India Equity Research: Kajaria Ceramics

OPM surprises positively, valuations stretched
We maintain Hold rating on Kajaria Ceramics as we believe that valuations look
expensive after sharp run up in the stock post Q2 results. We believe further rerating of the stock will be restricted (it is trading near to mean+sd1) as we expect
RoE to decline to 24.1% in FY15E against 32.5% in FY13. However, we continue to
like the company due to a) its leadership position and strong brand equity b)
consistent better-than-industry growth rate, which is expected to continue over
the next few years on the back of aggressive capex plans and c) declining leverage
(0.3x in FY16E vs. 0.9x in FY13). In the quarter, Revenue was below our estimates,
however, positive surprise in the operating margin led to in-line profits.
Revenue impacted by strikes, expect recovery from Q4FY14E: Led by a mere
1.9% YoY volume growth due to strikes at Morbi, Gujarat for 24days, the company
reported Revenue of Rs4,400mn (vs. estimated Rs4,974mn, up 5.4% YoY). Blended
realization increased 3.5% YoY during the quarter. The management indicated that
sales volume growth will be maintained from Q4FY14E and believes volume growth
will be in the range of 14-15%.
OPM improves led by lower trading revenues and energy costs: EBITDA margin
improved 58bps YoY (and 134bps QoQ) led by higher realization (up 3.5% YoY),
lower contribution from trading revenues and moderation in energy costs. Led by
recent price hikes and stabilization in exchange rate, energy cost as a percentage of
sales declined by 67bps during the quarter. The management expects energy costs
to remain at current levels going forward. Contribution from trading revenues
declined to 19.2% against 25.4% in Q3FY13.
Earnings estimates revised downwards on lower sales volume: We have revised
sales volume estimates downwards by 5.9%/4.4% for FY14E/FY15E considering
lower sales volume in the quarter. Factoring in lower sales volume, revenue
estimates have been revised downwards by 5.9%/4.4% for FY14E/FY15E. We have
also revised energy cost estimates downwards considering moderation in energy
costs during the quarter which leads to higher OPM of 30bps/10bps for
FY14E/FY15E. Profit estimates are being revised downwards by 2.6%/3.4% for
FY14E/FY15E.
Valuation and key risks: The stock is trading at 19.6x FY14E EPS and 16x FY15E
adjusted EPS of Rs14.4 and Rs18.6 respectively. We value the company at 14.3x Dec-
15E EPS and arrive at a price target of Rs330, an upside of 11% from CMP. Key risks
to our thesis are: a) lower than expected sales volume due to weak construction
scenario, b) higher energy costs and c) threat from Chinese imports.

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09 August 2013

Kajaria Ceramics - Growth momentum continues; Buy (Anand Rathi Institutional Research)

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.

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Thanks & Regards
Anand Rathi Institutional Research

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07 August 2013

Kajaria Ceramics - Strong revenue growth offsets margin pressure ::Credit Suisse

● In-line 1Q results: Kajaria's Jun-13 consolidated revenue rose a
strong 23% YoY, driven by 18% volume growth. EBITDA margins
were compressed on higher fuel prices due to the INR
depreciation. Net income was in line with expectations.
● Demand growth is strong despite the weak overall environment:
Revenue growth picked up in 1Q to 23% YoY and the
management appears comfortable with its earlier expectations of
a 20% growth for FY14. Revenue is being driven by increased
contribution from its joint ventures.
● Cost pressures exist: EBITDA margins compressed by about 100
bp YoY due to a depreciating INR. The pressure on this front
could be higher in 2Q given the full impact of the INR depreciation
then. Increasing contribution from JVs offset this to some extent—
the company also seems undecided on price hikes.
● Revenue growth should remain strong and valuations are
attractive: We expect Kajaria to gain market share given its strong
brand, distribution network and increasing capacity in southern
India. Valuations remain attractive in our view

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31 March 2013

Kajaria Ceramics, On a strong footing: BUY: Business Line

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06 September 2012

Kajaria Ceramics - Target Price: ` 224 View: Buy ::DOLAT CAPITAL

We are positive on the business prospects of Kajaria Ceramics due to its leadership position in the ceramic
tiles Industry backed by complete range of products, superior design capability, high brand recall and a loyal
and strong dealer network. Our interactions with various manufacturers and intermediaries confirm our belief
in Kajaria.
The demand drivers of the tile Industry continue to be robust and we expect industry growth of 15% CAGR over
the next few years. Chinese imports are no longer a threat except in small pockets, as anti dumping duty and
other factors have made them unattractive.
We expect the top line and bottom line to grow at a CAGR of 22% & 30% respectively over the next couple of
year while the ROE is expected to remain strong at 31.8% (FY12 at 31.5%). At CMP of ` 174, the stock trades at
12x & 9.3x its FY13E & FY14E earnings of ` 14.5 & ` 18.7 respectively. We recommend Buy with a target price of
` 224 (12x FY14E EPS).

