Kajaria Ceramics

Result Update
Higher trading kept growth intact

October 12, 2010

¾ Kajaria Ceramics’ results were in line with estimates with
20% revenue growth and 52% PAT growth
BUY ¾ 70bps yoy drop in EBITDA margins to 15.7% is on account of
higher trading, increased by 78% yoy to Rs 1 bn
Price Target Price
Rs 80 Rs 91 ¾ PAT margins improved by 130bps to 6% due to lower fuel cost
(switched to gas from high cost fuel) and interest charges
Sensex 20,203
¾ With strong balance sheet (D/E <1x by FY12E) and RoE
improvement to 26% and EPS CAGR of 37% (FY10-12E) we
Price Performance remain positive on the stock and maintain BUY
(%) 1M 3M 6M 12M
Higher trading helped revenue growth of 20% however …
Absolute 15 24 29 94
Kajaria’s net revenues increased by 20% to Rs 2.2 bn. In Q2FY11 purchase of traded
Rel. to Sensex 7 10 14 63 goods increased by 78% yoy / 53% qoq to Rs 1 bn, facilitating higher revenue growth.
Source: Bloomberg The company commissioned manufacturing of polished vitrified tiles in Jan’10 which has
helped it to report volume growth while improved product mix has resulted in higher
realisations (as indicated by the management).
Stock Details
Sector Ceramics … EBITDA margins marginally declined by 70bps
Reuters KAJR.BO
The company has shifted from high cost propane to low cost natural gas from May’10
Bloomberg KJC@IN and helped it to reduce fuel cost. P&F cost declined by 15.6% to Rs 205 mn. P&F cost
Equity Capital (Rs mn) 147 (as % of sales) declined by 390bps to 9.2%, was also driven by higher trading. However
Face Value (Rs) 2 despite cost savings due to higher trading, contributing ~50% of revenues (as per the
management while absolute details not available), EBITDA margins declined by 70bps
No of shares o/s (mn) 74
yoy to 15.7%. EBITDA increased by 15% to Rs 349 mn.
52 Week H/L (Rs) 82/37
Market Cap (Rs bn/USD
6/134
mn) PAT growth of 52%, driven by revenue growth interest savings
Daily Avg Vol (No of shares) 534668 For Q2FY11, PAT increased by 52% yoy to Rs 133 mn resulting into EPS of Rs 1.8 for
Daily Avg Turnover (US$
mn)
0.8 the quarter. Repayment of debt through internal generation and softening interest rates
has lowered interest cost by 31% to Rs 81 mn reducing its average debt cost from
15.3% in Q2FY10 to 12.2% by Q2FY11. Its D/E also declined from 1.4x in FY10 to 1.2x
Shareholding Pattern (%) and RoE has improved from 19% to 25%.
J’10 M’10 D’09
Promoters 51.3 51.3 52.5 Capex on schedule, Maintain Buy
FII/NRI 2.5 3.5 1.7 Company has chalked down capex plan 1) of Rs 194 mn for conversion of ceramic floor
Institutions 5.8 6.5 1.6 tile at Unit-3, Sikandrabad plant into vitrified tile with expected completion by Feb’11. 2)
Private Corp 18.2 17.6 20.7 Its capex plan to put vitrified plans (polished and glazed) is as per schedule (expected
completion by Jan’11) should drive its volume growth for FY12. With strong balance
Public 22.2 21.2 23.5
sheet (D/E <1x by FY12E), RoE improvement to 26% (from 20% in FY10) and EPS
Source: Capitaline
CAGR of 37% (FY10-12E) we remain positive on the stock and maintain our BUY
recommendation with price target of Rs 91 based on 10 x FY12E EPS. We expect likely
re-rating to offer further upside to our target price in future.

