InitiatingCoverage

KajariaCeramicsLimited
October07,2011 HOLDMEDIUMRISKPRICERs.106 TARGETRs.120

CONSUMER

SHAREHOLDING(%)
Promoters FII FI BodyCorporates Public&Others

KajariaCeramicsLimited(KCL)isthelargestmanufacturersofceramic/vitrifiedtilesinIndiaand hascarvedoutdistinctbrandequityinthesame.Ithasacapacityof30.60mnsqmeter(MSM) (across 3plants Sikandrabad in Uttar Pradesh, Gailpur in Rajasthan and Morbi in Gujarat). It hasincreaseditscapacityfrom1MSMto30.60MSMinlast22yearsandoffersmorethan400 optionsinceramicwall&floortiles,vitrifiedtiles,designertilesandmuchmore.
51.33 5.53 9.22 12.75 21.17

Robustdemandindomestictilemarket
TheIndianceramictilesindustryistheworldslargestproduceraswellasconsumerafterChina andBrazil.The550MSMdomesticceramictileindustrywasestimatedtobeworthRs.130bnas onMarch,2011,growingataCAGRof~15%.Indiaspercapitatilesconsumptionisamere0.42 sq.mwhiletheworldaverageisthreetimeshigherat1.20sq.mandChinasaverageismore thanfivetimeshigherat2.26sq.m.Demandfortilesisexpectedtogrowrapidlybecauseofthe following reasons: (1) Increasing middleclass & rising population, (2) Improved disposable incomesand(3)Growthofreplacementmarketinruralandsemiurbanmarkets.KCListhe2nd largesttilecompany(turnoverwise)witharound15%shareintheorganizedmarketandisvery wellplacedtobenefitfromthestronggrowthbeingwitnessedinthetilesindustry.

STOCKDATA
ReutersCode BloombergCode
BSECode NSESymbol Market Capitalization* Shares Outstanding* 52Weeks(H/L) Avg.Daily Volume(6m) KAJR.BO KJCIN 500233 KAJARIACER Rs.7802mn US$156mn 73.6mn Rs.121/61 131,724Shares

Capacityexpansionstoensurestronggrowthinvolumes
Kajariahasrecentlyexpandeditscapacityto30.6MSM,ledbya6MSMbrownfieldexpansion (March 2011) at Gailpur to manufacture vitrified tiles (glazed and polished) & a 2.60 MSM vitrified capacity (conversion from ceramic tiles) at Sikandrabad (commenced operations in March2011).Inthelast15months,KCLadded11MSMofvitrifiedtilescapacity,thelargestby any single company in India. Given its market positioning, demand growth & high capacity utilization,KCLsvolumesareexpectedtoexpandsubstantiallyfollowingtheseexpansions.

Focusonvalueaddedproducts,strongBrand&distributionnetworktodrivegrowth
InIndia,thebrandedtilessegmentisgainingmarketshareowingtorapidcapacityadditionand shifttovalueaddedproducts,whichexplainsthe20%growthofthetop10playersasagainst theindustryaverageof15%.KCLhasoneofthelargestdistributionchannelsinIndiawith800 dealers (apart from their network of subdealers) that help in better market penetration. To leverage their strong distribution network and brand competencies, apart from adding capacities in the high end vitrified tiles category, KCL has also forayed into many highend sanitarywaresegmentswhichpositionsthecompanyasacompletebathroomsolutionprovider andhasalsoestablishedafootholdinhighvaluewoodenflooringsolutions.ThiswillhelpKCLto accelerate its market share in the highend segment, grow its volume strongly and will also enableittoaddressnewersegments,whereitwaspreviouslyabsent.

PricePerformance(%) 1M 3M 2 8 200DaysEMA:Rs.91

6M 38

*Onfullydilutedequityshares Partof Bonanza

ReducingLeverage&SharpImprovementinROCE&ROE
Historically, the Indian tile companies have had a low asset turnover ratio, as the cost of machinery was very high. However, with the foray of Chinese companies into machine manufacturing in the recent past, the prices of Italian machines have also come down substantially. Apart from this, KCLs focus higher end products, has helped it improve realizations.Thesefactorshaveturnedouttobegamechangersforthecompanyasithasbeen abletoimprovemargins,reduceleverageandreportbetterROCE/ROE.TheROCEandROEfor FY11hasimprovedto24.9%&29.5%respectivelyfrom18.9%&20.4%respectivelyinFY10.

