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 7,207 4.1 6,612 13.4 Total Expenditure 6,300 5,899 6.8 5,512 14.3 EBITDA 1,201 1,308 (8.2) 1,100 9.2 Depreciation 229 205 11.6 223 2.7 EBIT 972 1,103 (11.9) 877 10.8 Other Income 51 78 (33.7) 18 190.4 Interest 47 78 (40.0) 52 (10.2) PBT 977 1,102 (11.4) 843 15.9 Tax 280 381 (26.4) 311 (10.0) RPAT after MI 660 707 (6.7) 543 21.5 APAT 660 707 (6.7) 543 21.5 EPS (`) 4.2 4.4 (6.7) 3.4 21.5 Tiles Volume (MSM) 20.2 19.3 4.8 17.6 15.3 Blended Tiles Realisation/sq. m. 346 353 (1.8) 357 (3.0) Blended Realisation / sq. m. 371 373 (0.7) 377 (1.6) Blended Cost / sq. m. 311 306 1.9 314 (0.9) Blended EBITDA / sq. m. 59 68 (12.4) 63 (5.3) EBITDA Margin (%) 16.0 18.1 (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 36.6 33.4 24.9 EV/EBITDA 18.9 17.4 13.4 ROE 18.6 17.7 20.2 ROCE 14.8 14.9 17.0 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 14.8 16.2 21.7 Anlayst: Manish Raj Tel: +9122 4096 9725 E-mail: manishr@dolatcapital.com Associate: Bhavik Shah Tel: +9122 4096 9720 E-mail: bhaviks@dolatcapital.com
Quarterly & Yearly Performance Snapshot FY18 FY17 YoY (%) Net Sales 7,500 7,207 4.1 6,612 13.4 27,106 25,496 6.3 Total Expenditure 6,300 5,899 6.8 5,512 14.3 22,542 20,533 9.8 EBITDA 1,201 1,308 (8.2) 1,100 9.2 4,564 4,963 (8.1) Depreciation 229 205 11.6 223 2.7 885 814 8.8 EBIT 972 1,103 (11.9) 877 10.8 3,678 4,149 (11.4) Other Income 51 78 (33.7) 18 190.4 108 154 (29.4) Interest 47 78 (40.0) 52 (10.2) 241 340 (29.1) PBT 977 1,102 (11.4) 843 15.9 3,553 3,963 (10.3) Tax 280 381 (26.4) 311 (10.0) 1,267 1,425 (11.1) RPAT after MI 660 707 (6.7) 543 21.5 2,350 2,528 (7.1) APAT 660 707 (6.7) 543 21.5 2,345 2,528 (7.3) EPS (`) 4.2 4.4 (6.7) 3.4 21.5 14.8 15.9 (7.3) Tiles Volume (MSM) 20.2 19.3 4.8 17.6 15.3 72.0 67.7 6.2 Blended Tiles Realisation/sq. m. 346 353 (1.8) 357 (3.0) 357 359 (0.5) Blended Realisation / sq. m. 371 373 (0.7) 377 (1.6) 377 376 0.1 Blended Cost / sq. m. 311 306 1.9 314 (0.9) 313 303 3.3 EBITDA / sq. m. 59 68 (12.4) 63 (5.3) 63 73 (13.4) EBITDA Margin (%) 16.0 18.1 (214)bps 16.6 (62)bps 16.8 19.5 (263)bps Kajaria s per tonne matrix (` / SQM) Net Sales per sq. m. 371 373 (0.7) 377 (1.6) Cost per sq. m. 311 306 1.9 314 (0.9) Cost of Material Consumed 94 93 0.4 95 (1.8) Purchase of Stock in trade 48 41 17.1 46 4.6 Change in Inventories 2 9 (77.4) 4 (55.1) Raw Material Cost 144 143 0.6 146 (1.4) Employee benefit expenses 40 37 8.9 45 (11.4) Power & Fuels 75 67 11.7 69 9.1 Other expenses 52 59 (10.5) 54 (3.7) EBITDA per sq. m. 59 68 (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 25 25 29 25 (4) Purchase of Stock in trade 13 11 198 12 77 Change in Inventories 1 2 (178) 1 (63) Raw Material Cost 39 38 49 39 11 Employee benefit expenses 11 10 95 12 (118) Power & Fuels 20 18 225 18 199 Other expenses 14 16 (155) 14 (30) May 14, 2018 2
Kajaria s Segmental Revenue (` mn) Sanitary ware /faucets 491 396 23.8 348 41.2 Outsourcing (Tiles) 1,031 862 19.6 953 8.3 JV's(Tiles) 1,738 2,097 (17.1) 1,536 13.1 Own Manf (Tiles) 4,241 3,852 10.1 3,775 12.3 Total 7,500 7,207 4.1 6,612 13.4 Kajaria s production (MSM) Own 10.8 10.0 7.7 10.0 7.4 JV 5.5 5.5 (1.1) 4.1 32.9 Total 16.2 15.5 4.6 14.1 14.8 Kajaria s Sales (MSM) Own 11.3 10.5 7.4 9.9 14.4 JV 5.4 6.0 (10.4) 4.7 15.6 Outsource/import 3.5 2.8 28.4 3.0 18.1 Total 20.2 19.3 4.8 17.6 15.3 Kajaria s blended realization (tiles only) (in `) Own Realisation 375 366 2.5 382 (1.8) JV Realisation 321 347 (7.5) 328 (2.1) Outsource/import 292 314 (6.8) 319 (8.3) Tiles business realisation 346 353 (1.8) 357 (3.0) Segmental EBIT & EBIT margin EBIT (Rs Mn) Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%) Tiles 973 1109 (12.3) 879 10.7 Others (Sanitary ware /faucets) (1) (6) (89.1) (2) (62.5) Total 972 1103 (11.9) 877 10.8 EBIT margin (%) Q4FY18 Q4FY17 YoY (bps) Q3FY18 QoQ (bps) Tiles 13.9 14.5 (65) 14.0 (18) Others (Sanitary ware /faucets) -0.1-1.4 127-0.5 33 Total 13.0 15.3 (234) 13.3 (30) May 14, 2018 3
