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Kajaria Ceramics Limited (KCL) is the largest manufacturers of ceramic/vitrified tiles in India and
has carved out distinct brand equity in the same. It has a capacity of 30.60 mn sq meter (MSM)
(across 3 plants ‐ Sikandrabad in Uttar Pradesh, Gailpur in Rajasthan and Morbi in Gujarat). It
has increased its capacity from 1 MSM to 30.60 MSM in last 22 years and offers more than 400
options in ceramic wall & floor tiles, vitrified tiles, designer tiles and much more.
Robust demand in domestic tile market
The Indian ceramic tiles industry is the world’s largest producer as well as consumer after China
and Brazil. The 550 MSM domestic ceramic tile industry was estimated to be worth Rs.130 bn as
on March, 2011, growing at a CAGR of ~15%. India’s per capita tiles consumption is a mere 0.42
sq. m while the world average is three times higher at 1.20 sq. m and China’s average is more
than five times higher at 2.26 sq. m. Demand for tiles is expected to grow rapidly because of the
following reasons: ‐ (1) Increasing middle‐class & rising population, (2) Improved disposable
incomes and (3) Growth of replacement market in rural and semi‐urban markets. KCL is the 2nd
largest tile company (turnover wise) with around 15% share in the organized market and is very
well placed to benefit from the strong growth being witnessed in the tiles industry.
Capacity expansions to ensure strong growth in volumes
Kajaria has recently expanded its capacity to 30.6 MSM, led by a 6 MSM brownfield expansion
(March 2011) at Gailpur to manufacture vitrified tiles (glazed and polished) & a 2.60 MSM
vitrified capacity (conversion from ceramic tiles) at Sikandrabad (commenced operations in
March 2011). In the last 15 months, KCL added 11 MSM of vitrified tiles capacity, the largest by
any single company in India. Given its market positioning, demand growth & high capacity
utilization, KCL’s volumes are expected to expand substantially following these expansions.
Focus on value added products, strong Brand & distribution network to drive growth
In India, the branded tiles segment is gaining market share owing to rapid capacity addition and
shift to value‐added products, which explains the 20% growth of the top 10 players as against
the industry average of 15%. KCL has one of the largest distribution channels in India with 800
dealers (apart from their network of sub‐dealers) that help in better market penetration. To
leverage their strong distribution network and brand competencies, apart from adding
capacities in the high end vitrified tiles category, KCL has also forayed into many high‐end
sanitaryware segments which positions the company as a complete bathroom solution provider
and has also established a foothold in high‐value wooden flooring solutions. This will help KCL to
accelerate its market share in the high‐end segment, grow its volume strongly and will also
enable it to address newer segments, where it was previously absent.
Reducing Leverage & Sharp Improvement in ROCE & ROE
Historically, the Indian tile companies have had a low asset turnover ratio, as the cost of
machinery was very high. However, with the foray of Chinese companies into machine
manufacturing in the recent past, the prices of Italian machines have also come down
substantially. Apart from this, KCL’s focus higher end products, has helped it improve
realizations. These factors have turned out to be game changers for the company as it has been
able to improve margins, reduce leverage and report better ROCE/ROE. The ROCE and ROE for
FY11 has improved to 24.9% & 29.5% respectively from 18.9% & 20.4% respectively in FY10.
OUTLOOK & VALUATION
KCL has performed exceedingly well in the past few years on the back of rising tiles demand,
its strong brand & distribution network, focus on value added products & consistent
expansion in its capacities. Given its strong market positioning, increased capacities of its
vitrified tiles, foray into new product lines of high end sanitaryware & wooden flooring
segments, we expect KCL to deliver strong growth over the coming years. Going forward, we
expect its Revenues and APAT to grow strongly by 23% & 21% in FY12 & 17.5% and 20.3% in
FY13 respectively. We initiate our coverage on the Company with a “HOLD” rating and a target
price of Rs.120 (10x FY13E EPS of Rs.12).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kajaria Ceramics Limited (KCL) is the largest manufacturers of ceramic/vitrified tiles in India and
has carved out distinct brand equity in the same. It has a capacity of 30.60 mn sq meter (MSM)
(across 3 plants ‐ Sikandrabad in Uttar Pradesh, Gailpur in Rajasthan and Morbi in Gujarat). It
has increased its capacity from 1 MSM to 30.60 MSM in last 22 years and offers more than 400
options in ceramic wall & floor tiles, vitrified tiles, designer tiles and much more.