OUTLOOK&VALUATION
KCLhasperformedexceedinglywellinthepastfewyearsonthebackofrisingtilesdemand, its strong brand & distribution network, focus on value added products & consistent expansion in its capacities. Given its strong market positioning, increased capacities of its vitrified tiles, foray into new product lines of high end sanitaryware & wooden flooring segments,weexpectKCLtodeliverstronggrowthoverthecomingyears.Goingforward,we expectitsRevenuesandAPATtogrowstronglyby23%&21%inFY12&17.5%and20.3%in FY13respectively.WeinitiateourcoverageontheCompanywithaHOLDratingandatarget priceofRs.120(10xFY13EEPSofRs.12).

ANALYST BhavikaShah|+912240935054 bhavika.shah@sushilfinance.com SALES: DevangShah|+912240936060/61 devang.shah@sushilfinance.com

KEYFINANCIALS
Y/EMarch FY10 FY11 FY12E FY13E Revenue (Rsmn)
7363.5 9534.2 11725.4 13776.6

APAT (Rsmn)
358.5 606.6 733.5 882.6

APAT (%Ch.)
302.7 69.2 20.9 20.3

AEPS (Rs.)
4.9 8.2 10.0 12.0

P/E (x)
21.8 12.9 10.6 8.8

ROCE (%)
18.9 24.9 28.4 32.5

ROE (%)
20.4 29.5 29.3 28.1

P/BV (x)
4.1 3.5 2.8 2.2

Pleaserefertoimportantdisclosuresattheendofthereport
SushilFinancialServicesPrivateLimited
Regd.Office:12,HomjiStreet,Fort,Mumbai400001.

ForprivateCirculationOnly. Member:BSEL,SEBIRegn.No.INB/F010982338|NSEIL,SEBIRegn.No.INB/F230607435. Phone:+912240936000Fax:+912222665758Email:info@sushilfinance.com

KajariaCeramicsLtd.

COMPANYOVERVIEW
KajariaCeramicsLtd.(KCL)isthelargestmanufacturersofceramic/vitrifiedtilesinIndia. Ithasanannualcapacityof30.60MSM,distributedacrossthreeplantsSikandrabadin UttarPradesh,GailpurinRajasthanandMorbiinGujarat.KajariaCeramicshasincreased itscapacityfrom1MSMto30.60MSMinlast22yearsandoffersmorethan400options in ceramic wall & floor tiles, vitrified tiles, designer tiles and much more. These tiles comeinawiderangeofcoloursandtexturestocomplementbathrooms,livingrooms, corridors, study rooms & kitchen, born out of an inspired creativity of those who feel that rooms should be an extension of the beauty reflected. With an unparalleled commitmenttowardsquality,KCLhasstrivedtoadopttechnologiesandstandardswith thechangingtimes.
. BUSINESSOVERVIEW

KajariaCeramicsLtd.(KCL)

CeramicWall& FloorTiles

Polished VitrifiedTiles

GlazedVitrifies Tiles

RetailChainof ImportedTiles

Bathware

Wooden Flooring

CERAMICWALL&FLOORTILES
KCLmanufactureswallandfloortilesindiversesizes,designsandfinishestocatertoall segments of customers. The Company also provides decorative additions like High lighters and borders along with matching floors leading to comprehensive bathroom solutions. Its products are marketed through a robust distribution network of dealers and subdealers and Kajaria Prima showrooms present in every major town of the country. At Kajaria, wall tiles are manufactured at its Gailpur facility (capacity 14.10 MSM)insixdifferentsizes(20x20cm,25x40cm,30x20cm,30x45cm,30x60cmand 15x60cm).FloortilesaremanufacturedattheSikandrabadfacility(capacity3.2MSM)in the 30x 30 cm size and at its recently acquired Morbi unit (capacity 2.30 MSM) in the 60x60 cm size. Some wall (45x90 cm) and floor tiles (39.5 x 39.5 cm) are outsourced. Kajaria developed unique designs in digitally printed tiles in multiple sizes for exterior wall cladding and interior applications. Going ahead, the Company will continue to developnew sizesanddesignsinvalueadded,largeformattilesinlinewithcustomer aspirations