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04 April 2012

Kajaria Ceramics Reco: BUY - Target Price: Rs 225 ::Emkay PDF link

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Kajaria Ceramics

Reco: BUY

CMP: Rs 170

Target Price: Rs 225

Acquires stake in Vennar Ceramics- in Southern India

· Kajaria acquires 51% stake in Vennar Ceramics (for Rs 136.5mn), which is putting a 2.3mn sqm plant for manufacturing high end ceramic wall tiles in Andhra Pradesh

· This 3rd acquisition in last twelve months has increased Kajaria’s total capacity to 38.3 mn sqm and acquired capacity contributes 26% of total manufacturing capacity

· Though expensive compared to its earlier acquisitions this plant will meet the demand from southern region and help it to reduce the transportation cost and working capital

· With Kajaria’s aggressive inorganic growth and momentum in earnings coupled with sustained RoE we reiterate our Buy rating with target of Rs 225

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02 April 2012

Investment Focus - Kajaria Ceramics: Buy :: Business Line

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12 February 2012

52-WEEK BLOCKBUSTER: KAJARIA CERAMICS ::Business Line

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20 January 2012

Result Update: Kajaria Ceramics, HCL Technologies, Chambal Fertilisers & TCS :: Emkay

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Result Update

Kajaria Ceramics

Reco: BUY

CMP: Rs 109

Target Price: Rs 143

Topline growth continues; re-iterate BUY

· Q3 FY12 results were in line with our est. Revenues grew by 38% yoy to Rs 3.5bn while EBITDA grew by 41% yoy to

· Rs 561mn. Company reported PAT of Rs 211mn, 20% yoy

· Despite intensifying cost pressures in the form of increase in gas & other input costs, rupee depreciation, Kajaria has been able to improve margins 40bps yoy/80bps qoq to 16.0%

· Management expects to clock 25% topline growth over the next 2 years and has set target of Rs 20bn by FY14. EBITDA margins are likely to remain around 15-16%

· We expect inorganic growth to remain the thrust area for management supported by healthy balance sheet. Reiterate BUY keeping FY12E / FY13E est of Rs 11.1/14.3 intact

HCL Technologies

Reco: HOLD

CMP: Rs 425

Target Price: Rs 430

Decent show, retain HOLD

· HCLT reported in line op performance with revenues at US$ 1,022 mn (+2% QoQ, +3.7% in c.c terms) and margins improving by ~140 bps QoQ to 18.1% aided by weak currency

· Core IT Svcs see a 3.8% QoQ (+5% vol) growth while IMS saw an unexpected 3% seq decline. Op metrics performance decent with US/Europe growing by 7.4%/2.7% QoQ

· BFSI, Manufacturing grow by 2.8/3.7% QoQ. Co announces 18 deal wins with a TCV of US$ 1 bn+. Cash generation improves with CFO’s at US$ 132 mn (70% of op profits)

· Tweak FY12/13E EPS marginally lower by 0.8%/0.5% to Rs 34/38.5 as we cut our US$ revenue estimates modestly. Retain HOLD with an unchanged TP of Rs 430

Chambal Fertilisers

Reco: ACCUMULATE

CMP: Rs 79

Target Price: Rs 98

Operating results – better than estimates

· Results were above est with APAT of Rs 862mn (adjusted for deferred tax liability in shipping of Rs 929mn) -5% yoy, sales Rs 18 bn, +32% yoy. Reported PAT stood at loss of Rs 12mn

· Shift from tonnage tax in shipping to normal tax regime to reduce tax rates under weak environment resulted in deferred tax liability of Rs 929mn in Q3FY12

· All segment results were encouraging while trading margins at 6% (EBIT Rs 482mn) was positive surprise. Lower losses in textile and shipping too contributed to higher profit

· Change in tax policies may reduce effective tax rates by 4-5% depending on shipping business performance. Maintain FY12/FY13 est at Rs 9.0 / 8.9 and reiterate Accumulate

Tata Consultancy Services

Reco: HOLD

CMP: Rs 1,105

Target Price: Rs 1,075

Op performance fails to enthuse, retain HOLD

· Dec’11 results tad misses est with rev at US$ 2.6 bn (+2.4% QoQ, +4.5% in c.c terms), Mgns up by ~190 bps QoQ(V/s est +240 bps). Inline profits aided by lower forex losses/ taxes

· Op metrics weak with vol growth at 3.2% ( Infy +3.1% QoQ). Top 5/10 clients flat sequentially while top client rev grow by ~2.3% QoQ. Headcount addition strong at ~12k during the qtr

· We cut our rev est.( model in 14.2%/16% YoY US$ growth V/s 16/17% earlier) driving a 3.4/4.2% cut in our FY13/14E earnings to Rs 63.2/71 (V/s Rs 65.4/74 earlier)

· Dec’11 qtr marks the 2nd qtr of op performance convergence with Infy. We see risks to TCS’s premium valuation multiples. HOLD with TP cut to Rs 1,075 (V/s Rs 1,110 earlier)

