Kajaria Ceramics CMD Ashok Kajaria: Reduction in FY20 revenue guidance

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Excerpts from an interview with Mr Ashok Kajaria broadcasted on CNBC on 23^rd October 2019.

• Kajaria Ceramics reported 1% volume growth in 2QFY20. The quarter was an aberration. Bad market sentiment, tight liquidity situation, floods in several parts of the country and Kashmir situation impacted the volume growth. Kashmir comprises 6% of Kajaria’s market share and there were no dispatches to Kashmir from 5^th August 2019.
• Things have started turning positive. 3QFY20E and 4QFY20E will be more like 10% volume growth reported in 1QFY20 or slightly better.
• EBITDA margin was 14.7% in 2QFY20. Management has guided FY20E margins to be close to 15.0%-16.0%. 
• Earlier the management had guided to volume growth of 15.0% for 2HFY20E and 12.0%-13.0% for FY20E. As per the current scenario, the growth guidance is moderated to 11.0%-12.0% for 2HFY20E and 10.0% for FY20E.
• On the real estate demand front, retail demand is very good. Commercial real estate demand is very bad. Improvement has come in the government sector in healthcare and education by way of projects by various state governments. Marked improvement has been seen in these 2 sectors in the last 2-2.5 years. Private real estate is still very bad. 
• Smaller business verticals of Kajaria have been growing faster than the overall business. Bathware and sanitaryware closed at Rs 2,000 mn in FY19. Management had guided to 30% growth in FY20E. They haven’t been able to achieve that yet but are confident of achieving the target. 
• Plywood business was a Rs 170 mn business in FY19. Management is targeting Rs 360 mn revenue in FY20E.
• On the industry in Morbi, Gujarat, the topline growth was negative in FY19 and FY20E is expected to be flat. The reasons being plant shutdowns in Morbi due to gasifiers being shut down, and the industry players being in deep trouble with a lot of cash flow problems due to GST.
• One positive thing for the industry in Morbi is the exports. In FY19, the Morbi industry did  Rs 70,000 mn of exports out of total industry size on Rs 285,000 mn. In FY20E, the industry target for exports is more than Rs 90,000 mn. If the exports pan out, the players will be okay as the domestic market continues to have a lot of problems. 

Consensus Estimate (Source: market screener website) 

The stock price was Rs 548/- as of close price of 25-10-19 and traded at 30.8x /26.0x /21.8x the consensus EPS for FY20E / 21E / 22E of Rs 17.8/21.1/25.1 respectively.

Consensus target price of ₹ 608/- implies a Price to earnings multiple of 24.2x on FY22E EPS of ₹ 25.1/-.