Ramp-Up At Nepal Project And Expanding Dealer Network Will Strengthen Future Prospects

Key Takeaways

• Improved domestic demand and infrastructure spending may lead to higher revenues, with enhanced pricing power benefiting Kajaria Ceramics.
  
• Expanding into smaller towns and dealer networks could capture market share growth, complemented by export recovery boosting revenues.
  
• Domestic weakness, sluggish exports, and margin pressures may hinder Kajaria Ceramics' revenue growth and profitability if these challenges persist.

Catalysts

Manufactures, sells, and distributes ceramic and vitrified wall and floor tiles under the Kajaria, GresBond, and Eternity brands in India and internationally.

• The expected ramp-up in production at the Nepal project, which is projected to increase utilization from 70% to around 80-85% by March-April 2025, could positively impact revenue as additional capacity comes online and becomes part of consolidated reporting.
  
• Anticipated improvement in domestic demand for tiles, driven by potential interest rate cuts and increased government infrastructure spending, may lead to higher revenues and better pricing power moving forward.
  
• The focus on expanding presence in underserved smaller towns and increasing dealer count could lead to significant market share gains and revenue growth, especially as these efforts mature.
  
• Potential export recovery as freight rates normalize, following the temporary stabilization in the Gulf region, may help offset previous export declines and improve overall revenue.
  
• Expected improvements in EBITDA margins over upcoming quarters due to stabilization in the new sanitaryware plant and operational efficiencies could lead to enhanced earnings.

Kajaria Ceramics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kajaria Ceramics's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.5% today to 10.2% in 3 years time.
• Analysts expect earnings to reach ₹6.6 billion (and earnings per share of ₹42.42) by about May 2028, up from ₹3.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹7.3 billion in earnings, and the most bearish expecting ₹4.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.3x on those 2028 earnings, up from 36.2x today. This future PE is greater than the current PE for the IN Building industry at 27.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.43%, as per the Simply Wall St company report.

Kajaria Ceramics Future Earnings Per Share Growth

Risks

• Weakness in the domestic market and sluggish export performance have led to a subdued quarter, suggesting potential ongoing pressure on revenue growth if these conditions persist.
  
• Decline in India's tile exports by 16% in value due to increased ocean freight rates and regional uncertainties might continue to impact earnings from the export market.
  
• EBITDA margins are under pressure, partly due to lower realization and losses in the Bathware division, which may affect overall profitability if these issues are not addressed.
  
• A decline in plywood revenue by roughly 76% hints at challenges in that segment, which could continue to negatively impact the company's overall revenue and margins.
  
• A decline of 25% in PAT (Profit After Tax) despite an increase in revenue indicates challenges in maintaining profitability, suggesting potential difficulties in achieving future profit growth.

Valuation

• The analysts have a consensus price target of ₹1181.036 for Kajaria Ceramics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1600.0, and the most bearish reporting a price target of just ₹799.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹65.4 billion, earnings will come to ₹6.6 billion, and it would be trading on a PE ratio of 42.3x, assuming you use a discount rate of 14.4%.
• Given the current share price of ₹804.2, the analyst price target of ₹1181.04 is 31.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.