Buy Kajaria Ceramics; target of Rs 1580: Motilal Oswal

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26 Aug, 2025 12:21

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Brent Crude and Spot LNG prices spiked 25-31% over the last 2-3 months, which we believe can raise fuel consumption costs of ceramics players and Kajaria Ceramics (KJC), in particular, in 2HFY24. Brent Crude jumped 25% in the last few months because of voluntary supply cuts by Saudi Arabia to maintain the demand-supply equilibrium. These supply cuts were first announced in Jul’23 and would continue until Dec’23 as of now since the timelines have been extended a few times. Spot LNG price too has been on a rising trend and increased 31% over Jul’23 average. Gujarat Gas too hiked gas price for Morbi players by ~10% in Sep’23 beginning. Based on recent pricing trends, we expect average fuel price for KJC to mount ~8% in 2HFY24 (after ~3% QoQ fall in 2QFY24). We note that even after this possible rise in fuel prices, the increased average consumption price for KJC will be still 20%+ lower than its average consumption price for FY23 (but, ~5% higher than its 1QFY24 consumption cost). Hence, this should lead to YoY margin improvement for the company. We expect KJC’s OPM to be at 15.8% in FY24 v/s 13.5% in FY23.

We reiterate our BUY rating on KJC with a TP of INR1,580 based on 42x Jun’25E EPS (v/s 35x last five-year average one-year forward P/E). We believe that: a) 26% earnings CAGR over FY23-26E, b) strong return ratios (RoE of 23%, RoCE of 27% and RoIC of 32% in FY26E), and c) healthy balance sheet will help KJC maintain its premium multiples.

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