Accumulate Kajaria Ceramics; target of Rs 878: Prabhudas Lilladher

Prabhudas Lilladher's research report on Kajaria Ceramics

The management has refrained from providing guidance due to prevailing low demand conditions but expects to outperform the industry in FY26. KJC expects margins of ~14% in FY26, However, Q4FY25 margins were impacted due to losses in the bathware segment, product mix changes, and scaling down of UK operations. We have considered 7.7% CAGR in tiles volume over FY25-27E with cons. EBITDA margin of 14.0% in FY27. Management indicated gradual pick-up in FY26 volumes, revival in exports due to lower freight rates, and expected improvement in margins, as the company works on cost rationalization and exits the low-margin plywood business. KJC expects to outperform the sector in volume growth once again through 1) increase outsourcing volume, 2) increase in dealer penetration & showrooms, 3) expansion in product portfolio, 4) intensify focus on govt. projects, and 5) improve business efficiency. We expect Revenue/EBITDA/PAT CAGR of 9.2%/11.3%/16.6% over FY25-27E. Downgrade to Accumulate.

Outlook

We have revised our FY26/27 earnings estimates downward by 7.4%/9.1% due to weak demand, the discontinuation of the Kajaria Plywood business, and margin contraction. We had downgraded our rating to ‘Accumulate’ from ‘BUY’, we value the stock at 30x FY27E EPS to arrive at revised TP of Rs 878 (earlier Rs 966).