Emkay Global has reiterated its BUY recommendation on Kajaria Ceramics despite a weaker-than-expected Q4FY25 performance. While the quarter was marred by sluggish volume growth and profitability erosion, Kajaria maintained its leadership position in the Indian tiles market and gained market share relative to peers. Emkay has trimmed the stock’s target price by 16% to Rs 1,050, valuing the stock at 36x FY27E P/E. The research team believes that strategic exits from low-margin segments, cost optimization, and domestic demand revival in housing construction will drive improved margins and volume in the coming quarters. The current valuation reflects a compelling entry point.

Sales Growth Lags Expectations but Outpaces Industry

Kajaria’s Q4FY25 sales volume grew a modest 2% year-on-year to 30.1 million sq. meters, falling short of Emkay’s internal projections. Nevertheless, full-year sales volumes for FY25 rose 6% YoY, ahead of the industry’s 2% expansion, signaling continued market share gains.

Export weakness dragged overall volumes, with industry exports falling nearly 20% YoY to Rs 160 billion in FY25. However, demand recovery is expected in the near term, especially in the B2B housing segment, as large-scale residential projects launched in FY22 approach final construction phases.

Kajaria is bolstering its distribution by onboarding new exclusive dealers, which Emkay expects will support a volume CAGR of 8% through FY27E, reaching approximately 134 million sq. meters.

Margins Under Pressure, But Cost Levers in Motion

Q4FY25 EBITDA declined 20% YoY to Rs 1.4 billion, while margins contracted 300bps YoY to 11.3%. Profitability suffered from elevated input costs and underperformance in the bathware segment. In response, the company has exited the plywood segment—accounting for less than 3% of topline—and initiated cost optimization initiatives.

The bathware division is expected to recover, and with existing facilities operating at over 95% utilization, Kajaria will lean on outsourcing to fulfill incremental demand.

Emkay has revised its margin forecast downward by 30–40bps, building in EBITDA margins of 13.8% in FY26E and 14.3% in FY27E, citing gradual recovery.

Balance Sheet Resilience Enables Capex-Backed Growth

Kajaria’s net cash stood at Rs 4.2 billion in FY25, enabling it to self-fund future capital expenditures. Working capital cycle also improved, with net working capital days declining from 59 in Q3FY25 to 51 days in Q4.

This financial strength supports Kajaria’s medium-term growth ambitions, including expanding dealer networks and upgrading manufacturing capabilities without over-leveraging.

Revised Target Reflects Near-Term Risks, Long-Term Upside

Emkay has cut the 12-month target price from Rs 1,250 to Rs 1,050, a 16% reduction to reflect lower short-term visibility. However, this revised valuation is based on a 36x P/E multiple on FY27E earnings, which still provides 31.6% upside from the current market price of Rs 798.

The stock’s 35% correction in the last five months appears to have priced in most near-term concerns, offering an attractive re-entry opportunity for long-term investors.

Financial Snapshot and Key Estimates

Quarterly Performance Highlights

Q4FY25 revenue rose 1.1% YoY to Rs 12.2 billion, while EBITDA fell to Rs 1.38 billion. PAT nearly halved from Rs 1.02 billion to Rs 425 million, reflecting margin compression and higher operating costs.

Valuation Metrics and Market Positioning

Kajaria remains the largest tile manufacturer in India, backed by a robust brand and dealer presence. Its valuation continues to reflect premium positioning despite cyclical pressures.

Bottomline: Short-Term Pain, Long-Term Opportunity

Emkay’s thesis remains intact despite Q4 softness: Kajaria’s long-term fundamentals are resilient, driven by a debt-free balance sheet, market leadership, and improving demand cycles. The discontinuation of low-margin businesses and network expansion efforts are expected to yield sustainable growth in FY26 and beyond.

With valuations near five-year lows and profitability set to rebound, Kajaria offers a compelling opportunity for investors with a 12–18 month horizon.