Buy Kajaria Ceramics; target of Rs 117: Emkay

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Buy Kajaria Ceramics; target of Rs 117: Emkay

Emkay Global Financial Services is bullish on Kajaria Ceramics and has recommended buy rating on the stock with a target price of Rs 117 in its June 1, 2011 research report.

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Emkay Global Financial Services is bullish on Kajaria Ceramics and has recommended buy rating on the stock with a target price of Rs 117 in its June 1, 2011 research report.

"Kajaria Ceramics, 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%."

"The Indian tile industry has been growing at a healthy rate of 15-16% for the last 5 years led by strong demand. However, the per capita consumption in India is still very low at 0.42 compared to 2.26 in China, 3.24 in Brazil & ~1.7-1.8 in Turkey, Egypt. Company believes that growing housing demand, growth in the hospitality sector and increased affordability of the Indian consumer would help the industry sustain its growth levels and Kajaria being the largest manufacturer of ceramic & vitrified tiles in India (with total capacity of 30.60 million sq. mtr.) is expected to capitalize on the strong growth potential. Management is confident about 25-30% p.a growth in revenues for next three years driven by increase in own manufacturing capacity, trading and inorganic growth opportunities. Recently company has done its first ever acquisition of Gujarat based player Soriso Ceramics for Rs 60 mn (capacity of 2.3 mn, comprising of 8% of Kajaria's total capacity) to strengthen its manufacturing capacity in western region. It has further plans to double its capacity at this plant and company is screening for more such opportunities to strengthen its manufacturing capacity in western region."

"We expect company's revenues to grow at a CAGR of 15% during FY11-FY13E. However, our earnings grow by 26% CAGR during the same period led by improvement in margins. Kajaria's earnings has grown at a CAGR of 161% during FY09-FY11 while the average earnings growth of its closest peers during the same period stood at 26% CAGR. Kajaria also enjoys higher EBITDA margins than most of its peers owing to higher contribution of value added products in its portfolio. With comparatively higher EBITDA margins , Kajaria's RoE and RoCE are higher than most of its peers. Consequently, we believe Kajaria's valuation premium is justified over its peers. At current market price of Rs 91, stock is trading at 7x FY13E EPS. we expect that stock is set to get rerated in near term and reiterate our BUY recommendation for a taret price of Rs 117," says Emkay Global Financial Services research report.

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To read the full report click on the attachment