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RESULTUPDATE
KAJARIACERAMICS
Limiteddemonetisationdent;longtermprospectsintact
IndiaEquityResearch|Tiles
EDELWEISSRATINGS
KajariaCeramics(KJC)Q3FY17consolidatednumberssurpassedourand
consensusestimates,despitedemonetisationimpact.Volumegrowthof AbsoluteRating BUY
0.5% YoY versus our 6% dip estimate supported top line. However, InvestmentCharacteristics Growth
EBITDAmarginfellby55bpsYoYto18.6%duetomutedtoplinegrowth
andhigheroutsourcing.WeupgradetoBUYas:(1)KJCisanticipatedto
MARKETDATA(R:KAJR.BO,B:KJCIN)
be major beneficiary of accelerated shift in market share from
CMP : INR585
unorganised to organised players spurred by GST and demonetisation
(refer to our report: THE SHIFT); (2) governments thrust on housing is TargetPrice : INR708
envisagedtoboostoveralldemandintilesindustry;and(3)werollover 52weekrange(INR) : 742/423
Shareinissue(mn) : 158.9
to FY19E. We now value KJC at 28x (earlier 25x) due to long term
Mcap(INRbn/USDmn) : 93/1,365
opportunity from shift to organised players and estimate 15.1% and
Avg.DailyVol.BSE/NSE(000) : 181.3
24.6% sales and earnings CAGR, respectively, with 372bps RoCE
expansionoverFY1719.OurrevisedTPisINR708(INR585earlier).
SHAREHOLDINGPATTERN(%)
Current Q2FY17 Q1FY17
Q3FY17result:Keyhighlights
(1) key positive was the 1.1% revenue growth on 0.5% YoY volume spurt, despite
Promoters* 47.4 47.3 47.2
MF's,FI's&BKs 3.2 4.7 4.7
demonetisation; (2) 365bps fall in power & fuel cost due to lower gas prices;
FII's 27.2 27.2 27.2
(3)mutedtoplinegrowth&fixedcostsandhigheroutsourcingmarredmargin,leading
Others 22.2 20.8 20.9
to2%YoYEBITDAfall;(4)performanceofjointventures(JVs)remainedsoft. *Promoterspledgedshares : NIL
(%ofshareinissue)
Limiteddemonetisationimpact
KJCs sales grew 1.1% YoY led by the 0.5% YoY volume spurt with 0.9% realisation PRICEPERFORMANCE(%)
growthamidst tepiddemand. Onaccountof poor demand, thecompanyfocusedon BSEMidcap
Stock
Stockover
Index Index
inhouse manufacturing, while a JV (Tauras) plant was shut down. Management
anticipatesdemandtopickupandpegsQ4FY17growthat45%.Taxratestoodat36% 1month 32.7 12.0 20.7
duringthequarterversus35%inQ3FY16.PATdeclined3.7%YoYtoINR551mn. 3months (0.3) (4.0) 3.7
12months 22.6 26.1 (3.5)
Outlookandvaluations:Longtermplay;upgradetoBUY
Owing to subdued industry conditions and demonetization in the current year, we
haveprunedFY17/18EEPSby7%/13%.However,continuedmarketsharegainsaided
bystrongindustrydrivers,GSTimplementation,thestructuralshiftfromunorganised
to organised players over long term and healthy profitability will bolster KJCs long
term growth. Hence, we upgrade to BUY from HOLD with a revised TP of INR708
(INR585earlier)basedon28xFY19EEPS(25xearlier).Thestockiscurrentlytradingat
28.8x/23.2xFY18/19EEPS.