POLISHEDVITRIFIEDTILES
Polished vitrified tiles are considered next generation flooring marked by a polished surface,highgloss,extraordinaryqualityanddurability.Theyaredesignedtowithstand abrasion,chemicalandfireresistanceandstaining.KCLenjoysasevenyearpresencein this business, marketing imported variants from China in three different sizes 60x60 cm,80x80cm,120x60cm.KCLcommissioneda2.4MSMpolishedvitrifiedtiles(60x60 cm) facility at its Sikandrabad unit which commenced operations in February 2010, its firstvitrifiedtilemanufacturingfacility.During201011,theCompanyconvertedpartof ceramic floor tile capacity into a vitrified tile capacity by adding balancing equipment andanother2.60MSMofcapacity,makingthetotalpolishedvitrifiedcapacity5MSMat Sikandrabad by March 2011. The Company further added 3 MSM highend polished vitrified tile capacity in Gailpur which commenced production in March, 2011. Kajaria

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KajariaCeramicsLtd.

launched the Solitare series comprising technologicallyadvanced, largeformat tiles (80x80 cm and 120x60 cm), providing Indian customers an authentic alternative to natural/Italianmarble.Theseproductsaremanufacturedbysuperwhite,translucentand expensive colour bodies fused with integrative feeding of dye and pressing. The Company markets polished vitrified tiles through dealer and Kajaria Vitro Studio network,ashopinshopconceptforselecthighperformingdealersprovidingdedicated spacetoshowcaseKajariasproducts,facilitatingcustomerengagementandofftake. Kajaria will optimise capacity utilisation of its newly commissioned capacities at the Gailpur and Sikandrabad plants. The marketing team strategised to increase the proportion of highend tiles in the sales volume by expanding distribution network to establish presence in every district in India and introducing new product variants and contemporarydesignsbywayofownproductionandimport.

GLAZEDVITRIFIEDTILES
KCLwasthefirstcompanytointroduceglazedvitrifiedtiles(GVT)inIndiain200708in anorganizedmannerundertheKajariaEternitybrand.TheCompanysourcedproducts fromthetwoleadingGVTmanufacturersinChina.Currently,theCompanyisthelargest importerofGVTprovidingthewidestproductoffering:intermsofsizes(30x60cmand 60x60cm)andfinishes(rustic,matt,satin,wood,stone,silkandmetal,amongothers) for wall and floor applications. The Company commissioned a 3 MSM capacity to produce glazed vitrified tiles (60x60 cm, 30x60 cm and 45x90 cm) at its Gailpur unit whichcommencedcommercialoperationsinMarch2011.Theproductsaredistributed through Kajaria Eternity Studios and select dealers. The Kajaria Eternity Studios represent a shopinshop concept for select dealers in key cities showrooms are upgraded, product visibility is enhanced and additional sales promotion schemes are offered leading to a winwin situation. Improved lifestyle consequent to increasing aspirationsanddisposableincomesisdrivingthe demandforglazedvitrifiedtiles,which provideasuperiorvaluepropositionovernaturalstone. TheCompanysmanufacturingfacilitywillminimiseimportofglazedvitrifiedtiles(about 10%ofsalesvolumes)andyieldbenefitsthroughareductioninproductprice,consistent supply of quality material and customised solutions. Consequently, the team will grow itsmarketshare(volumeandvalue)andenterunchartedterritories.TheCompanyplans tointroducedigitalprintingonglazedvitrifiedtilesandopenmorestudiosin201112to strengthenmarketshare.

RETAILCHAINKAJARIAWORLD
Kajaria World showcases highend imported tiles sourced through its alliances with European brands (Saloni, Grespania, Argenta and Baldocer, among others) through a networkoftwelveshowroomsacrossthecountry.Thebrandsignifiesinternationalstyle &appealandispopularinIndiasarchitectfraternity.Thischainoffersthewidestrange of imported tiles including the large format tiles collection (45x90 cm and 30x90 cm series)andthestonecollectionseries(i.e.exteriortile).Tilesarealsoavailablein30x60 cm sizes with different finishes like rustic, matt, satin, wood, metal and fabric, among others.ThepricerangevariesfromRs.1,0003,000persq.m.TheCompanyimportstiles produced with the latest digital printing technology, wherein the design of each tile is different and following commissioning, the cladding resembles natural stone. The Company possesses the largest logistic support for imported tiles; its 14 warehouses ensureseamlessproductsupplyacrossitsnetwork. The Company is looking to extend the Kajaria World network to all Tier I cities and implementnewinitiativestoaccelerateretailsales.

