Kajaria Ceramics. Result Update. Buy

Transcription

1 Result Update Kajaria Ceramics Buy Cautiously Optimistic In the last one & half year Ceramic Industry faced multiple challenges, Demonetization and GST Implementation restricted volume growth. Collective might of the Un-organized players exerted volume/pricing pressure across product range (attributed to Vibrant Ceramic expo hosted by Morbi based players in Nov 2017 & Capacity addition in GVT segment by Morbi based players). We believe volume/pricing pressure will ease for the organized players as our channel checks and management commentary suggests Morbi association is unlikely to host next edition of Vibrant Ceramic expo in the current year. Further the implementation of E-way from 1 st of April 2018 will bring in relief for the organized players. However rising P&F cost remain a major concern for the industry. Subdued pricing environment and rising P&F cost has prompted us to cut our EPS estimates for FY19E/20E by 16.9% and 19% respectively. Dealer & store addition coupled with aggressive marketing to enable KJC to clock revenue CAGR of 12.5% over FY18-20E, on the back of 11.5% volume CAGR. We expect operating profit/pat CAGR of 17%/21.1% over FY18-20E. At CMP KJC is trading at 33.4x/24.9x FY19E/20E EPS of ` 16.2 & 21.7 respectively. KJC India s largest and globally ninth largest tile manufacturer coupled with its brand strength, deeper distribution reach and focus on diversifying capacity away from Morbi region warrants premium multiple. We value KJC at 30x FY20E EPS of ` 21.7, Recommend BUY with a revised TP of Rs651/share, implying an upside of 21%. Q4 Performance below estimates on all front Kajaria Ceramics reported topline of ` 7.5 bn (+4.1% YoY, 13.4% QoQ), 3.5% Lower than D est. 17% YoY de-growth in JV division revenues impacted the tile division performance. Lower than expected topline growth coupled with increase in Power & Fuel cost resulted in, KJC reporting EBITDA de-growth of 8.2% YoY to ` 1.2bn (+9.2% QoQ), 11% lower than D est. Lower than expected EBITDA resulted in KJC reporting PAT degrowth of 6.7% YoY (+21.5% QoQ) to ` 660 Mn (5.8% Lower than D est). Q4FY18 Result (` mn) Net Sales 7,500 7, , Total Expenditure 6,300 5, , EBITDA 1,201 1,308 (8.2) 1, Depreciation EBIT 972 1,103 (11.9) Other Income (33.7) Interest (40.0) 52 (10.2) PBT 977 1,102 (11.4) Tax (26.4) 311 (10.0) RPAT after MI (6.7) APAT (6.7) EPS (`) (6.7) Tiles Volume (MSM) Blended Tiles Realisation/sq. m (1.8) 357 (3.0) Blended Realisation / sq. m (0.7) 377 (1.6) Blended Cost / sq. m (0.9) Blended EBITDA / sq. m (12.4) 63 (5.3) EBITDA Margin (%) (214)bps 16.6 (62)bps May 14, 2018 CMP ` 540 Target / Upside ` 651/21% BSE Sensex 35,536 NSE Nifty 10,807 Scrip Details Equity / FV Market Cap ` 159mn/`1/- ` 86bn USD 1.3bn 52-week High/Low ` 768/503 Avg. Volume (no) 575,985 NSE Symbol Bloomberg Code KAJARIACER Shareholding Pattern Mar 18(%) KJC IN Promoters 47.6 MF/Banks/FIs 8.9 FIIs 28.6 Public / Others 14.9 Valuation (x) FY18 FY19E FY20E P/E EV/EBITDA ROE ROCE Estimates (` mn) FY18 FY19E FY20E Net Sales 27,106 29,986 34,331 EBITDA 4,564 4,938 6,247 PAT 2,345 2,570 3,448 EPS Anlayst: Manish Raj Tel: manishr@dolatcapital.com Associate: Bhavik Shah Tel: bhaviks@dolatcapital.com