Financials(Consolidated) (INRmn)
Q3FY17 Q3FY16 %change Q2FY17 %change FY16 FY17E FY18E
Netrev.(INRmn) 6,067 6,002 1.1 6,301 (3.7) 24,088 25,253 28,616
RohanGupta
+912240407416
EBITDA(INRmn) 1,126 1,148 (1.9) 1,267 (11.1) 4,537 5,093 5,982 rohan.gupta@edelweissfin.com
Adj.PAT(INRmn) 551 572 (3.7) 636 (13.4) 2,282 2,589 3,229
KarishmaKothari
Adj.Dil.EPS(INR) 6.9 7.2 (3.7) 8.0 (13.4) 14.4 16.3 20.3 +912266233443
DilutedP/E(x) 40.8 35.9 28.8 karishma.kothari@edelweissfin.com
EV/EBITDA(x) 21.3 18.6 15.6
EdelweissResearchisalsoavailableonwww.edelresearch.com,
BloombergEDEL<GO>,ThomsonFirstCall,ReutersandFactset. EdelweissSecuritiesLimited
Tiles
Table1:Consolidatedgrosssales (INRmn)
Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
Manufactured 2,803 2,694 2,758 2,570 2,908 2,969 3,372 3,173 3,439 3,251
JV 1,386 1,805 2,212 2,107 2,404 2,464 2,640 2,313 2,236 2,131
Others 1,167 1,038 882 782 763 533 538 432 612 673
Total 5,355 5,536 5,853 5,459 6,075 5,966 6,551 5,918 6,287 6,055
Table2:ConsolidatedYoYsalesgrowth (%)
Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
Manufactured 16.7 15.2 1.9 1.1 3.7 10.5 22.3 23.5 18.2 9.5
JV 10.8 67.9 52.8 53.2 61.7 30.8 19.4 9.8 (7.0) (13.5)
Others 19.0 23.0 (16.5) (28.0) (34.6) (39.4) (39.0) (44.8) (19.8) 26.4
Total 15.6 30.1 12.3 9.1 13.4 7.8 11.9 8.4 3.5 1.5
Table3:Consolidatedsalesvolumes(tiles) (inmsm)
Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
Manufactured 7.54 7.17 7.40 7.04 7.92 8.25 9.49 8.74 9.39 8.71
JV 3.85 4.94 5.87 5.56 6.00 6.01 6.50 5.81 5.41 4.99
Others 3.02 2.61 2.24 2.32 2.21 1.60 1.43 1.29 1.84 2.24
Total 14.4 14.7 15.5 14.9 16.1 15.9 17.4 15.8 16.6 15.9
Table4:ConsolidatedsalesvolumegrowthYoY (%)
Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
Manufactured 6.5 9.1 (4.9) (1.4) 5.0 15.1 28.2 24.1 18.6 5.6
JV 4.3 59.9 43.2 43.3 55.8 21.7 10.7 4.5 (9.8) (17.0)
Others 17.1 19.7 (20.0) (22.9) (26.8) (38.7) (36.2) (44.4) (16.7) 40.0
Total 7.9 24.3 5.7 6.3 11.9 7.7 12.3 6.2 3.2 0.5
Table5:Realisation (INR/sqm)
Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
Manufactured 372 376 373 365 367 361 355 363 366 373
JV 360 365 377 379 373 393 406 398 413 427
Others 386 398 394 337 345 393 377 335 333 300
Total 372 376 377 366 377 376 376 374 378 380
Table6:Realisationgrowth(YoY) (%)
Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
Manufactured 9.6 5.6 7.1 2.6 (1.2) (3.9) (4.6) (0.5) (0.3) 3.4
JV 6.2 5.0 6.7 6.9 3.8 7.5 7.8 5.1 10.7 8.7
Others 1.6 2.7 4.3 (6.6) (10.6) (1.1) (4.4) (0.8) (3.6) (23.6)
Total 7.1 4.6 6.3 2.6 1.3 0.0 (0.3) 2.1 0.3 1.0
Source:Company,Edelweissresearch
2 EdelweissSecuritiesLimited
KajariaCeramics
Chart1:Revenuegrowth
7,000 36.0
5,600 28.8
4,200
(INRmn)
21.6
(%)
2,800 14.4
1,400 7.2
0 0.0
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Manufactured JV Others Growth(YoY)
Chart2:Volumegrowth(YoY)
20.0 30.0
16.0 24.0
12.0 18.0
(msm)
(%)
8.0 12.0
4.0 6.0
0.0 0.0
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Manufactured JV Others Growth(YoY)
Chart3:Realisation(YoY)
450 9.0
360 6.6
(INR/sqm)
180 1.8
90 (0.6)
0 (3.0)
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Realization Growth(YoY)
Source:Company,Edelweissresearch
3 EdelweissSecuritiesLimited
Tiles
Chart4:Decliningpowerandfuelcost
27.0
24.0
21.0
(%)
18.0
15.0
12.0
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
PowerandFuelas%ofnetrevenue
Source:Company,Edelweissresearch
4 EdelweissSecuritiesLimited
KajariaCeramics
Financialsnapshot (INRmn)
YeartoMarch Q3FY17 Q3FY16 %change Q2FY17 %change YTD17 FY17E FY18E