Financial Snapshot Rs Mn
YE- Net EBITDA EPS EPS RoE EV/
Rohan Gupta
[email protected] Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV
+91 22 6612 1248 FY09 6,649 949 14.3 89 1.2 (40.7) 5.6 66.1 9.5 3.6
FY10 7,355 1,148 15.6 359 4.9 302.8 20.4 16.4 7.3 3.1
Pragya Bhardwaj
FY11E 8,644 1,399 16.2 496 6.7 38.3 23.7 11.9 6.5 2.6
[email protected]
FY12E 9,747 1,684 17.3 671 9.1 35.4 26.3 8.8 5.1 2.1
+91 22 6612 1272

Emkay Global Financial Services Ltd 1

 Kajaria Ceramics Result Update

Key Financials – Quarterly

Rs mn Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 YoY (%) QoQ (%) YTD’11 YTD’10 YoY (%)
Revenue 1,854 1,797 2,149 1,955 2,222 19.9 13.7 4,177 3,414 22.4
Expenditure 1,550 1,509 1,841 1,642 1,873 20.8 14.1 3,515 2,857 23.0
as % of sales 83.6 84.0 85.7 84.0 84.3 84.2 83.7
Consumption of RM 924 831 1,171 908 1,278 38.4 40.7 2,186 1,644 33.0
as % of sales 49.8 46.3 54.5 46.4 57.5 52.3 48.2
Power & Fuel 243 304 278 244 205 (15.6) (16.0) 449 467 (4.0)
as % of sales 13.1 16.9 12.9 12.5 9.2 10.7 13.7
Employee Cost 158 162 157 186 188 18.8 0.8 374 293 27.4
as % of sales 8.5 9.0 7.3 9.5 8.4 8.9 8.6
Other expenditure 226 212 235 304 203 (10.3) (33.3) 507 453 12.0
as % of sales 12.2 11.8 10.9 15.6 9.1 12.1 13.3
EBITDA 304 288 308 313 349 14.9 11.5 662 557 18.9
Depreciation 65 65 74 74 78 19.8 5.3 151 128 17.7
EBIT 239 224 235 239 271 13.6 13.4 511 428 19.3
Other Income 1 2 - - - (100.0) #DIV/0! - 1 (100.0)
Interest 118 100 48 78 81 (30.9) 4.5 159 227 (29.9)
PBT 122 125 186 162 190 55.6 17.6 352 203 73.5
Total Tax 35 43 59 49 57 65.2 17.5 106 55 92.9
Adjusted PAT 88 83 128 113 133 51.9 17.7 246 148 66.4
(Profit)/loss from JV's/Ass/MI 0 0 0 0 0 0 0
APAT after MI 88 83 128 113 133 51.9 17.7 246 148 66.4
Extra ordinary items 0 0 0 0 0 0 0
Reported PAT 88 83 128 113 133 51.9 17.7 246 148 66.4
Reported EPS 1.2 1.1 1.7 1.5 1.8 51.9 17.7 3.3 2.0 66.4

Margins (%) (bps) (bps) (bps)

EBIDTA 16.4 16.0 14.3 16.0 15.7 (68) (31) 15.8 16.3 (46)
EBIT 12.9 12.4 10.9 12.2 12.2 (67) (3) 12.2 12.5 (31)
EBT 6.5 6.9 8.7 8.3 8.6 201 29 8.4 5.9 252
PAT 4.7 4.6 5.9 5.8 6.0 126 20 5.9 4.3 156
Effective Tax rate 28.2 33.9 31.5 30.0 30.0 174 (3) 30.0 27.0 301

