In its base case scenario, Jefferies expects the company to clock a consolidated revenue growth of 17 per cent compounded annually over FY22-25. It sees Ebitda margins improving by 80 basis points over this period and pegs EPS growing a 22 per cent CAGR during the same period. Its target PE at 35 times is broadly in-line with the stock’s last 3-year average multiple.
On Thursday, the scrip was trading 1.18 per cent higher at Rs 1,171.95. It is down 10 per cent year-to-date. Jefferies’ base target suggests a 19.5 per cent rise over the prevailing price. Its bullish scenario gives a 71 per cent upside target.
For FY23, the Kajaria management has guided 15-20 per cent volume growth and 20 per cent-plus revenue growth. Jefferies said it has a lower FY23 volume growth expectation at 14 per cent.
Almost 70-75 per cent of Kajaria’s business mix is B2C, wherein the primary demand is likely to emanate from the housing upswing, it said. Margin-accretive new businesses such as bathware and plywood could witness notable growth on a low base, the foreign brokerage said.
“With a view to pass-on rise in gas prices, Kajaria hiked tile prices by 2 per cent in May. Cumulative price hikes in FY22 stood at 10 per cent in tiles and higher at 15 per cent in sanitaryware and 12-13 per cent in bathware. Such healthy price hikes across segments indicate the company’s strong brand franchise,” it said while suggesting a ‘buy’ on the stock.
Jefferies said it stays bullish on the potential housing revival in India, optimizing mix in Kajaria where value-added sales are now 60 per cent, traction in new margin-accretive products and upward margin trajectory.
Kajaria’s sales of vitrified tiles as a percentage of total sales stand at 55 per cent. Jefferies said diversification into bathware will support growth.
“Also, exports by Morbi players could sustain pricing stability in the domestic market,” it said.
Jefferies said there is a sizable industry opportunity in India with per capita consumption of tiles being tiny at less than 1 square meter.
“Tiles industry touted to be one of the key beneficiaries of GST and e-Way Bill, unorganized segment at 60-65 per cent of total volumes. Kajaria is the market leader in organized tiles and could help gain traction ahead of peers. Pan-India entrenched footprint acts as a strong moat,” it said.
That said, Jefferies has a target of Rs 800 for the stock in a downside scenario.
Increasing competition, particularly from unorganised tile players in Morbi, Gujarat, India, is leading to volumes and pricing pressures on organised players, posing a risk to Kajaria’s market share, the brokerage added.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)