Kajaria Ceramics Downgraded to ‘Neutral’ by Yes Securities: A Detailed Analysis
Yes Securities has recently downgraded Kajaria Ceramics to a ‘Neutral’ rating, citing soft domestic demand and elevated margins as key factors. The brokerage has also revised its margin expectations for the company, forecasting a 16.5% margin for FY26E.
In this article, we’ll take a closer look at the brokerage’s report and analyze the key factors affecting Kajaria Ceramics’ performance. We’ll also examine the company’s Q1 results and discuss the implications of the downgrade for investors.
Soft Domestic Demand Remains a Concern
Yes Securities believes that soft domestic demand will continue to remain a concern for Kajaria Ceramics in the short term. The brokerage expects volumes to remain under pressure, with muted top-line growth and elevated margins.
This is due to a combination of factors, including lower employee costs and other expenses. The brokerage expects the company’s margins to remain elevated due to various cost optimization measures incorporated by Kajaria Ceramics.
Margin Expectations Revised Upwards
Despite the soft demand, Yes Securities has revised its margin expectations for Kajaria Ceramics upwards. The brokerage expects the company’s margins to come in at 16.5% for FY26E, up from its previous estimate of 15.5%.
This revision is driven by the company’s cost optimization measures, which are expected to continue to benefit the company’s bottom line.
Volume Growth Expectations Revised Downwards
However, Yes Securities has revised its volume growth expectations for Kajaria Ceramics downwards. The brokerage expects the company’s volumes to grow at a slower pace of 4% YoY in FY26E, down from its previous estimate of 7% YoY.
This is due to the expected soft demand and competition from other players in the market.
Q1 Results Analysis
Kajaria Ceramics reported its Q1 results recently, which were largely in line with expectations. The company’s revenue grew 5% YoY, driven by higher exports and better-than-expected domestic demand.
However, the company’s net profit margins came in at 16.2%, slightly higher than expected. This was driven by the company’s cost optimization measures and better-than-expected operating leverage.
Key Monitorables
Yes Securities has identified a few key monitorables for Kajaria Ceramics, including the impact of restructuring on the company’s cost structure and the demand trajectory in the domestic market.
The brokerage believes that the company’s ability to execute on its restructuring plans and maintain its cost leadership will be key to its future growth.
Valuation and Target Price
Yes Securities has valued Kajaria Ceramics at a P/E(x) of 40x, based on its FY27E EPS of Rs 33. This translates to a target price of Rs 1,334 for the company.
At its current price of Rs 1,200, Kajaria Ceramics trades at a P/E(x) of 37x, slightly above its historical average. This leaves limited room for upside, according to Yes Securities.
Conclusion
In conclusion, Yes Securities’ downgrade of Kajaria Ceramics to a ‘Neutral’ rating is driven by the company’s soft domestic demand and elevated margins. The brokerage expects the company’s margins to remain elevated in the short term, but believes that the demand trajectory will improve in the long term.
Investors should closely monitor the company’s performance and adjust their expectations accordingly. A target price of Rs 1,334 provides a reasonable upside potential, but investors should be cautious given the limited room for upside.
