Kajaria Ceramics Research Report By Edelweiss

Kajaria Ceramics’ (KJC) Q3FY17 consolidated numbers surpassed our and consensus estimates, despite demonetisation impact. Volume growth of 0.5% YoY versus our 6% dip estimate supported top line. However, EBITDA margin fell by 55bps YoY to 18.6% due to muted top‐line growth and higher outsourcing. We upgrade to ‘BUY’ as: (1) KJC is anticipated to be major beneficiary of accelerated shift in market share from unorganised to organised players spurred by GST and demonetisation (refer to our report: THE SHIFT); (2) government’s thrust on housing is envisaged to boost overall demand in tiles industry; and (3) we roll over to FY19E.

Outlook

We now value KJC at 28x (earlier 25x) due to long term opportunity from shift to organised players and estimate 15.1% and 24.6% sales and earnings CAGR, respectively, with 372bps RoCE expansion over FY17‐19. Our revised TP is INR 708 (INR 585 earlier).