Kajaria Ceramics | Financial Analysis and Review | Ceramic/vitrified tiles | Saravanan Balakrishnan
Channel: Saravanan Balakrishnan
Date: 2021-06-28

Kajaria Ceramics is the market leader of ceramics and vitrified tiles manufacturing in India. The company’s manufacturing facilities are located at Sikanderabad (UP), Gailpur (Rajasthan) and Malootana (Rajasthan) and Srikalahasti (Andhra Pradesh) and have an aggregate capacity of 49.2 MSMPA (million sq. meter). 

Currently, this company is well positioned to garner more market share due to the huge real estate growth that is anticipated in India. Though the stock is currently overpriced, it could be a huge beneficiary in the India's growth story. The company has rewarded shareholders with dividends every single year of its existence. Moreover, their market cap has grown from 1200 crores to 1,6000 crores in 2021. Their operating profit margins have been relatively stable between 16% to 18% over the last 10 years. And their net profit margins were stable in the range of 7 to 11% over the same 10 years. The company also brought down its debt from 250 crores to 120 crores which brings the debt to equity ratio to 0.1. 

If we notice the cumulative net profit margins and operating cash flows over the last 10 years, the company was able to turn most of its profits into cash which is good thing for shareholders. The SSGR growth rate is greater than the sales growth which means the company can service its growth through internal accruals. 

The other metrics like ROC, ROIC are also stable and healthy. Though the sales growth has been muted over the last few years, it has a huge runaway ahead. With increasing urbanization and lifestyle improvement, the aspirations of people would improve and make them opt for these modern tiles which will help them scale the volumes of their products. In addition, the company has better distribution and brand recall which will give them an edge over other unorganized players. 

Two things that needs to be watched out for includes the raw materials price and fuel which forms the major part of the cost structure of the company. If there is any uptick in these components the company will come under margin pressure. Moreover, there is an increase in competitive pressure from the unorganized players which will add more fuel to injury. Giving loose credit terms to the distributors in this product segment is not uncommon. However, we have to pay careful attention to how the management is navigating this scenario to retain its customers and also maintain healthy margins over a period of time. 

I hope you find this video useful and timely.
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