Capacity expansion, strong b/s to fuel growth… • Kajaria Ceramics :: ICICI Securities PDF link

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Capacity expansion, strong b/s to fuel growth…
• Kajaria Ceramics (Kajaria) reported revenue of | 541.2 crore (up
13.1%YoY) vs. our expectation of | 526.3 crore. This was led by
volume growth of 7.1% YoY to 14.3 million square metre (msm) in
Q2FY15 while the realisation at | 376 per square metre (sm) was
slightly higher than our expectation of | 372 per sm
• The EBITDA margin came in at 15.0% (improved 88 bps YoY) vs. our
estimate of 15.4%. It reported a PAT of | 39.8 crore (up 47.7% YoY)
vs. our estimate of | 38.6 crore
• The working capital (WC) days improved further to 22 days in
Q2FY15 vs. 24 days in Q1FY15 while gross debt reduced by | 20
crore sequentially to | 207 crore (debt-equity: 0.3x)
Indian tiles industry – offers steady growth prospects for Kajaria…
With increasing disposable income and urbanisation, India has emerged
as one of the fastest growing tiles markets globally (14.0% CAGR in CY08-
12). With per capita consumption at 0.54 sm/person in comparison to 3-4
sm/person in peer countries, the prospects for India are huge in catching
up with its global counterparts. Also, with the government’s initiatives like
‘Swachh Bharat Abhiyan’ and ‘Housing for all by 2022’, we believe Kajaria,
being the leading player in the industry, is likely to reap the benefits either
directly or indirectly.
Morbi development – structurally positive for organised players…
In November, 2013, the Gujarat Pollution Control Board (GPCB) issued a
closure notice to Morbi (hub for unorganised players) based ceramic units
that run on coal gas furnace. This development is structurally positive for
organised players like Kajaria as i) the organised pie will grow faster in the
absence of cost advantage enjoyed by unorganised players due to coal
gas furnace and ii) it has set the tone for consolidation in the industry.
Planned capacity expansion to drive future growth…
Currently, Kajaria’s cumulative capacity stands at 54.1 msm. Kajaria is
looking to augment its capacity by 13 msm to 67.1 msm by June, 2015.
This will be achieved through: i) acquisition of a 51% stake in Taurus Tiles
Pvt Ltd (5 msm annual capacity of polished vitrified tiles) ii) greenfield
facility in Rajasthan (5 msm of polished vitrified tiles) and iii) brownfield
facility at its existing location in Rajasthan (3 msm capacity of ceramic
tiles). To augment this capacity, it needs to spend ~| 210 crore over the
next 12 months. Consequently, its topline and bottomline are expected to
grow at a CAGR of 26.1% and 32.6%, respectively, during FY14-16E.
Strong balance sheet…
Kajaria has come a long way in the last five years in terms of reducing its
leverage from a menacing 2.1x in FY08 to 0.3x currently. The sharp
improvement in debt to equity has been possible through an
improvement in net working capital, which was at 132 days in FY08 to 22
days currently. The healthy balance sheet also lends us comfort in terms
of meeting the planned capex of ~| 210 crore over the next 12 months.
Available at 0.7x PEG; positive on structural growth story…
We remain positive on Kajaria given the sturdy growth in the industry,
favourable structural shift, its better margin and return ratio profile
coupled with a strong balance sheet. Hence, we have a BUY
recommendation on the stock with a target price of | 695 (valuing it at
0.8x PEG, implying P/E of 25x FY16E). Overall, we remain optimistic on
Kajaria’s business prospects in the organised space and believe the
robust growth trajectory will continue.

LINK
http://content.icicidirect.com/mailimages/IDirect_KajariaCeramics_Q2FY15.pdf