Hold Kajaria Ceramics; target of Rs 765: ICICI Direct

ICICI Direct's research report on Kajaria Ceramics

Kajaria Ceramics had posted a subdued volume growth of 3.3% in Q1FY18 mainly on account of significant de-stocking at dealer’s level. However, in recent media commentary, the management mentioned that the company has witnessed a pick-up in sales from mid-August. It reiterated that the company would achieve double digit volume growth for FY18E with pick-up in demand. Also, the management mentioned that the company is keen on improving the share of high value added vitrified tiles (currently ~60%) which would aid realizations and generate higher margins.

Outlook

In our view, GST implementation would act as a key catalyst for Kajaria as it would lay down a level playing field for the organised players as the pricing differential between organised & unorganised tiles would shrink. Further, with demand in the real estate sector set to pick up with the government’s focus on affordable housing, Kajaria would be well placed to capture this opportunity. We have rolled over our valuations to FY20E. However, with current valuation of 28.3x FY20E EPS and near term demand headwinds, we await a better entry point in the stock. We continue to maintain our HOLD recommendation on the stock with a revised target price of  Rs 765 (27x FY20E EPS).

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