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BATHWARE
KCL entered the bathware segment to emerge as a onestop solution provider. The business showcases bathware and wellness products (bath tubs, Jacuzzi, shower cubicles).KCLtiedupwithVitrA,aleadingEuropeanbrand,inJanuary2011tomarket highend bathware and bath fittings. VitrA is a part of Eczacibasi, one of the largest industrialgroupsinTurkey,withaturnoverofRs.100bn.Thearrangementwillposition KajariaasanexclusiveandsolemarketeranddistributoroftheVitrArangeinIndia.The alliance will leverage the strong brand and distribution network of Kajaria. Kajaria and VitrA inaugurated the first showroom (3,000sq. ft.) of VitrA products showroom in Gurgaon.VitrAproductswillalsobeshowcasedinallKajariaWorldshowrooms across India. Therealreturnsfromthetieupareexpectedin201112aftertheCompanyopens10 VitrAKajariashowroomsandappoints30exclusivedealersacrossIndia.

WOODENFLOORING
Kajaria entered the wooden flooring space as a trading initiative in November 2010, representinganeatfitwithitsexistingbusinessesforthefollowingreasons: WesterncultureisbeingreplicatedacrossIndianhouseholdsfasterthanbefore. Theaverageageoftheurbanhousepurchaserisdeclining(fromabout3739years toabout2830years)withacorrespondingincreaseintheirreceptivitytolifestyle products. Thetargetbuyergroup(builder/architectinurbanlocations)islargelythesameas ceramicandvitrifiedtiles. Thenewproducthelpsfilldealershelfspace,enhancingopportunityandreturns. The Company procures the product from qualityrespecting Chinese suppliers and marketsitundertheKajariaWoodbrand,supported byregionalmarketingteamsand incentivizeddealerofftake. The Company is strengthening panIndia product visibility through focused marketing, newproductvariantsanddistributionnetworkadditionandalsoexploringthepossibility ofimportingvalueaddedproductsfromreputedEuropeancompanies.

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INVESTMENTRATIONALE
Robustdemandindomestictilemarket
The Indian ceramic tiles industry is the worlds third largest producer as well as consumerafterChinaandBrazil.Theindustrygrew15%annuallyoverthelastfewyears (outpacingglobalaveragegrowthof6%perannum)owingtotheemergenceoftilesasa durable, costeffective and convenient flooring solution over natural stone. Increasing disposable incomes, affordability, urbanization, brand aspiration and home aesthetics also catalyzed the demand for highend variants. The 550MSM domestic ceramic tile industry was estimated at around Rs.130 bn. The Indian ceramic industry is equally dividedintothebrandedandunbrandedsegments.Theunbrandedsegmentcomprises small players concentrated in Gujarat. KCL is the largest player in the Indian space in termsofinstalledcapacity.Thebrandedsegmentisgainingmarketshareowingtorapid capacityadditionandshifttovalueaddedproducts,whichexplainsthe20%growthof the top 10 players as against the industry average of 10%, correspondingly increasing marketsharefrom32%in200506toabout40%in201011. Percapitaconsumption:Indiaspercapitatilesconsumptionisamere0.42sq.mwhile theworldaverageisthreetimeshigherat1.20sq.mandChinasaverageismorethan fivetimeshigherat2.26sq.m.

PerCapitaConsumptionofTiles(MSM)
5 4 3 2 1 0 China Brazil Iran Vietnam Turkey Egypt India 2.26 3.24 4.47

2.76 1.79 1.67 0.42

Source:CeramicWorldReview

KajariaCeramicsisthesecondlargestcompanyturnoverwisewitharound15%sharein theorganizedmarket.

