On Wednesday, ICICI Securities adjusted their stance on Kajaria Ceramics Ltd (KJC:IN), upgrading the stock from a Hold (3) to an Add (2) rating, while revising the price target slightly downward to INR 1,405 from INR 1,433.
The firm's analyst cited a modest second quarter in the financial year 2025, with consolidated revenue growth of 5.1% year-over-year, propelled by an 8.4% increase in tile volume. This growth aligns with a five-year compound annual growth rate of 7.8%.
However, the company's EBITDA margin contracted by 255 basis points year-over-year and 153 basis points quarter-over-quarter to 13.5%. This decline was attributed to elevated operating costs, which were partly due to lower utilization at Kajaria Ceramics' Keronite tile plant and a new sanitaryware plant.
Moreover, gross margins decreased by 184 basis points year-over-year and 90 basis points quarter-over-quarter, contributing to a year-over-year EBITDA and after-tax profit (APAT) decrease of 11.6% and 21.9%, respectively.
Despite experiencing modest demand in the second quarter of FY25, management remains hopeful of improved volume growth in the second half of the fiscal year, supported by a robust real estate market.
The company has adjusted its guidance for tile volume growth to 9-10%, a slight reduction from previous double-digit expectations. Moreover, they anticipate operating margins to be at the lower end of the 15-17% range previously forecasted for FY25.
In response to these developments, ICICI Securities has made adjustments to their EBITDA estimates for Kajaria Ceramics for FY25-27, reducing them by approximately 4-8%. The upgrade to an Add rating follows a roughly 7% decline in the stock price over the past three months. The new price target of INR 1,405 is based on a constant 38x price-to-earnings (P/E) ratio.
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