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 16.2 19.7 (17.8) 21.7 27.1 (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 120-130. 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, 2018 4
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. 860 894 990 1,064 Selling & Distribution exp. 982 1,079 1,439 1,717 Other expenses 2,130 1,595 1,764 2,020 EBIDTA 4,963 4,564 4,938 6,247 Depreciation 814 885 955 1,004 EBIT 4,149 3,678 3,982 5,243 Other Income 154 108 110 120 Interest 340 241 220 200 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) 63 63 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 159 159 159 159 Reserves & Surplus 11,592 13,351 15,444 18,414 Net Worth 11,751 13,510 15,602 18,573 Minority Interest 760 661 800 820 Long Term borrowing 1,155 594 1,044 844 Short Term borrowing 551 757 1,057 857 Loan Funds 1,706 1,351 2,101 1,701 Long-term provisions 103 52 58 66 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 83 176 150 150 Non-Current Investments 1 4 4 4 Long Term loans & adv 186 176 176 176 Other non-current assets 138 82 82 82 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 520 824 1,866 3,639 Short Term Loans & Adv 45 113 86 86 Other Current Assets 546 285 600 687 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 103 127 121 138 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 340 241 220 200 Depreciation 814 885 955 1,004 Direct taxes paid (1,289) (1,267) (1,239) (1,652) Change in Working Capital (481) (1,510) (94) (735) Other 30 8 0 0 (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 73 259 (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) 131 20 (C) CF from Fin. Activities (1,679) (1,253) 184 (1,058) Net Change in Cash 301 306 1,035 1,772 Opening Cash balances 198 498 804 1,839 Closing Cash balances 498 804 1,839 3,611 Important Ratios (A) Measures of Performance (%) EBIDTA Margin 19.5 16.8 16.5 18.2 EBIT Margin 16.3 13.6 13.3 15.3 Gross Profit Margin 63.9 60.9 61.5 62.4 Tax/PBT 31.9 35.4 32.0 32.0 PAT Margin 9.9 8.7 8.6 10.0 (B) As Percentage of Net Sales Raw Materials Consumed 36.1 39.1 38.5 37.6 Employees Cost 11.3 11.7 11.5 11.2 Manufacturing & Other exp 12.2 9.9 10.7 10.9 (C) Measures of Financial Status Debt / Equity (x) 0.1 0.1 0.1 0.1 Interest Coverage (x) 12.2 15.3 18.1 26.2 Average Cost of Debt (%) 14.6 15.8 12.7 10.5 Debtors Period (days) 49 61 61 61 Closing stock (days) 53 51 51 51 Creditor (days) 106 89 99 102 Fixed Assets Turnover (x) 2.2 2.4 2.3 2.6 Working Capital Turnover(x) 7.9 5.7 4.8 3.9 (D) Measures of Investment EPS (`) 15.9 14.8 16.2 21.7 CEPS (`) 21.0 20.4 22.2 28.0 DPS (`) 2.5 3.0 2.5 2.5 Dividend Payout (%) 15.7 20.3 15.5 11.5 BV / share (`) 74.0 85.0 98.2 116.9 RoE (%) 23.6 18.6 17.7 20.2 RoCE (%) 18.9 14.8 14.9 17.0 RoACI (%) 15.8 12.7 13.2 17.9 (E) Valuation Ratios CMP (`) 540 540 540 540 P/E (x) 33.9 36.6 33.4 24.9 Market Cap. (` Mn.) 85,727 85,727 85,727 85,727 MCap/ Sales (x) 3.4 3.2 2.9 2.5 EV (` Mn.) 86,913 86,254 85,961 83,789 EV/Sales (x) 3.4 3.2 2.9 2.4 EV/EBDITA (x) 17.5 18.9 17.4 13.4 P/BV (x) 7.3 6.3 5.5 4.6 Dividend Yield (%) 0.5 0.6 0.5 0.5 E Estimates May 14, 2018 5
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 900 850 800 Month Rating TP (`) Price (`)* Jan-16 Buy 848 711 Feb-18 Buy 813 588 750 700 * As on Recommended Dated 650 600 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 +9122 4096 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 4096 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 4096 9707 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 4096 9702 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 4096 9748 Dolat Capital Market Private Limited. 20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 400 001
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