ICICI Securities Upgrades Kajaria Ceramics Rating After Analysis
ICICI Securities Adjusts Kajaria Ceramics Stock Rating
In a recent update, ICICI Securities has revised their recommendation on Kajaria Ceramics Ltd (KJC:IN), boosting the stock rating from Hold to Add. This shift comes alongside a slight decrease in the price target, which now stands at INR 1,405, down from the previous target of INR 1,433. This adjustment reflects the evolving market conditions and the company's performance metrics.
Analysis of Recent Financial Performance
The analysts at ICICI Securities highlighted that Kajaria Ceramics exhibited a modest performance in the second quarter of the financial year 2025. The consolidated revenue achieved a year-over-year growth of 5.1%, primarily driven by an 8.4% increase in tile volume sales. This level of growth resonates with the company's five-year compound annual growth rate of 7.8%, indicating a steady market presence.
Despite the positive revenue outlook, Kajaria Ceramics faced challenges with its EBITDA margin, which contracted significantly. Specifically, there was a reduction of 255 basis points year-over-year, and 153 basis points quarter-over-quarter, resulting in an EBITDA margin of 13.5%. This contraction was mainly a consequence of elevated operating expenses, notably stemming from lower utilization rates in their Keronite tile and new sanitaryware plants.
Margin and Profitability Trends
The decrease in gross margins, which fell by 184 basis points year-over-year and 90 basis points quarter-over-quarter, has also impacted profitability. This development contributed to a year-over-year decrease of 11.6% in EBITDA and a significant 21.9% drop in after-tax profit (APAT), underscoring the effects of rising operational costs and market pressures.
Management’s Outlook and Adjustments
Though Kajaria Ceramics witnessed moderate demand during the second quarter of FY25, the management team expressed optimism for improved volume growth during the latter half of the fiscal year. This positivity is largely tied to expectations of a thriving real estate market, which typically bolsters demand for tiles and related products.
In light of these insights, the company has revised its growth guidance for tile volumes, now targeting an increase of 9-10%. Although this marks a shift from earlier forecasts that anticipated double-digit growth, it reflects a realistic approach to market dynamics. Additionally, operating margins are expected to remain at the lower end of the previously anticipated range of 15-17% for FY25.
Revisions in EBITDA Estimates
As a consequence of these performance metrics and market fluctuations, ICICI Securities has lowered its EBITDA estimates for Kajaria Ceramics for the fiscal years 2025 to 2027. The revisions range between 4-8%, indicating a cautious outlook on the stock's future performance. The recent upgrade to an Add rating comes after a roughly 7% decline in Kajaria Ceramics' stock price over the preceding three months.
The new price target of INR 1,405 reflects a consistent 38 times price-to-earnings (P/E) ratio, further illustrating the analysts' comprehensive evaluation of the stock's value amidst changing conditions.
Frequently Asked Questions
What led to the upgrade of Kajaria Ceramics' stock by ICICI Securities?
The upgrade was influenced by modest revenue growth and expectations of improved performance, despite some declines in margins and profitability.
What is the new price target for Kajaria Ceramics?
The updated price target has been set at INR 1,405, down from INR 1,433.
What are the factors impacting Kajaria Ceramics' margins?
The margins are impacted by increased operating costs and decreased utilization rates at key production plants.
How has Kajaria Ceramics' stock performed recently?
The stock has seen a decline of approximately 7% over the past three months, prompting the rating adjustment.
What are Kajaria Ceramics' growth projections for FY25?
The company anticipates tile volume growth of 9-10%, along with operating margins expected to be at the lower end of the 15-17% range.
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