Emkay Global Financial is bullish on Kajaria Ceramics has recommended buy rating on the stock with a target price of Rs 925 in its research report dated January 21, 2021.
Broker Research
January 25, 2021 / 05:01 PM IST
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Emkay Global Financial’s report on Kajaria Ceramics
KJC maintained its strong performance in Q3 on the back of strong volume growth and benefits from lower costs. EBITDA stood at Rs1.82bn vs. estimated Rs1.63bn as gross margin improved 1.7pp yoy/1.1pp qoq. OPM came in at 21.7% vs. our estimate of 19.5%. Key positives: 1) Gross margin improved due to lower gas prices (Rs25.5-26/scm vs. Rs31- 32/scm in Q3FY20); 2) 2.1% qoq rise in realization as discounts/schemes were reduced; 3) 6.7pp yoy/1.5pp qoq improvement in OPM; 4) Rs110mn profit for subsidiaries vs. a loss of Rs10mn in Q3FY20. Management said strong improvement in volumes was seen in Tier 1-3 cities, while metros remained at 70-75% of last year levels. It expects 20%+/15% volume growth in FY22/23E and expects OPM to be maintained at approx. 20%. KJC has finalized a new dividend distribution policy and will distribute 40-50% of profits to shareholders.
Outlook
We increase FY21-23E EPS by 16-22% on higher volume assumptions and improvement in margins. Higher profits and increased payout will help improve RoCE (30.3% in FY23 vs. 17.3% in FY20). We raise the target multiple to 30x (from 26x) and upgrade our rating to Buy from Hold.
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