Kajaria Ceramic – 40% CAGR growth + Rs 800 crore of operating cash on the next two years – no reason to not buy the stock:
From a two year horizon, Kajaria Ceramic will give close to about Rs 800 crore worth of operating cash flow which will more than take care of any capex that they have. The company has expanded its capacity by about 55 percent and you have seen that in the results this time around very strong on the EBITDA front as well as in the topline and the bottomline.
Kajaria Ceramics can give about 40 percent CAGR and earnings over the next two years.
Valuations are not that expensive; what happens in consumer side when you start benchmarking valuations to return ratios and earnings growth then it does not look that bad. However, if you start looking outside the consumer sector and comparing these companies to other sectors then it might look expensive. However, those sectors may not be able to give you the return ratios or cash flows that a consumer company can give you with a predictability of earnings. So Kajaria is a stock we have 35-40 percent upside and will continue to remain bullish on Green Ply as well as on Kajaria and almost a 40 percent growth with Rs 800 crore of operating cash on the next two years I do not see any reason why people should not be buying into this stock.
CCL products – Ramp up in volumes will give 40% CAGR in earnings + ROE to double:
In CCL products, we initiated about Rs 80 thereabout and we recently upgraded our target price on the stock to about Rs 245. The results were strong expectedly so because the ramp up that is happening on volumes both on India and Vietnam is quite strong. If you look at the management guidance they are looking to up their volumes in FY16 by 25 percent. Our call is that over the next two years this company will give you a 40 percent CAGR growth in earnings.
CCL products was operating at about 12 percent return on equity (ROE) and return on capital (ROC) in FY14, the last completed financial year. We are expecting that in two years to double to about 25 percent and at least holding if not bettering their margin profile from here. So a company that is giving you that kind of doubling of returns ratios currently going at 16-17 times, it still looks good to us. Results were very strong, management pedigree is good and even at this price so slightly lower if you get it continue to be a buyer in this stock.
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