2 Quarterly & Yearly Performance Snapshot FY18 FY17 YoY (%) Net Sales 7,500 7, , ,106 25, Total Expenditure 6,300 5, , ,542 20, EBITDA 1,201 1,308 (8.2) 1, ,564 4,963 (8.1) Depreciation EBIT 972 1,103 (11.9) ,678 4,149 (11.4) Other Income (33.7) (29.4) Interest (40.0) 52 (10.2) (29.1) PBT 977 1,102 (11.4) ,553 3,963 (10.3) Tax (26.4) 311 (10.0) 1,267 1,425 (11.1) RPAT after MI (6.7) ,350 2,528 (7.1) APAT (6.7) ,345 2,528 (7.3) EPS (`) (6.7) (7.3) Tiles Volume (MSM) Blended Tiles Realisation/sq. m (1.8) 357 (3.0) (0.5) Blended Realisation / sq. m (0.7) 377 (1.6) Blended Cost / sq. m (0.9) EBITDA / sq. m (12.4) 63 (5.3) (13.4) EBITDA Margin (%) (214)bps 16.6 (62)bps (263)bps Kajaria s per tonne matrix (` / SQM) Net Sales per sq. m (0.7) 377 (1.6) Cost per sq. m (0.9) Cost of Material Consumed (1.8) Purchase of Stock in trade Change in Inventories 2 9 (77.4) 4 (55.1) Raw Material Cost (1.4) Employee benefit expenses (11.4) Power & Fuels Other expenses (10.5) 54 (3.7) EBITDA per sq. m (12.4) 63 (5.3) Kajaria s cost as a % of Net Sales Particulars Q4FY18 Q4FY17 YoY (bps) Q3FY18 QoQ (bps) Cost of Material Consumed (4) Purchase of Stock in trade Change in Inventories 1 2 (178) 1 (63) Raw Material Cost Employee benefit expenses (118) Power & Fuels Other expenses (155) 14 (30) May 14,

3 Kajaria s Segmental Revenue (` mn) Sanitary ware /faucets Outsourcing (Tiles) 1, JV's(Tiles) 1,738 2,097 (17.1) 1, Own Manf (Tiles) 4,241 3, , Total 7,500 7, , Kajaria s production (MSM) Own JV (1.1) Total Kajaria s Sales (MSM) Own JV (10.4) Outsource/import Total Kajaria s blended realization (tiles only) (in `) Own Realisation (1.8) JV Realisation (7.5) 328 (2.1) Outsource/import (6.8) 319 (8.3) Tiles business realisation (1.8) 357 (3.0) Segmental EBIT & EBIT margin EBIT (Rs Mn) Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%) Tiles (12.3) Others (Sanitary ware /faucets) (1) (6) (89.1) (2) (62.5) Total (11.9) EBIT margin (%) Q4FY18 Q4FY17 YoY (bps) Q3FY18 QoQ (bps) Tiles (65) 14.0 (18) Others (Sanitary ware /faucets) Total (234) 13.3 (30) May 14,

4 View Subdued pricing environment and rising P&F cost has prompted us to cut our EPS estimates for FY19E/20E by 16.9% and 19% respectively. Dealer & store addition coupled with aggressive marketing to enable KJC to clock revenue CAGR of 12.5% over FY18-20E, on the back of 11.5% volume CAGR. We expect operating profit/pat CAGR of 17%/21.1% over FY18-20E. At CMP KJC is trading at 33.4x/24.9x FY19E/20E EPS of ` 16.2 & 21.7 respectively. KJC India s largest and globally ninth largest tile manufacturer coupled with its brand strength, deeper distribution reach and focus on diversifying capacity away from Morbi region warrants premium multiple. We value KJC at 30x FY20E EPS of ` 21.7, Recommend BUY with a revised TP of ` 651/share, implying an upside of 21%. Changes in estimates FY19 FY20 Particulars New Old Chg (%) New Old Chg (%) Revenue 29,986 30,229 (0.8) 34,331 34,651 (0.9) EBITDA 4,938 5,711 (13.5) 6,247 7,482 (16.5) PAT 2,570 3,126 (17.8) 3,448 4,308 (20.0) EPS (17.8) (19.1) Analyst Meet Highlights The management has guided volume growth of 12-15% YoY in FY19. Management expects prices to remain stable. The management stated operating margin to be in range of 16%-18% for FY19. Share of retail sales at 75% rest 25% from Institutional segment. During FY18, Kajaria s net dealer addition was around Currently, the organized players in the tiles industry enjoy market share of around 50% which is expected to reach 60% in FY19. On the production front Morbi accounts for 75% and rest 25% is with organised players Prices of Vitrified tiles saw downward pressure in FY18, Kajaria s realization from own manufacturing improved due to higher sales of value added products. The management believes introduction of E-way bill and GST could augur well for the organised players. The management expects JV s to contribute around ` 20 crores profit in FY19 as against ` 30 crores loss in FY18. Kajaria s distribution network consists of 1400 dealers across the country including 300 exclusive dealers. In case of future expansion in North/East, KJC will opt for own plants, However KJC will follow JV route for capacity addition in West/South India. Rising Gas prices remain a worry, Gas prices are linked to crude prices. May 14,

