Recommendation From Ceramics And Granite Sector

SHINE YOUR PORTFOLIO

​HERE IS WHY
Positive macroeconomic growth factors
Expansion plans
Attractive valuations

Kajaria Ceramics is the largest manufacturer of ceramic, vitrified and polished tiles along with sanitary ware and faucet. Kajaria Ceramics has eight manufacturing facilities in the states of Gujarat, Uttar Pradesh, Rajasthan and Andhra Pradesh to cater to its customers across India.

The company has a strategic pan-India presence to cater to maximum area in the country. Also, the company gets advantage from controlled tiles pricing due to its strategic geographical presence through its JVs. The company also outsources 10 per cent of tiles manufacturing to gain on quality, pricing and location advantage.

The government has imposed antidumping duty of USD 1.37 per sq.m. on Chinese imports, which is lower than industry expectations of USD 3 per sq.m. The duty has made imports of Chinese polished and vitrified tiles costlier. It has boosted prospectus of the company and has helped to reduce competition in a tough economic environment. The sector was positively impacted by renegotiation of gas prices with Qatarbased RasGas. However, with the prices of LNG rising, there might be revision in prices in early FY18.

In the short term, the company will be insulated by the rise in gas prices, which will be positive for the company in terms of improvement in fuel cost. To meet increase in demand for ceramic tiles, Kajaria Ceramics has increased its own capacity of ceramic tiles by 6.5 MSM in Thana Gazi, Rajasthan, with capex of approximately Rs.110 crore. It is also expanding its capacity through a JV with Floera Ceramics in Andhra Pradesh with a capacity up to 5.70 MSM for polished vitrified tiles with capex of about Rs.100 crore.

This facility is expected to commence in FY17-18E and will cater to southern region of the country. With this, Kajaria Ceramics will ramp up its capacity to approximately 40 MSM. On the financial font, Kajaria Ceramics’ revenue grew 6 per cent to Rs.1830 crore in 9MFY17 on a yearly basis.

Its EBITDA also rose 12.51 per cent to Rs.366 crore in 9MFY17 on a year-on-year basis. The net profit of the company increased 11.86 per cent to Rs.182 crore in 9MFY17 as compared to the same period in the previous financial year. Kajaria Ceramics’ debt-to-equity ratio stood at 0.17x. The company has successfully chopped off debt from Rs.294 crore at the end of March 2016 to Rs.200 crore at the end of December 2016. Its average ROE stood at 23.36 per cent in Q3FY17.

On the valuation front, the share price of Kajaria Ceramics is trading at TTM PE of 35.87x as compared to peers such as Cera Sanityware (38.54x), Somany Ceramics (41.15x). However, the industry PE is trading lower at 28.7x. Considering the future growth prospects of the company after revival of the real estate sector, government initiatives like ‘Housing For All’, ‘Smart City Projects’, urbanisation and rise of liquidity in the economy in future, we recommend reader-investors to BUY this scrip.