Motilal Oswal says Kajaria Ceramics share can rise by another 20 per cent

Motilal Oswal expects Kajaria to report revenue CAGR of around 11 per cent in FY23-25, driven by tile volume CAGR of 12 per cent. Its volume registered a CAGR of 9 per cent over FY 2012-23. The brokerage firm expects EBITDA and profit CAGR to be 25 per cent and 30 per cent respectively in FY2023-25, driven by volume growth and margin recovery.

“Kajaria’s profitability has been adversely impacted due to higher gas prices in Q2 FY2022; however, gas prices have eased from their peak in H2 FY2023 and we expect operating profit margins to gradually improve.” expect a gradual recovery (16 per cent/17 per cent in FY24E/25E versus 13.5 per cent in FY23 and 14.6 per cent in Q4FY23),” the brokerage firm said.

Kajaria has been generating free cash flow (FCF) since FY16, which according to Motilal Oswal is likely to continue. Kajaria made net cash turnover in FY19 and Motilal Oswal expects it to remain at net cash vs 3.3b in FY25 1.8b in FY23 despite higher capex ( 6.7 billion over FY24-25).

Motilal Oswal said, “The ROCE (Return on Capital Employed) is expected to be 23 per cent and 26 per cent in FY24 and FY25, respectively, while it will be 18 per cent in FY23 (compared to 20 per cent in FY2018-22). per cent average).

inventory The outlook for calendar year 2023 so far is around 8 per cent as against a 2 per cent gain in the benchmark Sensex.

In its Q4 and FY23 analyst meet on May 17, the company’s Chairman and Managing Director Ashok Kajaria said that despite a tough year, the company sold 101 million square meters of tiles in FY2022-23. The company aims to double it in the next 5 to 6 years.

There are five key factors behind Motila’s buy call for the stock:

1. Largest Players in Indian Ceramic Industry: Motilal Oswal informed that exports of tiles from India have witnessed a CAGR of 23 per cent in FY18-23, with around 17 per cent of the domestic production being exported to various countries.

Kajaria primarily focuses on the domestic markets, with around two per cent of its total revenue being generated from outside India. The brokerage firm believes that Kajaria currently has 6 per cent revenue share in total domestic tiles.

2. Superior Growth Profile: According to the brokerage firm, Kajaria has posted strong growth compared to its competitors and continues to gain market share in a fragmented industry.

The company reported 14.4 per cent revenue CAGR over FY10-22 versus 7.5 per cent for other listed players. Kajaria’s revenue share within organized listed players increased to 34 per cent in FY22 (36 per cent in nine months of FY2023) 10 per cent in FY20. Its sales volume registered a CAGR of 11 per cent over FY2010-23, helping it improve its industry volume share,” observed Motilal Oswal.

3. Capacity expansion to enhance future growth: Motilal Oswal believes that Kajaria will further increase the capacity to 88.5msm by FY25E.

“We have factored in 12 per cent tile volume CAGR in FY23-25E. The company is expanding the faucet capacity to 0.6 million pieces (1.6 million pieces) and sanitaryware capacity to 0.6 million pieces (1.35 million pieces), which will increase Motilal Oswal Said, “future growth. We expect a revenue CAGR of 27.5 per cent in this segment in FY23-25.”

4. Strong brand franchise; High Advertising (AD) Spend: Kajaria has spent 2.5 per cent of its revenue cumulatively ( 8.1 billion) over FY11-23 in AD, which helped it build brand visibility and higher brand recall.

“We expect AD spend to be 2.8 per cent of revenue by FY25. Kajaria has (a) increased its presence through aggressive campaigns on social media channels (Facebook, LinkedIn, etc.), OTT platforms (Hotstar, Zee5 etc.) National sporting events (cricket matches), (b) branding in high-congestion areas (more than 30 airports) and (c) endorsements by Bollywood celebrities, the brokerage firm said.

5. Focus on expanding distribution network and geographic reach: According to Motilal Oswal, Kajaria has 1,840 operative dealers (net addition of 140 dealers in FY23) versus 750 dealers in FY12 (CAGR of 7.1 per cent over FY12-23), which helps it generate higher volumes.

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The brokerage firm underlined that the company aims to increase the number of dealers to 450 (150 dealers every year) in the next three years.

“Kajaria has set up 80 exclusive showrooms across the country (50 showrooms opened in a year) to improve visibility. It commands a pricing premium of 5-6 per cent over peers, which translates into better margins (16.5 per cent 10.9 per cent for Kajaria, 10.9 per cent for Somany Ceramics and 10.6 per cent for H&R Johnson in FY22), Motilal Oswal said.

Disclaimer: The views and recommendations expressed in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to do due diligence with certified experts before making any investment decision.