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Systematix Research Report
We initiate coverage on India’s ceramic tiles and bathware industry with a constructive view. Factors such as-
low per capita consumption in the segment,
consumers’ rising aspirations and affordability, and
government’s thrust on building smart cities and affordable housing, are the key enablers that would give a thrust to the sector.
Kajaria Ceramics Ltd. and Cera Sanitaryware Ltd. have sustained market-share gains without compromising on financial discipline and cash flows (operating cash flow/profit after tax over 100%). The companies continue to focus on channel expansion and branding.
Somany Ceramics Ltd. on the other hand, despite having faced a tough period during FY17-20 due to industry and company-level issues, has emerged stronger through corrective actions (credit discipline, cash flow focus, etc.).
Price corrections in tiles stocks in last one year (on muted growth and margins; rebound likely Q4 onwards) have rendered Kajaria Ceramics and Somany Ceramics’ current valuations reasonable at 29 times and 14 times FY25E earnings per share, respectively, for a 15-20% return in a year.
Even though Cera’ stock price has risen ~45% in last one year on superior financial performance, we expect market share gain-driven performance to sustain. Key risks to our call: slowdown in economic and housing activity, keener competition.
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