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ORGANISEDTILE MARKETTURNOVER
Decolight Ceramics BellGranito Murudeshwar RegencyCeramics Ceramics BellCeramics GokulCeramics EuroCeramics OrientCeramics AsianGranito Nitco Tiles Somany Ceramics

Others H&RJohnson

Kajaria Ceramics

Growth in real estate sector to trigger demand: Across 201015, Indias real estate sectorisexpectedtogrowataCAGRof1516.Demandfortilesisalsoexpectedtorise in tandem. 70% of the tiles distributed by Kajaria cater to the retail segment (against industry average of 50%), thus providing better returns. The retail demand for tiles is likelytogrowbecauseofthefollowingtriggers: Increasing middleclass & rising population: Indias middleclass is expected to account for 85% of urban households. Indias urban population is expected to increaseby100millionover10yearsor10millionannually,creatingahugeannual demand for houses and flooring solutions. India is projected to stay the youngest withitsworkingagepopulationestimatedtogrowto70%ofitstotalpopulationby 2030thelargestsuchquantumintheworld. Improved disposable incomes: with the improvement in disposable incomes discretionaryspendinginlifestyleandpremiumproductsisexpectedtoincreaseto around70%ofannualhouseholdexpensesby2025. Replacement market: Growing earnings in rural and semiurban markets due to governmentpolicies(MGNREGSandhigherpricefixationforagricommodities)have fuelledaspirations,manifestedinimprovedflooringsolutions. The growth from institutional and projects segment is expected to come from urbanizationleadingtoincreaseincommercialspace.Demandforcommercialspaceis expected to come from sectors such as organized retail, hospitality sector, healthcare careandotherinfrastructuredevelopmentactivitieslikeairportdevelopment.

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Capacityexpansionwilldrivevolumegrowth
KCLcommissioneda2.4MSMpolishedvitrifiedtilesfacilityatitsSikandrabadunitwhich commenced operations in February 2010, its first vitrified tile manufacturing facility. During201011,theCompanyconvertedpartofceramicfloortilecapacityintoavitrified tilecapacitybyaddingbalancingequipmentandanother2.60MSMofcapacity,making thetotalpolishedvitrifiedcapacity5MSMatSikandrabadbyMarch2011.TheCompany further added 3 MSM highend polished vitrified tile capacity in Gailpur which commencedproductioninMarch,2011.

Ceramicglazedtilesv/svitrifiedtiles

Nature

Ceramicglazedtiles Glazed and burned clay products principally used for decorative and sanitaryeffectsonwallsandfloors; has36%waterabsorption.

Vitrifiedtiles Specializedkind,hardbacked with low porosity and water absorption (less than 0.5%), making it stainresistant and strong.

Composition Application Pricerange

Decorative coat on the top of the Homogeneous body and tilebody,hencetheircompositionis consistentinComposition. nonconsistent. Mainly used in wall coverings for Usedforalltypesofflooring. bathroomsandkitchens. Rs.200700persq.m Rs.4001,500persq.m.

In 14 months (February 2010 to March 2011), KCL added 11 MSM of vitrified tile capacity, the largest by any single company in India. KCL also acquired a 51% stake in SorisoCeramicPvtLtd,havinga2.30MSMperannumceramicfloortilemanufacturing facility in Gujarat in February 2011 for an investment of Rs.56.20 mn. Now the total capacityis30.6MSM.Foritsfuturegrowthrequirements,thecompanyplanstohavea judicious mix of imports, outsourcing and own capacities, and has already planned to double the manufacturing capacity at its Morbi Plant, Gujarat (from 2.3MSM to 4.6 MSM) by January, 2012. Given its market positioning, demand growth & high capacity utilization, KCLs volumes are expected to expand substantially following these expansions.

Plant Sikandrabad(UP) Gailpur(Rajasthan) Morbi(Gujarat)*

CeramicTiles(MSM) 3.2 14.1 2.3

VitrifiedTiles(MSM) 5.0 6.0 0.0

Total(MSM) 8.2 20.1 2.3 30.6

19.6 11.0 *KCLacquired51%stakeinSorisoCeramicPvt.Ltd.inMorbi,Gujarat.

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KajariaCeramicsLtd.

