier-II and II cities, and upped re-construction/renovation activities in the metro regions

Kajaria is taking capacity expansion across product portfolio. It has commissioned 4.4 MSM of PVT capacity at its Morbi (Gujarat) plant during April’22. The other two projects i.e 4.2 MSM of ceramic floor tiles at Gailpur(Rajasthan) and 3.8 MSM of glazed vitrified tiles at Srikalahasti(Andhra Pradesh) have also been commissioned during May’22. Further, the company is investing ₹ 80 crores to set up a 8 lakh pcs/ annum sanitaryware manufacturing facility in Gujarat which is expected to be completed by December’ 23. Further, it is adding new capacity of 6 lakh pieces/annum in their faucet plant at Gailpur, which will take the total the capacity to 16 lakh pieces/ annum and expected to be completed by October’22. These capex are likely to benefit Kajaria during improved demand scenario

We expect 16% CAGR in tiles volume and 3.5% CAGR in realizations, resulting in tiles revenues CAGR of ~20% over FY22-24 (to ₹ 5,351.6 crore) to be driven by a) expected rise in demand from Tier II and below cities, b) healthy capacity utilizations, c) expected increase in Kajaria’s capacity, d) enhanced distribution network and e) strong brand recall. Margin is likely to hover at the current range of 16.5% despite on-going volatility in gas prices, increased global uncertainty, and higher freight and packaging cost

At CMP, Kajaria is trading at ~34x FY24E P/E. With net cash balance sheet and superior brand, it is a quasi-play on improved scenario of real estate and expanding reach to tier 2/3 cities