Hold Kajaria Ceramics; target of Rs 389: Emkay Global Financial

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Emkay Global Financial's report on Kajaria Ceramics

Q4 results were impacted by nationwide lockdowns, leading to a 19% yoy volume decline (vs. estimate of 12% fall). EBITDA was at Rs934mn vs. our estimate of Rs1,037mn and OPM stood at 14.3% vs. estimate of 14.5%. Key positives: 1) Gross margin improvement of 2.7pp yoy/78bps qoq to 41.4% 2) 11 days improvement in receivables days. Key negatives: 1) Volume decline of 19% yoy 2) realization decline of 1.1% yoy 3) 13 days increase in inventory days in FY20. Management indicated that sales volumes were at 35%/50-60% of last year’s volumes in May/Jun‘20. Capacity utilization in Jul’20 should reach to 70%. Current gas prices are 10-12% lower than the Q4 average. There will not be any major capex in FY21.

Outlook

Q1FY21 sales volumes should be at 30-35% of last year’s volumes and we now factor in a volume decline of 15% yoy in FY21E. EBITDA estimates are reduced by 40%/25% for FY21/22E. We introduce FY23 estimates and maintain the Hold rating on the stock.

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