Emkay Research 12 October 2010 2

 Kajaria Ceramics Result Update

Key Financials
Income Statement Balance Sheet
Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E
Net Sales 6,649 7,355 8,644 9,747 Equity share capital 147 147 147 147
Growth (%) 32.3 10.6 17.5 12.8 Reserves & surplus 1,474 1,746 2,139 2,673
Expenditure 5,700 6,207 7,245 8,063 Net worth 1,621 1,893 2,286 2,820
Materials Consumed 3,602 3,644 4,505 4,884 Minority Interest
Employee Cost 505 613 692 731 Secured Loans 2,927 2,588 3,388 2,888
Other Exp 1,593 1,951 2,048 2,448 Unsecured Loans 325 40 40 40
EBITDA 949 1,148 1,399 1,684 Loan Funds 3,252 2,628 3,428 2,928
Growth (%) 15.9 21.0 21.8 20.4 Net deferred tax liability 535 549 619 699
EBITDA margin (%) 14.3 15.6 16.2 17.3 Total Liabilities 5,407 5,070 6,333 6,447
Depreciation 249 267 322 351
EBIT 700 881 1,076 1,333 Gross Block 5,015 5,435 6,711 6,751
EBIT margin (%) 10.5 12.0 12.5 13.7 Less: Depreciation 1,738 1,988 2,310 2,661
Other Income 10 8 10 10 Net block 3,277 3,448 4,401 4,090
Interest expenses 582 375 378 384 Capital work in progress 0 25 40 30
PBT 127 514 708 959 Investment 34 34 34 34
Tax 38 156 212 288 Current Assets 2,968 2,976 3,393 3,896
Effective tax rate (%) 30.2 30.3 30.0 30.0 Inventories 1,385 1,403 1,658 1,869
Adjusted PAT 89 359 496 671 Sundry debtors 678 773 829 935
Growth (%) (40.7) 302.8 38.3 35.4 Cash & bank balance 79 45 151 236
Net Margin (%) 1.3 4.9 5.7 6.9 Loans & advances 827 756 756 856
(Profit)/loss from JVs/Ass/MI - - - - Other current assets - - - -
Adjusted PAT After JVs/Ass/MI 89 359 496 671 Current lia & Prov 872 1,413 1,535 1,603
E/O items - - - - Current liabilities 830 1,198 1,303 1,335
Reported PAT 89 359 496 671 Provisions 42 216 233 267
PAT after MI 89 359 496 671 Net current assets 2,096 1,563 1,858 2,293
Growth (%) (40.7) 302.8 38.3 35.4 Misc. exp - - - -
Total Assets 5,407 5,070 6,333 6,447

Cash Flow Key Ratios

Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E Y/E, Mar FY09 FY10 FY11E FY12E
PBT (Ex-Other income) 118 506 698 949 Profitability (%)
Depreciation 249 267 322 351 EBITDA Margin 14.3 15.6 16.2 17.3
Interest Provided 274 241 378 384 Net Margin 1.3 4.9 5.7 6.9
Other Non-Cash items 3 7 - - ROCE 13.1 17.0 19.1 21.0
Chg in working cap (92) 406 (206) (385) ROE 5.6 20.4 23.7 26.3
Tax paid -33 -117 -142 -208 RoIC 13.2 17.2 19.4 21.8
Operating Cashflow 519 1,310 1,050 1,092 Per Share Data (Rs)
Capital expenditure (121) (471) (1,290) (30) EPS 1.2 4.9 6.7 9.1
Free Cash Flow 398 839 -240 1,062 CEPS 4.6 8.5 11.1 13.9
Other income 10 8 10 10 BVPS 22.0 25.7 31.1 38.3
Investments - - - - DPS 0.2 1.0 1.2 1.6
Investing Cashflow 10 8 10 10 Valuations (x)
Equity Capital Raised - - - - PER 66.1 16.4 11.9 8.8
Loans Taken / (Repaid) (121) (623) 800 (500) P/CEPS 17.4 9.4 7.2 5.8
Interest Paid (274) (241) (378) (384) P/BV 3.6 3.1 2.6 2.1
Dividend paid (incl tax) (17) (17) (86) (103) EV / Sales 1.4 1.1 1.1 0.9
Income from investments 0 0 0 0 EV / EBITDA 9.5 7.3 6.5 5.1
Others 0 0 0 0 Dividend Yield (%) 0.3 1.2 1.5 2.0
Financing Cashflow -412 -882 336 -987 Gearing Ratio (x)
Net chg in cash -4 -34 106 85 Net Debt/ Equity 193.7 134.6 141.9 94.3
Opening cash position 83 79 45 151 Net Debt/EBIDTA 3.3 2.2 2.3 1.6
Closing cash position 79 45 151 236 Working Cap Cycle (days) 68 49 50 55

Emkay Research 12 October 2010 3

 Kajaria Ceramics Result Update

Recommendation History: Kajaria Ceramics – KJC IN

Date Reports Reco CMP Target

14/07/2010 Kajaria Ceramics Q1FY11 Result Update BUY 67 91

29/04/2010 Kajaria Ceramics Initiating Coverage Buy 66 91

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