Kajaria Ceramics came into the limelight in January 2012 when PN Vijay, the prolific stock picker, put the spotlight on it. Kajaria was then seen as a mediocre performer but Vijay exuded great confidence that Kajaria would do very well given its dominance in the market place and the burgeoning middle class.
PN Vijay has been vindicated in his confidence in Kajaria. At the CMP of Rs. 497, Kajaria has given nearly a 400% return to its shareholders over the 3 years.
Interestingly, in the same period from Jan 2012 onwards, Cera Sanitaryware has given a return of 619% to its investors.
Now, the moot point is that if you don’t have these powerhouse stocks in your portfolio, there is no need to despair because it is not too late. If you look at the market capitalisation of these stocks, they are still small cap (1,500 cr for Cera & 3,600 cr for Kajaria). You have to look 5 or 10 years in the future and ask yourself where these companies will be, given the scale of the opportunity and their dominance over the market place.
Two things that you must read up to come to terms with Kajaria Ceramics is Daljeet Kohli’s excellent research report (pdf). Daljeet has said that he has a “positive bias on the stock due to leadership position of the company in tiles business, capacity expansion plans and asset light strategy of the company” though he hasn’t yet made up his mind on whether the stock is a buy given its swift run up.
Kajaria Ceramics has also released an investors’ presentation (pdf) in which it has explained its’ future plans in detail. The report rightly says “Attaining leadership position is one thing. Retaining that spot is quite the other”. Elaborating on the future plans, the presentation says:
“We plan to add 50% of our existing capacity (as on March 31, 2014) in the next 24 months. And there is more to come. Having initiated the creation of the sanitaryware vertical, we are analyzing the prospects of a faucets unit – to emerge as a holistic bathroom solution provider. We believe that these initiatives will facilitate in retaining our industry position. At Kajaria, the energy and enthusiasm is palpable.”
VCC has also reported that Kajaria Ceramics is acquiring a 51 per cent stake in Taurus Tiles Pvt. Ltd. Taurus Tiles is setting up a plant having 5 MSM annual capacity of polished vitrified tiles. Kajaria also intends to hike its stake in Jaxx Vitrified Pvt. Ltd to 61 per cent by acquiring an additional 10 per cent stake.
Personally, I have been nibbling on Kajaria and Cera for a long time with the result that both constitute a big chunk of my portfolio. Given the strong future prospects of both stocks, I intend to keep nibbling in a slow and steady manner.
If you don’t have either stock in your portfolio, you need to give serious thought to whether you should start a SIP or not.