Buy Kajaria Ceramics; target of Rs 143: Emkay

“Kajaria’s consol net revenues increased by 38% yoy to Rs 3.5 bn which was in line with our est of Rs 3.4bn. Healthy domestic demand at the consumer level coupled with improved product mix helped the company to maintain its momentum and post strong topline growth. Total sales volumes increased by 32% yoy to 10.3mn sqm with manufacturing volumes growing by 35% yoy to 6.8mn sqm. Average realizations (based on total sales volumes) increased by 5% yoy to Rs 340 / sqm driven by improved product mix and price hike taken during the quarter.”

“Kajaria reported EBITDA of Rs 561mn, +41% yoy, above our est of Rs 514mn. EBITDA margins at 16.0% (40bps yoy/80bps qoq) were above est of 15.0% due to recent price hikes undertaken by the company as well as improved product mix. Inventory gain on traded products due to currency depreciation also contributed to margin expansion. However interest expense of Rs 154mn included Rs 50mn of forex losses due to exchange rate fluctuation on trading. PAT of Rs 211mn, 20% yoy was in line with est. Management indicated that despite short term economic headwinds in the system demand remained unaffected due to Kajaria’s strong retail presence across the country. Management maintained its guidance of 35% topline growth for FY12 and indicated for revenue growth of over 25% for the next two years with revenues of Rs 20bn by FY14. Despite intensifying cost pressures, EBITDA margins are likely to remain stable around 15-16% in the medium term.”

“We maintain our estimates of Rs 11.1 & Rs 14.3 for FY12/FY13 respectively along with price target of Rs 143 (10x FY13 EPS). Kajaria is likely to witness healthy growth over the next few years driven by strong demand and improving product mix towards high margin value added products which would also help to improve profitability. We believe that near term growth of the company is likely to be driven by inorganic opportunities and company’s strong balance sheet. Kajaria has demonstrated its capabilities to grow inorganically through Soriso acquisition during the year to augment capacity and boost margins. At CMP of Rs 110, stock is trading at 7.7x FY13 estimates,” says Emkay Global Financial Services research report.   

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