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Kajaria Ceramics |
Upgrade in price target |
BUY
CMP: Rs 73 Target Price: Rs 100
n Our recent interaction with the management suggests that industry demand remains encouraging helping it to boost revenues from higher trading, +75% in H1FY11
n Capacity in high end segment to increase from 10% in FY10 to 30% by FY12E
n Capex plans are on schedule 1) New vitrified plant to commission by Jan’11; 2) Conversion of ceramic floor tiles into vitrified tiles by Feb’11
n Upgrade FY11E EPS by 12% to Rs 7.5 and FY12E by 10% to Rs 10, and price target by 10% to Rs 100 and maintain BUY
Strong demand in higher end ceramics segment to help boost revenues
Kajaria Ceramics is likely to benefit from strong growth in the higher end vitrified tiles
segment. Growth in this segment has helped the company leverage its strong brand and
distribution network to boost revenues through higher trading. Trading revenues
increased by ~75% yoy in H1FY11 (contributed 40% to revenues as against 27%
previous year). Management expects that growth in trading revenues is likely to remain
buoyant in the near future.
Upgrade FY11E and FY12E estimates on back of higher revenues
On account of higher revenues driven by increased trading, we have revised our
revenue estimates for FY11E by 4.8% to Rs 9.1 bn and for FY12E by 9.4% to Rs 10.7
bn. Though we estimate there may be some pressure on EBITDA margins (since
margins in trading business are lower than own manufacturing) yet we have upgraded
our overall EBITDA by 2.4% in FY11E and 4.2% in FY12E. Consequently, we upgrade
our FY11E EPS by 10.7% to Rs 7.5 and FY12E by 9.9% to Rs 10.
Capex on schedule, to be completed by end of FY11
1) Conversion of ceramic floor tiles at Unit-3, Sikandrabad plant (with capacity of 4 mn
sqmt) into vitrified tiles (capacity of 2.4 mn sqmt) with cost of Rs 194 mn is on
scheduled and expected to complete by Feb’11.
2) The company’s capex plan to put vitrified tiles (polished and glazed) is as per
schedule (expected completion by Jan’11) and should drive the volume growth for
FY12.
Due to continued focus on increasing / shifting the capacity towards higher end vitrified
tiles segment - capacity in high end (vitrified / polished / glazed) tiles should increase to
30% by FY12E from 10% in FY10. We expect this shift to help the company improve its
average realisations and margins.
Upgrade price target by 10%, maintain BUY
Driven by upgrade in earnings, we upgrade our price target by 10% to Rs 100 (10x
FY12E EPS) and re-iterate our BUY recommendation on the stock. Kajaria Ceramics
has witnessed 22% growth in revenues in H1FY11 and we expect the momentum to
continue on the back of strong demand growth.
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