Strong growth continues… • Kajaria Ceramics :: ICICI Securities, report

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Strong growth continues…
• Kajaria Ceramics reported 25.9% YoY topline growth to | 553.8 crore
vs. our expectation of | 566.1 crore. This was led by volume growth of
23.7% YoY as last year in Q3FY14 a few plants were non-operational
for around a month due to a strike in Morbi
• The EBITDA margin came in at 15.4% (improved 40 bps YoY) vs. our
estimate of 15.0%. Also, net profit grew 55.2% YoY to | 45.6 crore and
was ahead of our expectation of | 38.4 crore due to better-thanexpected
operating margin and lower interest expense (| 5.6 crore in
Q3FY15 vs. | 11.0 crore in Q3FY14)
• WC days increased marginally in Q3FY15 to 31 days vs. 25 days in
Q2FY15. Despite this, Kajaria managed to reduce its debt by | 84 crore
sequentially to | 152 crore (debt-equity: 0.2x) as it received |75 crore
from West Bridge for conversion of warrant issued earlier
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 per person in comparison to
3-4 sm per 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 is 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 23.4% and 29.1%, respectively, during FY14-17E.
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 0.2x currently. The sharp
improvement in debt-equity has been possible through an improvement
in net working capital, which was at 132 days in FY08 to 31days currently.
Maintain BUY on favourable structure story with TP of | 775…
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 maintain a BUY
recommendation on the stock. We now roll over our valuation to FY17E
and value the stock at | 775 (at 0.8x PEG, implying P/E of 23x FY17E).

LINK
http://content.icicidirect.com/mailimages/IDirect_KajariaCeramics_Q3FY15.pdf