Domestic brokerage Motilal Oswal has reiterated its 'buy' rating on Kajaria Ceramics in a report dated March 18, as it notes strong demand in the real estate sector and increased construction activity are anticipated to drive improvement in offtake for tiles in FY25 and Kajaria Ceramics being the largest player will benefit when industry demand recovers. 

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The brokerage gave a target price of Rs 1,600 apiece, which implies a 34.4 per cent upside from Tuesday's closing price of Rs 1190.25 apiece. 

Apart from the above-mentioned reasons, Kajaria will also benefit from a reduction in LNG prices. Spot LNG price is down around 44 per cent as compared to the 3QFY24 average. However, the current Brent Crude price is up 3.5 per cent as compared to the 3QFY24 average. Gujarat Gas also reduced gas prices for Morbi players by around 8 per cent on March 24 beginning.

These recent pricing trends will help Kajaria Ceramics reduce average fuel cost by around 7 per cent quarter-on-quarter (QoQ) in 4QFY24. Further, the brokerage believes that Kajaria Ceramics' capacity expansion will also play a crucial role in the growth of the company. 

"Kajaria Ceramics keeps on adding capacity and in FY24, the company expanded its tiles manufacturing capacity by around 6 per cent to 86.47 msm," the report read. 

Further, the report added that the company announced an acquisition of a tiles manufacturing facility at Morbi, Gujarat, having a capacity of 6 msm (likely to start contributing to revenues from April 24. It is also expanding its capacities into bathware and plywood segments.

The brokerage has maintained its earnings estimates for FY25-26 and expects 4QFY24 margins to be better at 16.1 per cent than the earlier estimates of 15.4 per cent.

"We believe strong return ratios (RoE of 22 per cent, ROCE of 26 per cent, and RoIC of 31 per cent in FY26E) and a healthy balance sheet will help KJC maintain premium multiple," the report read.

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