Focus on value added products, strong Brand & distribution network to drivegrowthfurther
In India, the branded tiles segment is gaining market share owing to rapid capacity additionandshifttovalueaddedproducts,whichexplainsthe20%growthofthetop10 players as against the industry average of 15%. KCL has one of the largest distribution channelsinIndiawith800dealers(apartfromtheirnetworkofsubdealers)thathelpin better market penetration. To leverage their strong distribution network and brand competencies,apartfromaddingcapacitiesinthehighendvitrifiedtilescategory,KCL has also forayed into many highend sanitaryware segments which positions the companyasacompletebathroomsolutionproviderandhasalsoestablishedafoothold inhighvaluewoodenflooringsolutions.Thisbusinessshowcasesbathwareandwellness products(bathtubs,Jacuzzi,showercubicles).KCLhasalsotiedupwithVitrA,aleading Europeanbrand,inJanuary2011tomarkethighendbathwareandbathfittings.VitrAis a part of Eczacibasi, one of the largest industrial groups in Turkey, with a turnover of Rs.100bn.ThearrangementwillpositionKajariaasanexclusiveandsolemarketerand distributor of the VitrA range in India. The alliance will leverage the strong brand and distributionnetworkofKajaria.KajariaandVitrAinauguratedthefirstshowroom(3,000 sq.ft.)ofVitrAproductsinGurgaon.VitrAproductswillalsobeshowcasedinallKajaria WorldshowroomsacrossIndia.ThiswillhelpKCLtoaccelerateitsmarketshareinthe highend segment, grow its volume strongly and will also enable it to address newer segments,whereitwaspreviouslyabsent.

ReducingLeverage&SharpImprovementinROCE&ROE
Historically,theIndiantilecompanieshavehadalowassetturnoverratio,asthecostof machinerywasveryhigh.However,withtheforayofChinesecompaniesintomachine manufacturing in the recent past, the prices of Italian machines have also come down substantially. Apart from this, KCLs focus higher end products, has helped it improve realizations.Thesefactorshaveturnedouttobegamechangersforthecompanyasit has been able to improve margins, reduce leverage and report better ROCE/ROE. The ROCE and ROE for FY11 has improved to 24.9% & 29.5% from 18.9% & 20.4% respectivelyinFY10.

RISKS&CONCERNS
Lowcost Chinese imports could affect market share: The Indian government has imposed antidumping duty on Chinese ceramic tiles coming into India. Withdrawal of thisantidumpingdutyislikelytoimpacttheindustryaswellasKajaria,duetohigher imports. Competitionfromtheunbrandedsectorcoulddentprofitability:Theceramicindustry isgovernedbyunorganizedsector,whichcompeteswithorganizedsectoronthepricing front.Lowpricerealizationsimposeamajorthreatonceramicandvitrifiedtileprices. Thiscompetitivepressurecanresultintheshrinkageofmarketshare,therebyimpacting revenueandearningsgrowth. Slowdown in the housing & infrastructure sector: Tile industry growth is largely dependent on overall economic, housing and infrastructure growth. The revival in construction sector has been the single largest factor for growth in demand. Any slowdowninthebuying,projectsoreconomymayimpactthesalesvolume.

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FINANCIALOUTLOOK
SalestogrowatCAGRof20%overFY11FY13
KCLsnetsaleshavegrownata21%CAGRofthepastthreeyears(FY07FY10).The Companyiswellpositionedtoencashthemarketgrowthopportunitiesasitenjoys higherbrandequity.WeexpectitssalestogrowataCAGRof20%overFY11FY13.

SALES(Rs.in mn)
16000 14000 12000 10000 8000 6000 4000 2000 0 FY08 FY09 FY10 FY11 FY12 FY13 5027 6649 7355 9523 11714 13764

Source:Company&SushilFinanceResearchestimates

EBITDAtogrowataCAGRof20%overFY1113

EBIDTA&EBIDTA Margins
2500 2000 1500 1000 500 0 FY08 FY09 FY10 FY11 FY12 FY13 824 959 1485 1157 1828 2151 17.0 16.5 16.0 15.5 15.0 14.5 14.0 13.5 13.0

EBIDTA(Rs.Inmn)
Source:Company&SushilFinanceResearchestimates

EBIDTA(Margins)

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KajariaCeramicsLtd.