5 Income Statement (` mn) Net Sales 25,496 27,106 29,986 34,331 Total Expenditure 20,533 22,542 25,048 28,083 Raw Materials Consumed 9,194 10,603 11,554 12,908 Employees Cost 2,887 3,177 3,454 3,852 Power & fuel 4,480 5,194 5,847 6,523 Freight & Forwarding exp ,064 Selling & Distribution exp ,079 1,439 1,717 Other expenses 2,130 1,595 1,764 2,020 EBIDTA 4,963 4,564 4,938 6,247 Depreciation ,004 EBIT 4,149 3,678 3,982 5,243 Other Income Interest PBT & EO Items 3,963 3,546 3,872 5,163 Extra Ordinary Exps/(Inc) 0 (8) 0 0 PBT 3,963 3,553 3,872 5,163 Tax 1,425 1,267 1,239 1,652 PAT before MI 2,538 2,286 2,633 3,511 Minority Interest 10 (64) PAT 2,528 2,350 2,570 3,448 APAT 2,528 2,345 2,570 3,448 Balance Sheet (` mn) Sources of Funds Equity Capital Reserves & Surplus 11,592 13,351 15,444 18,414 Net Worth 11,751 13,510 15,602 18,573 Minority Interest Long Term borrowing 1, , Short Term borrowing , Loan Funds 1,706 1,351 2,101 1,701 Long-term provisions Net Deferred Tax Liability 1,106 1,099 1,099 1,099 Total Capital Employed 15,427 16,673 19,660 22,259 Applications of Funds Gross Block 16,618 17,188 19,688 20,688 Less: Accumulated Dep 4,845 5,731 6,686 7,690 Net Block 11,773 11,451 13,008 13,004 Capital WIP Non-Current Investments Long Term loans & adv Other non-current assets Current Assets, Loans & Advances Inventories 3,720 3,785 4,187 4,793 Sundry Debtors 3,389 4,507 4,986 5,708 Cash & Bank Balance ,866 3,639 Short Term Loans & Adv Other Current Assets sub total 8,221 9,513 11,724 14,912 Less: Current Liabilities & Provisions Other Current Liabilities 2,195 2,026 2,215 2,327 Trade payable 2,677 2,578 3,149 3,605 Provisions sub total 4,975 4,730 5,485 6,070 Net Current Assets 3,246 4,783 6,240 8,843 Total Assets 15,427 16,673 19,660 22,259 E Estimates Cash Flow (` mn) PBT and EOI 3,963 3,609 3,809 5,100 Net Interest Exp Depreciation ,004 Direct taxes paid (1,289) (1,267) (1,239) (1,652) Change in Working Capital (481) (1,510) (94) (735) Other (A) CF from Opt Activities 3,377 1,966 3,652 3,917 Capex (1,470) (663) (2,474) (1,000) Free Cash Flow 1,907 1,303 1,178 2,917 (Inc.)/ Dec. in Investments (0) (3) 0 0 Other (327) (87) (B) CF from Inv. Activities (1,397) (408) (2,801) (1,087) Inc./(Dec.) in Debt (820) (355) 750 (400) Interest exp net (340) (241) (220) (200) Dividend Paid (Incl. Tax) (491) (557) (478) (478) Other (28) (99) (C) CF from Fin. Activities (1,679) (1,253) 184 (1,058) Net Change in Cash ,035 1,772 Opening Cash balances ,839 Closing Cash balances ,839 3,611 Important Ratios (A) Measures of Performance (%) EBIDTA Margin EBIT Margin Gross Profit Margin Tax/PBT PAT Margin (B) As Percentage of Net Sales Raw Materials Consumed Employees Cost Manufacturing & Other exp (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost of Debt (%) Debtors Period (days) Closing stock (days) Creditor (days) Fixed Assets Turnover (x) Working Capital Turnover(x) (D) Measures of Investment EPS (`) CEPS (`) DPS (`) Dividend Payout (%) BV / share (`) RoE (%) RoCE (%) RoACI (%) (E) Valuation Ratios CMP (`) P/E (x) Market Cap. (` Mn.) 85,727 85,727 85,727 85,727 MCap/ Sales (x) EV (` Mn.) 86,913 86,254 85,961 83,789 EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E Estimates May 14,

6 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 20% Accumulate 10 to 20% Reduce 0 to 10% Sell < 0% Rating and Target Price History Month Rating TP (`) Price (`)* Jan-16 Buy Feb-18 Buy * As on Recommended Dated Jun-17 Jun-17 Jul-17 Aug-17 Aug-17 Sep-17 Oct-17 Oct-17 Nov-17 Dec-17 Dec-17 Jan-18 Feb-18 Mar-18 Mar-18 Apr-18 May-18 Kajaria Cement Target DART Team Purvag Shah Managing Director purvag@dolatcapital.com Amit Khurana, CFA Head of Equities amit@dolatcapital.com CONTACT DETAILS Equity Sales Designation Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com Kapil Yadav VP - Equity Sales kapil@dolatcapital.com Derivatives Strategist Designation Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com Equity Trading Designation P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com Derivatives Trading Designation Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com Hardik Mehta Sales Trader hardikm@dolatcapital.com Dolat Capital Market Private Limited. 20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai

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