Robust demand in domestic tile market
The Indian ceramic tiles industry is the world’s largest producer as well as consumer after China
and Brazil. The 550 MSM domestic ceramic tile industry was estimated to be worth Rs.130 bn as
on March, 2011, growing at a CAGR of ~15%. India’s per capita tiles consumption is a mere 0.42
sq. m while the world average is three times higher at 1.20 sq. m and China’s average is more
than five times higher at 2.26 sq. m. Demand for tiles is expected to grow rapidly because of the
following reasons: ‐ (1) Increasing middle‐class & rising population, (2) Improved disposable
incomes and (3) Growth of replacement market in rural and semi‐urban markets. KCL is the 2nd
largest tile company (turnover wise) with around 15% share in the organized market and is very
well placed to benefit from the strong growth being witnessed in the tiles industry.
Capacity expansions to ensure strong growth in volumes
Kajaria has recently expanded its capacity to 30.6 MSM, led by a 6 MSM brownfield expansion
(March 2011) at Gailpur to manufacture vitrified tiles (glazed and polished) & a 2.60 MSM
vitrified capacity (conversion from ceramic tiles) at Sikandrabad (commenced operations in
March 2011). In the last 15 months, KCL added 11 MSM of vitrified tiles capacity, the largest by
any single company in India. Given its market positioning, demand growth & high capacity
utilization, KCL’s volumes are expected to expand substantially following these expansions.
Focus on value added products, strong Brand & distribution network to drive growth
In India, the branded tiles segment is gaining market share owing to rapid capacity addition and
shift to value‐added products, which explains the 20% growth of the top 10 players as against
the industry average of 15%. KCL has one of the largest distribution channels in India with 800
dealers (apart from their network of sub‐dealers) that help in better market penetration. To
leverage their strong distribution network and brand competencies, apart from adding
capacities in the high end vitrified tiles category, KCL has also forayed into many high‐end
sanitaryware segments which positions the company as a complete bathroom solution provider
and has also established a foothold in high‐value wooden flooring solutions. This will help KCL to
accelerate its market share in the high‐end segment, grow its volume strongly and will also
enable it to address newer segments, where it was previously absent.
Reducing Leverage & Sharp Improvement in ROCE & ROE
Historically, the Indian tile companies have had a low asset turnover ratio, as the cost of
machinery was very high. However, with the foray of Chinese companies into machine
manufacturing in the recent past, the prices of Italian machines have also come down
substantially. Apart from this, KCL’s focus higher end products, has helped it improve
realizations. These factors have turned out to be game changers for the company as it has been
able to improve margins, reduce leverage and report better ROCE/ROE. The ROCE and ROE for
FY11 has improved to 24.9% & 29.5% respectively from 18.9% & 20.4% respectively in FY10.
OUTLOOK & VALUATION
KCL has performed exceedingly well in the past few years on the back of rising tiles demand,
its strong brand & distribution network, focus on value added products & consistent
expansion in its capacities. Given its strong market positioning, increased capacities of its
vitrified tiles, foray into new product lines of high end sanitaryware & wooden flooring
segments, we expect KCL to deliver strong growth over the coming years. Going forward, we
expect its Revenues and APAT to grow strongly by 23% & 21% in FY12 & 17.5% and 20.3% in
FY13 respectively. We initiate our coverage on the Company with a “HOLD” rating and a target
price of Rs.120 (10x FY13E EPS of Rs.12).
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