Kajaria Ceramics Limited Long Term Buy Call: FairWealth Securities

Kajaria Ceramics Limited Long Term Buy Call: FairWealth SecuritiesKajaria Ceramics, incorporated in the year 1985 is headquartered at New Delhi. The company manufacturers ceramic glazed wall and floor tiles and polished vitrified tiles in over 500 designs. The other products offered by the company includes high-end imported tiles and sanitary ware.

The company caters to the need of both retail and institutional clients in the ratio of 70:30. The client base of the Kajaria Ceramics is very strong which includes big names DLF, Emaar MGF, RAHEJA, UNITECH, Parsvnath, OMAXE, ANSAL Housing and many others.

The company has a distribution network of 6000 dealers and sub dealers.

Key Highlights

* India's Leading Tile Manufacturer of ceramic floor and wall tiles with an installed capacity of 23.4mn sqmt.

* Largest Exporter of tiles with its presence across 20 countries worldwide.

* Volumes to increase on account of Expansion: The company's new plant for Vitrified tile facility at Sikandrabad and at Galipur for polished vitrified tiles and glazed vitrified tiles.

SECTOR:

Global Ceramic Tiles Industry

Globally, China is the largest ceramic tiles producer, accounting for 40% of the total global ceramic production. It is also the largest consumer of Ceramic tiles accounting for 34% of the world consumption. The US$ 36 bn world ceramic tiles industry is growing at 6% annually. The annual per capita consumption of ceramic tiles is led by Turkey at 2.44 sqm. India's per capita consumption is a low 0.36 sqm.

Indian Ceramic Tiles Industry

India ranks among the world's top five tile producing countries with a total annual production of around 450 mn sqm as on March'10.

The ceramic tiles industry is large, rapid, growing and populated by organized and unorganized manufacturers. Over the last few years, industry prospects were subdued on account of an oversupply and increasing imports. However, the environment recently turned favorable due to a combination of various factors: Economic upturn, growing demand from the construction and real estate sectors as well as a decline in dumping and oversupply. This scenario not only bodes well for the industry but your Company as well.

The industry can be classified into three key segments, viz., wall tiles, floor tiles and vitrified & porcelain tiles, with market shares of 35%, 53% and 12%, respectively. Vitrified and porcelain tiles are recent entrants into the ceramic tile industry and have increased the size of the market considerably. This segment is expected to capture the bulk of the market gradually, replacing the conventional floor and wall tiles segment on account of durability, utility, maintenance and better appearance with premium pricing and higher realizations. In the international markets these tiles are already major sellers.

The anti-dumping imposition of Rs. 137 per sqm on ceramic glazed tiles imported from China will benefit domestic manufacturers.

COMPANY:

* In the year 2009-10, Kajaria Ceramic achieved standard quality of 98% for wall tiles which is a completely new record for the company.

* The company enhanced its capacity utilization to 94% in FY10 in comparison to 76% in FY09.

* The company follows an integrated model which states that it is present across entire value chain ranging from affordable ceramic glazed tiles to upper-end ceramic glazed tiles to polished and glazed vitrified tiles.

* The company is the country's largest tile exporter with presence across 20 countries worldwide.

* Kajaria Ceramics facilitates any-time availability of finished products across a pan-India distribution network of 6000 dealers and sub-dealers and also exclusive showrooms.

FUNDAMENTALS:

* The company's revenue have been growing at a CAGR of 22.2%. There has been a consistent growth without a drop in the revenues of the company since last 5 years.

* Kajaria Ceramics EPS has been continuously risen from Rs. 1.04 in FY07 to Rs. 4.87 in FY10 on account of addition of high growth lucrative products, scaled operational volumes and also managing of funds and working capital responsibly.

* RONW of Kajaria Ceramics increased to 20.4% in FY10 from 5.62% in FY09 on account of massive growth in bottom line of 302%.

* The company has being paying dividends to its shareholders since past 10 year which signifies that the company has been concentrating to create wealth.

* Domestic revenues comprises of about 95% of the total net sales accounting for Rs. 698.8cr whereas the exports for FY10 stood Rs. 36.7cr thereby contributing a total of 5%.