APATtogrowatCAGRof21%overFY11FY13

APAT(Rs.inmn)
1050 900 750 600 450 300 150 150 0 FY08 FY09 FY10 FY11 FY12 FY13 89 359 734 607 883

Source:Company&SushilFinanceResearchestimates

OUTLOOK&VALUATION
KCL has performed exceedingly well in the past few years on the back of rising tiles demand, its strong brand & distribution network, focus on value added products & consistent expansion in its capacities. Given its strong market positioning, increased capacitiesofitsvitrifiedtiles,forayintonewproductlinesofhighendsanitaryware& woodenflooringsegments.Goingforward,weexpectitsRevenuesandAPATtogrow stronglyby23%&21%inFY12&17.5%and20.3%inFY13respectively.Weinitiateour coverageontheCompanywithaHOLDratingandatargetpriceofRs.120(10xFY13E EPSofRs.12).

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PROFIT&LOSSSTATEMENT Y/EMarch FY10 7363.5 TotalSales

Rs.mn

BALANCESHEETSTATEMENT
Ason31stMarch ShareCapital Reserves ShareholdersFunds TotalDebt Def.TaxLiability(Net) TotalLiabilities FixedAssets Investments SundryDebtors CashandBank LoansandAdv. Inventory OtherCurrentAssets CurrentAssets CurrentLiabilities Provisions CurrentLiabilities NetCurrentAssets TotalAssets FY10 147.2 1746.2 1893.4 2628.3 548.5 5070.2 3473.3 33.9 773.2 44.9 755.8 1402.6 0.0 2976.4 1197.7 215.8 1413.5 1562.9 5070.2 FY11 147.2 2078.5 2225.6 2796.8 601.9 5624.3 4791.0 90.1 909.0 29.9 808.4 1515.1 0.0 3262.5 2129.9 389.4 2519.3 743.2 5624.3 FY12E 147.2 2639.8 2786.9 2452.2 617.0 5856.1 4746.7 90.1 1118.1 142.0 994.4 1863.6 0.0 4118.1 2619.8 479.0 3098.8 1019.3 5856.1

Rs.mn

FY11

FY12E

FY13E

FY13E 147.2 3350.2 3497.3 1849.1 647.8 5994.3 4715.2 90.1 1313.8 158.1 1168.4 2189.7 0.0 4829.9 3078.2 562.8 3641.0 1188.9 5994.3

9534.2 11725.4 13776.6 5398.9 6715.6 1153.6 985.5 1042.6 7994.7 1320.9 1162.9 1146.8 2151.3 382.6 431.4 0.0 1337.3 454.7 882.6

TotalRawMat.Cost Power&FuelCost
StaffCost OtherExpenditure EBITDA Interest Depreciation OtherIncome PBTinclOI Tax APAT

3600.2 1048.8 612.8 945.0 1156.7 375.2 267.1 0.0 514.4 155.9 358.5

926.6
758.1 965.3

1485.3 1828.1 298.6 295.0 0.0 891.7 285.1 606.6 380.7 368.7 0.0 1078.7 345.2 733.5

FINANCIALRATIOSTATEMENT
Y/EMarch Growth(%) NetSales APAT EBITDA Profitability(%) EBITDAMargin Adj.PATMargin ROCE ROE PerShareData(Rs.) Adj.EPS Adj.CEPS BVPS Valuations(X) PER PEG P/BV EV/EBITDA EV/Netsales TurnoverDays Debtorsdays Creditorsdays GearingRatio TotalDebttoEquity FY10 10.6 302.7 20.6 15.7 4.9 18.9 20.4 4.9 8.7 25.7 21.8 0.1 4.1 9.0 1.4 36 80 1.4 FY11 29.5 69.2 28.4 15.6 6.4 24.9 29.5 8.2 13.0 30.2 12.9 0.2 3.5 7.1 1.1 32 96 1.3 FY12E 23.0 20.9 23.1 15.6 6.3 28.4 29.3 10.0 15.9 37.9 10.6 0.5 2.8 5.6 0.9 32 110 0.9 FY13E 17.5 20.3 17.7 15.6 6.4 32.5 28.1 12.0 19.2 47.5 8.8 0.4 2.2 4.5 0.7 32 112 0.5

