PL Stock Report - Kajaria Ceramics (KJC IN) - Q1FY24 Result Update - Maintain volume guidance, margin improved - HOLD

Kajaria Ceramics (KJC IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs1,393 | TP: Rs1,363

Q1FY24 Result Update - Maintain volume guidance, margin improved

Quick pointers:

♦ KJC reported tiles volume growth of 7.2% YoY in Q1FY24.

♦ EBITDA margin improved by 130bps QoQ, with fuel cost correction as % rev.

We upward revise our FY24/FY25E earnings estimate by 4.0%/7.1% and maintain ‘Hold’ rating, as we value the stock at 35x FY25 EPS to arrive at revised TP of Rs1,370 (earlier Rs 1,264). Kajaria (KJC) maintained its volume growth guidance between 13-14% with revenue growth of 14-16% and EBITDA margin between 14-16% for FY24, even after 7.2% volume growth in Q1FY24 (considering strong traction in volume in H2FY24). The company reported improvement in EBITDA margin with reduction in fuel expenses through decrease in gas prices and use of alternate fuel (contributed ~20% in Q1FY24). KJC reiterated that off the gas price reduction benefits: a) 30-35% will be used in promotions/discounts to drive volume, b) 25%-27% to be passed on to JV partners, and c) ~40% for margin improvement.

We are cautiously optimistic on the company for long term given 1) its largest player positioning in domestic tiles market, 2) focus on brand building (adv. spends at 3% sales), 3) expanding distribution network (1,840 active dealers in FY23 & expected to touch 2000 in FY24), 4) reduction in fuel expenses with gas price correction & alternate fuel uses, and 5) exponential growth in Bathware/Plywood/Adhesive businesses. We expect Revenue/EBITDA/PAT CAGR of 14.4%/26.8%/32.2% over FY23-25E. Maintain ‘Hold’.

Revenues grew by 5.6%, PAT up by 16.5%: Revenues grew by 5.6% YoY to Rs10.6bn (PLe: Rs11.2bn), on back of 7.2% YoY volume growth. Tiles segment revenues grew by 5.4% YoY (contributes 91%sales) and other segment revenues grew by 6.9% YoY. Bathware (cont. 8%rev.) grew by 17.3% YoY. Gross margin contracted by 720bps YoY to 55.7% YoY. EBITDA grew by 10.2% YoY to Rs1.7bn (PLe: Rs1.8bn). EBITDA margin improved by 67bps YoY to 15.9% (PLe: 16.1%). Fuel expenses % sales reported 18.2% in Q1FY24 from 26.6% in Q1FY23. PBT grew 13.5% YoY to Rs1.4bn (PLe: Rs1.5bn). PAT grew 16% YoY to Rs1.07bn (PLe: Rs1.1bn). Reported working capital of 62days vs 59days in Mar-23.

Con-Call highlights: 1) Mgmt guided for a volume growth of 13%-15% along with revenue growth of 14%-16% and EBITDA margins of 14%-16% for FY24, 2) Capex will be around Rs3.7bn, out of which Rs300mn will be used as maintenance, Rs900mn for Nepal plant, Rs800mn for bath-ware segment and rest for tiles plants & corporate level, 3) Avg. fuel prices were at Rs39/SCM. North plants uses 30% of biofuel, currently priced at Rs22/SCM. Overall biofuel contribution is at 20%, 4) Reduction in fuel prices will save Rs1.5-1.75bn, out of which 1bn will be retained in the company and rest will be passed on to trade partners. 5) Nepal plant is expected to commission by Mar-24, 6) Mgmt is focusing on increasing ad spends from Rs1.1bn in FY23 to Rs1.4bn in FY24 in order to achieve targeted volume growth, 7) Dealer count is expected to increase to 2000+ by FY24 end out of which 500 will be exclusive Kajaria dealers, 8) Mgmt is targeting 30%+ volume growth in bath-ware segment with new and innovative product launches, 9) India’s tiles exports are expected to cross Rs210bn in FY24.

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