Kajaria Ceramics - Growth momentum continues; Buy
Key takeaways
Robust volumes drive growth in revenue. Kajaria Ceramics (Kajaria) reported strong revenue growth of 23% during 1QFY14 due to robust volumes of 18% yoy. For FY13, the company posted revenue growth of 23%, with volume growth of 15% yoy. Production growth during 1QFY14 was 12%, led by ramp-up in JV production (128% yoy rise), thus reducing the share of outsourcing/imports in overall sales. The share of low-margin category of outsourcing/imports in total sales (by value) has reduced from 31% in 1QFY13 to 24% in 1QFY14. We expect this trend to continue in the balance part of FY14, resulting in revenue growth of 22%.
EBITDA and PAT in line with estimates. The company reported 14.7% EBITDA margin in 1QFY14 versus 15.7% yoy and 15.1% qoq. Better realisations (5% yoy) and reduced outsourcing/imports enabled Kajaria to thwart pressure on margins due to rise in fuel prices and weakening of Indian currency. PAT and PAT after minority interest grew 23% and 16%, yoy, respectively. Both EBITDA and PAT were in line with estimates.
JV model to be replicated in sanitaryware. All subsidiaries operated at 95%+ utilisation in 1QFY14, except its Morbi facility in Gujarat (69% utilisation; acquired by Jaxx Ceramics in Apr’13). Kajaria is converting its 2msm polished vitrified facility in Sikandrabad into 3.4 msm glazed vitrified tiles by 4QFY14. Also, it has decided to venture into sanitaryware production (having tested the market with outsourcing so far) through a 0.7m pieces p.a. in Morbi Gujarat in JV with local partners (34% stake).
Our take. We expect growth momentum to continue, led by capacity expansions/new ventures, strong OPM and low gearing. Key positives are strong brand & distribution network and robust FCF & return ratios. At our target, it would trade at 17x FY14 consolidated earnings, in line with its average multiple of eight years. Risks. Slowdown in real estate sales, forex fluctuation.
| Thanks & Regards Anand Rathi Institutional Research |
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