Netrevenues 6,067 6,002 1.1 6,301 (3.7) 18,298 25,253 28,616
Rawmaterial 2,261 1,933 17.0 2,269 (0.3) 6,433 7,508 8,440
Staffcosts 720 649 10.9 748 (3.8) 2,180 2,601 2,947
Otherexpenses 1,959 2,272 (13.8) 2,017 (2.9) 6,021 10,051 11,246
Totalexpenditure 4,940 4,854 1.8 5,034 (1.9) 14,634 20,160 22,634
EBITDA 1,126 1,148 (1.9) 1,267 (11.1) 3,664 5,093 5,982
Depreciation 206 184 12.0 204 1.3 609 850 911
EBIT 920 964 (4.5) 1,064 (13.5) 3,055 4,243 5,071
Otherincome 21 16 32.1 21 0.0 59 121 139
Interest 83 90 (7.6) 79 4.9 254 324 176
Add:Priorperioditems
Add:Exceptionalitems
Profitbeforetax 858 890 (3.5) 1,006 (14.7) 2,861 4,040 5,035
Provisionfortaxes 309 311 (0.7) 385 (19.7) 1,044 1,394 1,737
Minorityinterest (2) 7 NA (15) NA (5) 57 69
Associateprofitshare
Reportednetprofit 551 572 (3.7) 636 (13.4) 1,821 2,589 3,229
AdjustedProfit 551 572 (3.7) 636 (13.4) 1,821 2,589 3,229
Dilutedshares(mn) 79 79 79 79 159 159
AdjustedDilutedEPS 6.9 7.2 (3.7) 8.0 (13.4) 22.9 16.3 20.3
DilutedP/E(x) 35.9 28.8
EV/EBITDA(x) 18.6 15.6
ROAE(%) 24.0 24.6
As%ofnetrevenues
Rawmaterial 37.3 32.2 36.0 35.2 29.7 29.5
Employeecost 11.9 10.8 11.9 11.9 10.3 10.3
Otherexpenses 32.3 37.9 32.0 32.9 39.8 39.3
EBITDA 18.6 19.1 20.1 20.0 20.2 20.9
9.1 9.5 10.1 10.0 10.3 11.3
Reportednetprofit
ChangeinEstimates
FY17E FY18E
New Old %change New Old %change Comments
NetRevenue 25,253 26,150 (3.4) 28,616 30,561 (6.4) Onaccountofsubduedindustry
conditionanddemonetization
impact
EBITDA 5,093 5,322 (4.3) 5,982 6,670 (10.3) Onaccountoflowertopline.
EBITDAMargin 20.2 20.4 20.9 21.8
Adjusted Profit 2,589 2,786 (7.1) 3,229 3,706 (12.9) Onaccountoflowertoplineand
AfterTax margins.
NetProfitMargin 10.5 10.9 11.5 12.4
Capex 1,772 1,772 0.0 1,750 1,750 0.0
5 EdelweissSecuritiesLimited
Tiles
CompanyDescription
KajariaisIndiasleadingmanufacturerofceramicandvitrifiedtiles.Currently,thecompany
hasaggregatemanufacturingcapacityof68.60msmdistributedacross9plants.Ithas10.6%
shareinoveralltilesmarketand20.8%intheorganisedtilesectorinFY15.Thecompanyhas
aninhouseresearchanddevelopmentfacilitythatfocusesondevelopingnewdesignsand
creating costeffective products. Kajaria is present across a wide range of sizes and price
valuechain,rangingfromaffordabletilestohighenddesignerproductscateringtoneedsof
different segments. Ceramic, GVT and PVT contributed 41%, 20% and 37% to net sales,
respectively in FY15. Retail and institutional businesses contribute 70% and 30% to total
revenues.
InvestmentTheme
Kajaria has, over the years, developed a comprehensive range of products. A vibrant
productrange, aggressivebrandspending,extensivedistributionnetworkof1,100dealers
and4,000associatedealers,sustainedcapacityexpansionhaveandwillcontinuetoanchor
Kajariasoutperformanceversuspeers.Unwaveringfocusonbrands(33.5%adspendCAGR
versus peers 1213%; 2.53% of sales) and strengthening of the value chain are bound to
catapultmarketshareto12.0%byFY19Efrom10.9%inFY16,drivingupshareinorganised
market to 21.1% from 20.5% over same period. Ergo, we estimate the company to clock
revenueandPATCAGRof15.1%and24.6%overFY1618,respectively,withstrongRoE/pre
taxRoCEof>25%.Further,weestimateKajariatogenerateFCFofINR5.0bnduringthesame
period.
KeyRisks
Slowdowninrealestatesector
AnyslowdowninrealestatesectorwilldampenKajariasgrowthprospects.
Intensifyingcompetition
Any competitive moves by players such as Somany Ceramics, HR Johnson, Orient, Asian
Granito,etc.,andtheunorganisedsegmentmayhavedetrimentaleffectsonthecompanys
revenue.
