Reliance Securities has a buy call on Kajaria Ceramics with a target price of Rs 610.The current market price of Kajaria Ceramics is Rs 537.25.Time period given by brokerage is one year when Kajaria Ceramics price can reach defined target.
Investment rationale by brokerage-Strong sales volume drives revenue: KJCs sales volume grew by a strong 15.9 per cent YoY (+4 per cent QoQ) to 20.34msm on back of healthy traction in construction activities and resumption in demand from Kerala.
While volume from in-house manufacturing and JVs grew by nearly 12 per cent and nearly 20 per cent YoY to 11.1msm and 5.3msm, respectively, volume from outsourcing too improved substantially by nearly 23 per cent YoY to 4msm.
Notably, revenue from Sanitaryware and Faucets segments increased by 40 per cent YoY (+12 per cent QoQ) to Rs489mn.
Sanitaryware has also attained optimum capacity utilisation.Decent operating performance: Higher utilisation, ease in cost pressure led by softening gas prices and steady QoQ realisation aided KJC to post good operating performance, which is broadly in-line with our estimate.
While reported EBITDA stood at Rs1.2bn (+10 per cent YoY and +11 per cent QoQ), EBITDA margin came in at 15.9 per cent (-70 bps YoY and +91bps QoQ).
We expect with recent decline in gas prices, its operating margin to improve further from current quarter onwards.Outlook and valuation: The stock has appreciated by nearly 48 per cent from our last update on backdrop of continued traction in demand scenario and visible ease in cost pressure mirroring decline in crude prices.
However, given emerging demand risks especially from export markets and absence of meaningful price recovery, we do not expect any re-rating in valuation multiples at least in medium-term, despite improvement in return ratios.
Rolling over our estimates to FY21E, we maintain our 'Buy' rating on stock with a revised target price of Rs 610 (25x FY21E earnings).