25 October 2011

Kajaria Ceramics :: DIWALI PICKS 2011:: Emkay Eleven

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RECO : BUY TP : Rs143
Investment Rationale
§ Indian ceramics / tiles industry is likely to report volume growth of 14% (FY10-13E) while growth in high-end
segment is likely to remain at 20%. Kajaria with its presence in only high end segment with market share of 5%
will be a strong beneficiary of this growth in high end segment
§ Given the healthy growth prospects of the tile industry in general and high-end segment in particular, Kajaria's
brownfield expansion for manufacture of vitrified tiles has come at an opportune time. Capacity additions in high
end segment will increase share of value added tiles from 10% in FY10 to 30% by FY12E
§ To leverage its well established dealers network and brands, trading of tiles in high end segment, is likely to
remain a growth driver (trading revenues contribute approx 38% to company’s topline) in future
§ Increase in asset turnover ratio is expected to result in improved RoCE from 17.0% to 28.5% and RoIC from
17.2% to 31.0% over FY10-FY13E
§ We expect the company's revenue and EBITDA to grow by 22% and 23% CAGR (FY11E-13E) to Rs 14.2 bn and
Rs 2.3 bn by FY13E, respectively
Valuations
§ At current price, the stock trades at 8.2x FY13 EPS, EV / EBITDA of 4.5x and P/BV of 2.3x. With higher asset
turnover, RoE are expected to improve from 20.4% in FY10 to 31.7% by FY 13E

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DIWALI PICKS 2011:: Emkay Eleven

11 October 2011

Kajaria Ceramics Limited (KCL): TARGET Rs.120 - Susuhil

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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).

30 September 2011

Kajaria Ceramics ::Emkay: Top Buys

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TP : Rs143
Investment Rationale
§ Indian ceramics / tiles industry is likely to report volume growth of 14% (FY10-13E) while growth in high-end
segment is likely to remain at 20%. Kajaria with its presence in only high end segment with market share of 5%
will be a strong beneficiary of this growth in high end segment
§ Given the healthy growth prospects of the tile industry in general and high-end segment in particular, Kajaria's
brownfield expansion for manufacture of vitrified tiles comes at an opportune time. Capacity additions in high end
segment will increase share of value added tiles from 10% in FY10 to 30% by FY12E
§ To leverage its well established dealers network and brands, trading of tiles in high end segment, is likely to
remain a growth driver (trading revenues contribute approx 38% to company’s topline) in future
§ Increase in asset turnover ratio is expected to result in improved RoCE from 17.0% to 28.5% and RoIC from
17.2% to 31.0% over FY10-FY13E
§ We expect the company's revenue and EBITDA to grow by 22% and 23% CAGR (FY11E-13E) to Rs 14.2 bn and
Rs 2.3 bn by FY13E, respectively
Valuations
§ At current price, the stock trades at 7.6x FY13 EPS, EV / EBITDA of 4.3x and P/BV of 2.1x. With higher asset
turnover, RoE are expected to improve from 20.4% in FY10 to 31.7% by FY 13E

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Emkay: Top Buys and Sells

09 June 2011

Kajaria Ceramics -Structural change to drive returns BUY:: Emkay

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Kajaria Ceramics

Structural change to drive returns

BUY

CMP: Rs 89 Target Price: Rs 117

In a recent two day road show with Kajaria Ceramics, Mr Ashok Kajaria – Chairman & MD and Mr. Sanjeev Agarwal – CFO, shared future growth plans for the company and their outlook on the industry. As on one side, the management is confident about industry growth at ~15%, it’s change in product mix with rising share of high end (vitrified tiles) products is driving its profit margins and return ratios. Buoyant industry demand is likely to keep trading opportunities intact for the company and woo its revenues. With earnings growth (FY11-13E) at 26% and RoE stabilising at 28-29%, we expect that stock is set to get re-rated in near term and reiterate our BUY recommendation.

06 May 2011

Kajaria Ceramics Results in line, momentum strong BUY : Emkay

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Kajaria Ceramics

Results in line, momentum strong

BUY

CMP: Rs 84 Target Price: Rs 117

n Q4 FY11 results were in line with estimates. Revenues grew by 31% yoy to Rs 2.8 bn while PAT increased 44% yoy to Rs184 mn

n Revenue growth supported by strong demand from upper end vitrified tiles and higher trading. FY12 margins to improve supported by strong realizations & improved operating leverage

n Aggressively expanding capacity- Sikandarabad plant conversion, Gailpur capacity expansion completed. Acquired Soriso ceramics, Gujarat based manufacturer

n Maintain FY12E estimates. We introduce FY13E estimates and roll over valuations to FY13E basis- target price raised to Rs 117 (previous Rs 100), maintain BUY

KAJARIACER			1-15-2015
Recommendation BUY ( + )	Target Price Rs. 712