Q1 Revenue Grew 80%, Buy This Mid Cap Ceramics Stocks For 30% Aggressive Gains: BoB Capital Markets

BoB Capital Markets, a leading brokerage firm is bullish on Kajaria Ceramics Limited, Suggests buy. The brokerage has estimated a target price of Rs 1,460 apiece for the stock of the company, if investors buy the stock at the company at the Current Market Price (CMP) they can expect a surge of 30% in 12 months. Company's Q1 revenue grew 80% YoY (-8.5% QoQ) spurred by a 15% (+2% QoQ) rise in tile realisations and 53% (-10% QoQ) volume growth. Kajaria Ceramics is a mid-cap Furniture Home Furnishing Flooring sector stock with a market capitalization of Rs 17,959 crore.

Stock Outlook & Returns

On Friday, 22 June, the stock of Kajaria Ceramics Ltd opened at Rs 1,088.60 apiece and closed at Rs 1,128.10 after gaining 4.78% from its previous close of Rs 1.073.65 apiece. The previous close was Rs 885.30 apiece, recorded on March 09, 2022, and the 52 week high of the stock was recorded on January 10, 2022, at Rs 1,374.90 apiece. The ROE of the stock is 17.76%, and the PE ratio is 47.64, which is higher than its sector PE ratio of 32.18. Its dividend yield is 0.98%.

The stocks of the company have given continuous positive returns over the past 5 years. Last week, its share price gained nearly 13.77% and 22.62% in the last 1 month, respectively. In the last 1 year, its shares gained 15.5%, and in the last 3 years, it has given a mutibagger return of 115.88%, respectively. In the last 5 years, its shares have given 72.47% positive returns. 
 

Higher realisations and favourable base buoy topline

Kajaria Ceramics' Q1FY23 revenue increased 80% YoY (-8.5% QoQ) to Rs 10bn, backed by a 15% rise in realisations to Rs 393/sqm. Sale volumes grew 53% YoY (-10% QoQ) to 23.3msm off a low base. Revenue from the tiles business rose 77% YoY to Rs 9.2bn, with the company's own manufacturing, subsidiaries and outsourcing businesses contributing Rs 5.4bn (+65% YoY), Rs 1.4bn (+76%) and Rs 2.4bn (+108%) respectively. Sanitaryware and plywood revenue climbed 117% YoY to Rs 0.9bn. 

EBITDA margin maintained at 15%

Despite higher power & fuel cost (+355bps YoY, +590bps QoQ) - mainly high gas cost averaging Rs 55/scm - gross margin contracted just 50bps YoY and 60bps QoQ to 25%. EBITDA margin improved 90bps YoY and 17bps QoQ to 15.2%. 

FY23 volume growth guided at 15-20%

Management has guided for volume growth of 15-20% in FY23 and +15% in FY24 led by improving demand from tier-2- and-below cities and rising exports from Morbi. However, Kajaria Ceramics avoided giving any outlook on margins as gas prices are at a peak and supply is erratic. 

 

85% of Morbi capacity to close for a month, benefitting organised players

The Morbi ceramic cluster intends to shut down capacity from 10 Aug to 10 Sep 2022 (and halt dispatches till mid-Sep) so as to dispose of old inventory and earn better realisations going forward. KJC believes that 85% of Morbi capacity will be closed - a positive for organised players. Further, the KJC-Morbi JV will be fully functional though outsourcing from Morbi will be at only 70% functional. 

Long-term value play; retain BUY for Target Price Rs 1,460

BoB Capital Markets said, "We believe that Kajaria Ceramics has long-term structural growth drivers from improving real estate demand in tier-2-and-below towns, domestic market share gains from Morbi and an increasing focus on exports. The stock is trading at an FY24E P/E of 29.4x vs. its 5Y median of 40.4x, which is reasonable given increasing volumes and healthy return ratios."

"We continue to value the stock at 40x FY24E EPS and retain our Target Price of Rs 1,460 with a BUY rating given strong growth prospects and attractive valuations," brokerage added.

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.