Kajaria Ceramics Ltd

Excerpt from AR 2011-2012

1). Kajaria

a) Turnover 39% up ( over 2010-2011). CAGR over 5 years-26%
b) EBIDTA36% up ( over 2010-2011). CAGR over 5 years-29%
c) Net Profit33% up ( over 2010-2011). CAGR over 5 years-60%

2). It introduced game changing digital printing technology in ceramic and glazed vitrified tiles.

3). It adopted the low cost joint-venture route. It minimizes the gestation period for revenue generation with a superior ROI (Soriso Ceramic,Jaxx vetrified( 51% stake),Vennar Ceramics, AP ( 51% stake) are JVs)

4.Kajaria expanded capacities at it’s existing units-Gailpur by 6MSM and Sikandrabad by 2.30 MSM

5). Doubled the Soriso unit capacity with in a year of acquisition. Full impact will be visible in 2012-2013

6). Asia is the largest producer ( 66.9 %) and largest consumer of ceramic products ( 64.4 %)

7). Customers of Kajaria includes Mantri, DLF, Ansal, Vodafone among the others.


1). Book value is 38.31 ( It is trading at ~5X of BV) though BV is up by 26.7% ( over 2010-2011)

2). Debt-Equity ratio .86 ( Down 31% over 2010-2011 from 1.26, Down 60% over 2007-2008 from 2.18)

In my opinion, If it has performed well when govt was all set to squeeze the liquidity, interest rates were roaring, rupee value was declining, all factors led to increase in raw material cost. It has taken enormous expansion plans since last two years which I hope will start giving results soon.

Companiesare trying to establish offices in Tier-2 and Tier-2 cities so the market is huge as the competitors are. Kajaria is successful in maintaining balance between lowering the debt-equity ratio and at the same time increasing the bottom line as well as top line. It is really hard.

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Its a good company for sure. At a good ROE of 25+/-5 for last 3 year, PE of 17 and progressively decreasing DE ratio of 0.62 makes it a good buy. They have a good brand value too.

I used to have this in my portfolio, sold it in the process of concentrating my portfolio, and to buy other attractive scripts. Planning to take a small position in my portfolio.

Surely the fundamentals look good. But looking at the tiles market, it is too crowded market. Kajaria do not have sustainable brand moat yet. The current price and P/E levels do not offer too much margin of safety. Also chances of major P/E re-rating from here on looks remote.

Will be a good buy on corrections.

The tiles market is crowded but not yet veryorganized. Nearly 75% of tiles manufacturing is in Morbi Gujarat with lots ofunorganizedplayers in the sector.Kajaria, one of the most prominent organised player in the industry, other being Somany, Orient, has a much wider presence and economies of scale providing low cost advantage.

Yes, Probably it is not a multibagger from here but surely a steady 30% compounder.

I am invested in Kajaria and my vies may be biased.

Its a good company for sure. At a good ROE of 25+/-5 for last 3 year, PE of 17 and progressively decreasing DE ratio of 0.62 makes it a good buy. They have a good brand value too.

I used to have this in my portfolio, sold it in the process of concentrating my portfolio, and to buy other attractive scripts. Planning to take a small position in my portfolio.

Kajaria is market leader so it will trade in premium . Most of the good news is priced in . It will be a steady compounder as most of the houses in rural india have started using tiles. New vitrified tiles will improve margins, I think housing market is about to pick up . They have the best range in tiles. If i remember quickly Rakesh Jhunjhunwala was having this stock once , Ashish Dhawan also invested in this . If you ask any hardware shop he will advise you to use Kajaria even the construction workers swear about the quality.

I think HSIL is much better investment than Kajaria if somebody wants to invest in this sector .It had some inventory problem this quarter in glass division . It’s PE may get re rated as the profits start increasing price may fluctuate for upcoming two quarters but as the production from faucet plant starts coming it will do well.

debt is high so they may have problems in case of slowdown, Power cuts in AP and new plant of HNG can have impact on margins , Promoters draw a lot of salary, Company has the itch of acquisitions, Facebook page is full of complaints,

Disclosure Planning to add HSIL .

