Q4FY23 Review: Kajaria Ceramics: Improving outlook

18 May 2023 , 11:35 AM

Kajaria Ceramics (KJC) management sounded incrementally positive on FY24 outlook at the analyst meet. Fuel cost has been under control since Q4FY23, and the worst in demand seems to be behind us. KJC expects FY24 volume growth of 13-15% YoY vs industry growth of 6-7%, driven by Morbi’s continued thrust on exports that are expected to grow 25%+ YoY. Analysts of IIFL Capital Services revenue/PAT Cagr over FY23-25 is 14/26%; PAT growth is driven by a sharp YoY improvement in margins. Retain BUY with Rs1,280 target price.

Q4FY23 witnessed rebound, especially on margins: 

KJC reported in-line revenues, but Ebitda/PAT was higher due to better margins. Revenue growth of 9.4% was driven by 8% volume growth. Ebitda margins of 14.6% (+240bps QoQ) reflected reduction in KJC’s fuel costs (by ~20% QoQ), due to use of alternate fuels (like Coal, Biofuels, Propane) which are now >40% of the total fuel mix. Net cash increased by Rs0.5bn QoQ to Rs2.4bn, working capital days declined to 59 (vs 66 in Q3).

Volumes likely to double over next 5-6 years: 

During the analyst meet, mgmt shared that over next few years, demand will primarily come from semi-urban towns; KJC expects to add ~150 dealers annually for next 3 years on current base of 1,840. Morbi is likely to continue focusing on exports; mgmt expects >25% YoY growth in FY24. KJC also expects to keep expanding its value-added portfolio in the Tiles segment, and achieve stronger 30%+ growth in Non-tile segments.

Margins could surprise in near term; BUY: 

For FY23, revenue growth came in at 18%, of which 11% was volume growth. Margins for FY23 were at 13.5% (down 300bps YoY). For FY24, management has guided to 13-15% volume growth /14-16% revenue growth and 14-16% margins. On fuel costs, KJC is likely to save Rs1.5bn YoY in FY24 based on current prices; near-term margins could surprise positively. Analysts of IIFL Capital Services build in revenue Cagr of 14% over FY23-25, and margins at 15/16% respectively for FY24/25 driving PAT Cagr of 25% over FY23/25. Stock trades at 34x FY25 EPS; retain BUY.