CASHFLOWSTATEMENT
Y/EMarch RPAT Depreciation ChginDeferredtax ChginWorkingcap Cashflowfrom operations ChginGrossPPE ChginInvestments Cashflowfrom investing Chgindebt ChginNetWorth Dividend Cashflowfrom financing Chgincash Cashatstart Cashatend FY10 272.7 249.2 14.0 499.5 1035.4 FY11 435.6 221.9 53.4 804.8 1515.7 FY12E 561.3 368.7 15.0 (164.1) 781.0 (324.4) 0.0 (324.4) (344.6) 172.2 (172.2) (344.6) 112.1 29.9 142.0

Rs.mn

FY13E 710.4 431.4 30.8 (153.5) 1019.2 (400.0) 0.0 (400.0) (603.0) 172.2 (172.2) (603.0) 16.1 142.0 158.1

(446.0) (1539.6) 0.0 (56.2)

(446.0) (1595.8) (623.4) 85.8 (85.8) (623.4) (34.0) 78.9 44.9 168.5 67.7 (171.0) 65.2 (15.0) 44.9 29.9

Source:Company,SushilFinanceResearchEstimates

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KajariaCeramicsLtd.

RatingScale
ThisisaguidetotheratingsystemusedbyourInstitutionalResearchTeam.Ourratingsystem comprisesofsixratingcategories,withacorrespondingriskrating.

RiskRating
RiskDescription LowRisk
MediumRisk HighRisk

PredictabilityofEarnings/Dividends;PriceVolatility
Highpredictability/Lowvolatility Moderatepredictability/volatility Lowpredictability/Highvolatility

TotalExpectedReturnMatrix
Rating
Buy Accumulate Hold Sell Neutral NotRated
PleaseNote RecommendationswithNeutralRatingimplyreversalofourearlieropinion(i.e.BookProfits/Losses). ** Indicates that the stock is illiquid With a view to combat the higher acquisition cost for illiquid stocks, we haveenhancedourreturncriteriaforsuchstocksbyfivepercentagepoints. StockReviewReports:TheseareSoftcoveragesoncompanieswhereManagementaccessisdifficultorMarket capitalization is below Rs. 2000 mn. Views and recommendation on such companies may not necessarily be based on management meeting but may be based on the publicly available information and/or attending Company AGMs. Hence StockReviewsmaybejust onetimecoverageswithanoccasionalUpdate,wherever possible. Additionalinformationwithrespecttoanysecuritiesreferredtohereinwillbeavailableuponrequest. This report is prepared for the exclusive use of Sushil Group clients only and should not be reproduced, re circulated,publishedinanymedia,websiteorotherwise,inanyformormanner,inpartorasawhole,without the express consent in writing of Sushil Financial Services Private Limited. Any unauthorized use, disclosure or publicdisseminationofinformationcontainedhereinisprohibited.Thisreportistobeusedonlybytheoriginal recipienttowhomitissent.

LowRisk
Over15% 10%to15% 0%to10% NegativeReturns NotApplicable NotApplicable

MediumRisk
Over20% 15%to20% 0%to15% NegativeReturns NotApplicable NotApplicable

HighRisk
Over25% 20%to25% 0%to20% NegativeReturns NotApplicable NotApplicable

Thisisforprivatecirculationonlyandthesaiddocumentdoesnotconstituteanoffertobuyorsellanysecurities mentioned herein. While utmost care has been taken in preparing the above, we claim no responsibility for its accuracy.Weshallnotbeliableforanydirectorindirectlossesarisingfromtheusethereofandtheinvestorsare requestedtousetheinformationcontainedhereinattheirownrisk.

Thisreporthasbeenpreparedforinformationpurposesonlyandisnotasolicitation,oranoffer,tobuyorsellany security.Itdoesnotpurporttobeacompletedescriptionofthesecurities,marketsordevelopmentsreferredtoin thematerial.Theinformation,onwhichthereportisbased,hasbeenobtainedfromsources,whichwebelieveto bereliable,butwehavenotindependentlyverifiedsuchinformationandwedonotguaranteethatitisaccurateor complete.Allexpressionsofopinionaresubjecttochangewithoutnotice.

SushilFinancialServicesPrivateLimitedanditsconnectedcompanies,andtheirrespectivedirectors,officersand employees (to be collectively known as SFSPL), may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities. SFSPL may act upon or make use of information containedhereinpriortothepublicationthereof.

October07,2011

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