Does HSIL at P/E of 7 looks more attractive?

I think one good quarter and PE will revert to it’s mean that is 10-12. I think they are suffering due to higher fuel costs and slow demand in glass division which will take time to resolve as it resolves the PE will revert to mean . CERA was once at 8 PE and HSIL at 13 PE . Now cera is at 15 . Markets are strange.

The trigger for HSIL could be the demerger of the glass division. There are rumors every now and then but the management denies it.

HSIL would have to demerge the commodity glass business and only then would the value unlocking happen for the sanitary ware business.

Kajaria needs to be looked into with much deeper details. The story here surely looks good. Now with the 4th acquisition, the strategy is falling into place. The positives are well publicized and known to every one.

A lot of growth is already priced in. We need to consider what all can go wrong from here. Also entry barriers are not that high here. We need to focus on the risks more, as the future looks too rosy for now.

We also need to study why HR Johnson (Prism Cement) failed to hold market lead, despite of being the incumbent market leader with solid brands.

Below is rough estimates of the domestic market for tiles.

2011 2012

Market size 14000 Cr 15820 cr (assuming 13% growth)

Kajaria Revenue 954 (7% share) 1309(8.2%) (37% growth in sales)

It is able to increase the market share ( getting market from unorganised players) in a growing market.

And it is doing that with almost negligible working capital.

There is capacity expansion of around 30% (31 -> 39 Million Sq Meter) while the capital employed has only increased marginally (450 to 475 cr ~6%).

Thanks to joint venture route.

It is not cheap but given the consumer shift in india from tradional flooring to vitrified tiles, I don’t see much risk anda steady growth of 25-30% should be easily doable.

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Real good times seems to be ahead of Kajaria and its stock holders. Biggies like Credit Suisse have started covering it.


I am thinking of adding a bit of Kajaria to my portfolio

Dear Deepak,

This is the hidden aspect I asked you to unearth :slight_smile:

Regarding Kajaria, a great story and seldom you find companies adopting clever strategies boosting asset turnover and margins at the same time thereby boosting RoE.

Kajaria is taking 51% stake in JVs against outright buy, thereby controlling the quality of production and adding incremental capacity at a fraction of cost (as compared against a greenfield expansion) and all this production from subsidiaries and JVs are sold under the brand Kajaria thereby boosting margins. But the price has already ran up so much.

It is a great business now but the price may not be right at this point of time.

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Does any valuepickr contact his architect n find out more about Kajaria ,range,quality ?

Also have the new digitally printed tiles are a threat to Marble due to cost n time savi g benefits?

Vivek Ji,

My personal view is more than time and cost saving, it has more to do with

Quality &Aesthetic appeal. Home is where heart is.

An average person buys/makes home once/twice/thrice in a life time. And quality-looks will weigh far more than cost & time.

Still with tiles replacing mosaic floors in large nos specially in tier 2 n 3 places huge growth is assured for long time in India. Kajaria with its no 1 position will always remain at premium PE

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Well said.

hi - my brother is in Lodha Constructions as quality manger at World One project in Mumbai. he swears by the quality of kajaria tiles. even at other lodha projects which were slightly low market, other tiles have now been replaced by kajaria. and he has come across just one instance where he has had to reject a batch from them. agreed, this may be a little limited view, but gives good indications.


Thanks for valuable feedback. Other valuepicksrs experience n comments are also welcome.

Thanks for your input vinay.

These kinds of inputs from field make a lot of difference.

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Hi Rudra,

I had already covered the low-cost JV route adopted by Kajaria in my 3rd point of commencing post. :slight_smile:

Now, let the game begin. Going forward, we need to track the success of various JV implementations, their impact on top-line/Bottom-line/Brand Equity etc. This is where I will dig it deeply.

:))Regarding Kajaria,