Volatilityinfuelprices
Availability and pricing of natural gas remains a concern as increase in gas price could
increaseoperatingcostsandadverselyimpactmargins.
ThreatofChineseimports
Chinaisthelargestproduceroftilesglobally.ImportofcheapChinesetilesposesathreatto
thecompany.However,thegovernmenthasimposedantidumpingdutyofUSD1.37persq
mtrrecentlyonimportofvitrifiedtilesfromChina.
6 EdelweissSecuritiesLimited
KajariaCeramics
FinancialStatements
7 EdelweissSecuritiesLimited
Tiles
Peercomparisonvaluation
Marketcap DilutedP/E(X) EV/EBITDA(X) ROAE(%)
Name (USDmn) FY17E FY18E FY17E FY18E FY17E FY18E
KajariaCeramics 1,365 35.9 28.8 18.6 15.6 24.0 24.6
SomanyCeramics 370 26.8 22.5 13.2 11.2 19.8 19.9
Median 31.4 25.6 15.9 13.4 21.9 22.3
AVERAGE 31.4 25.6 15.9 13.4 21.9 22.3
Source:Edelweissresearch
8 EdelweissSecuritiesLimited
KajariaCeramics
AdditionalData
DirectorsData
AshokKajaria ChairmanandManagingDirector ChetanKajaria JointManagingDirector
RishiKajaria JointManagingDirector DevDattRishi DirectorTechnical
BasantKumarSinha DirectorTechnical RajKumarBhargava IndependentDirector
RamRatanBagri IndependentDirector DebiPrasandBagchi IndependentDirector
H.RathnakarHegde IndependentDirector SandeepSinghal IndependentDirector
SushmitaShekhar IndependentDirector
AuditorsO.P.Bagla&Co.
*asperlastavailabledata
HoldingTop10
Perc.Holding Perc.Holding
WestBridgeCrossoverfund 7.41 WasatchAdvisors 1.33
JwalamukhiInvHoldings 5.46 GoldmanSachsGroup 1.21
NorgesBank 3.14 ABGCapital 1.16
GovernmentPensionFund 3.08 VanguardGroup 1.12
SteadviewCapital 2.10 DimensionalFundAdvisors 0.87
*asperlastavailabledata
BulkDeals
Data Acquired/Seller B/S QtyTraded Price
NoDataAvailable
*asperlastavailabledata
InsiderTrades
ReportingData Acquired/Seller B/S QtyTraded
19Dec2016 RISHIKAJARIA(HUF) Sell 37000.00
19Dec2016 A.KKAJARIA(HUF) Buy 57000.00
19Dec2016 VERSHADEVIKAJARIA Buy 28000.00
19Dec2016 ASHOKKUMARKAJARIA Buy 51000.00
06Sep2016 KAJARIASECURITIESPRIVATELIMITED Buy 120040.00
*asperlastavailabledata
9 EdelweissSecuritiesLimited
Tiles
EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098.
Board:(9122)40094400,Email:research@edelweissfin.com
ManojBahety
DeputyHeadResearch
manoj.bahety@edelweissfin.com
Coveragegroup(s)ofstocksbyprimaryanalyst(s): Tiles
AsianGranitoIndiaLimited,KajariaCeramics,NitcoLimited,SomanyCeramics
`
RecentResearch
Date Company Title Price(INR) Recos
27Oct16 Somany Marginzooms;expensive 658 Hold
Ceramics valuations;
ResultUpdate
21Oct16 Kajaria Volumesplummet;expensive 615 Hold
Ceramics valuations;
ResultUpdate
10Aug16 Somany Marginzooms;outlook 599 Hold
Ceramics cautiouslyoptimistic;
DistributionofRatings/MarketCap
EdelweissResearchCoverageUniverse RatingInterpretation
Rating Expected to
Buy Hold Reduce Total
RatingDistribution* 161 67 11 240 Buy appreciatemorethan15%overa12monthperiod
*1stocksunderreview
Hold appreciateupto15%overa12monthperiod
>50bn Between10bnand50bn <10bn
Reduce depreciatemorethan5%overa12monthperiod
MarketCap(INR) 156 62 11
Oneyearpricechart
800
720
640
(INR)
560
480
400
Dec16
Aug16
Oct16
Apr16
May16
Nov16
Jan16
Feb16
Sep16
Jan17
Mar16
Jun16
Jul16
KajariaCeramics
10 EdelweissSecuritiesLimited
KajariaCeramics
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KajariaCeramics
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