Buy Kajaria Ceramics; target of Rs 1600: Motilal Oswal

Motilal Oswal's research report on Kajaria Ceramics

Strong demand in the real estate sector and increased construction activity are anticipated to drive improvement in offtake for tiles in FY25. Domestic players should also benefit from Morbi players’ higher focus on exports (Tiles exports from India grew ~40% YoY in 9MFY24). Kajaria Ceramics (KJC), as the largest player in the industry, should benefit when industry demand recovers. Spot LNG price is down ~44% as compared to 3QFY24, while the current Brent Crude is up 3.5% compared to 3QFY24. Recently, Gujarat Gas also reduced gas prices for ceramic manufacturers by ~8%. Based on the recent energy pricing trend, we estimate average fuel cost for KJC to decline ~7% QoQ in 4QFY24. KJC keeps on adding capacity and in FY24, the company expanded its tiles manufacturing capacity by ~6% to 86.47 msm. Further, it announced an acquisition of Tiles manufacturing facility at Morbi, Gujarat, having a capacity of 6 msm (likely to start contributing to revenues from Apr’24). It is also expanding capacities into bathware and plywood segments.

Outlook

We reiterate our BUY rating on the stock with a TP of INR1,600 premised on 40x FY26E EPS.