ICICI Direct recommended hold rating on Kajaria Ceramics with a target price of Rs 395 in its research report dated June 29, 2020.
ICICI Direct's research report on Kajaria Ceramics
Kajaria Ceramics posted a weak set of Q4FY20 numbers on the topline front with steep volume decline due to Covid-19. Sales volumes fell 20% YoY to 18.2 MSM on account of Covid-19 impact, specifically in the second of March. However, it is pertinent to note that the volume decline was relatively lower than ~28% decline reported by its key peer Somany Ceramics. The topline de-grew 20% YoY to Rs 652 crore. The EBITDA margin contracted 76 bps YoY to 14.3% and was higher than our expectation of 13.2%, largely on account of lower other expenses. EBITDA at Rs 93.4 crore fell 24.1% YoY. Weakness at the operating level percolated to PAT, which fell 24.9% YoY to Rs 49.6 crore.
Outlook
While it is likely to be a washout FY21 for the tiles industry, as a whole, with discretionary nature of demand and real estate pressure, Kajaria with a net cash balance sheet and relatively resilient performance, given superior brand, is likely to tide over the challenging times. However, we would turn constructive once a volume recovery is seen (likely only by FY22). Hence, we maintain our HOLD recommendation on the stock with a revised target price of Rs 395/share, at 27x FY22E P/E.
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