Reviews

In this edition, we have reviewed Kajaria Ceramics and Kolte-Patil Developers. We suggest our reader-investors to HOLD Kajaria Ceramics and Kolte-Patil Developers


 

We had recommended Kajaria Ceramics in Volume 37, Issue No. 03 dated January 3 to 16, 2022 under the ‘Cover Story’ segment. The recommended price for the stock was ₹1,226.80. We had recommended the stock on the basis of new product launc hes, low debt to equity ratio and good returns on capital employed. The company is the largest producer of ceramic and vitrified tiles in India. Its total yearly capacity is 84.45 million sq. metres spread over eight plants. The production facilities at Kajaria Ceramics are outfitted with state-of-the-art equipment. 

The company is the best in business thanks to intense automation, robotic automobile applications and zero room for human error. Analysing the quarterly performance of the company, its net sales in Q2FY23 saw a rise of 10.7 per cent and was recorded at ₹1,077.76 crore. The operating profit stood at ₹137.04 per cent, showing a degrowth in Q2FY23. Similarly, net profit slipped and was noted at ₹68.89 crore. On the annual front, in FY22, net sales jumped up by 33.24 per cent to ₹3,705.19 crore as compared to ₹2,780.90 crore. Likewise, the operating profit soared by 20.4 per cent at ₹638.26 crore in FY22 as opposed to ₹530.12 crore in FY21.

The net profit in FY22 also jumped to ₹382.74 crore as opposed to ₹308.90 crore in FY21. The company has gained from a gradual pickup in demand during the post-festive seasons with revived customer sentiments, continued traction in the real estate sector, upped reconstruction and renovation projects and the government’s focus on infrastructure spending in spite of high input costs and increasing interest rates. The company is expanding its production capacity at its different plants.

The Secunderabad plant will increase the total capacity from 8.4 MSM per annum to 11.4 MSM per annum with an investment of ₹70 crore. The expansion is likely to be completed by September 2023. Additionally, the company is expected to invest ₹70 crore to set up a 6 lakh pieces per annum sanitaryware manufacturing facility in Gujarat with revenue potential of nearly ₹150 crore at full capacity utilisation. The expansion is expected to be completed by December 2023. 

Additionally, the business is expanding its Gailpur faucet plant’s capacity by 6 lakh pieces per year, bringing the whole capacity to 16 lakh pieces per year. The estimated cost for this expansion is around ₹5 crore and is expected to be completed by November 2022. Kajaria Ceramics has approved acquisition of 51 per cent equity shares of South Asian Ceramic Tiles at a consideration of ₹28.5 crore with capital employment of around ₹60 crore. With its extending reach into Tier II and III cities and a net cash balance-sheet, the company is a strong player in the tiles sector. Hence, we recommend HOLD.

We had recommended KoltePatil Developers in Volume 37, Issue No. 03 dated January 3 to 16, 2022 under the ‘Cover Story’ segment. The recommended price for the stock was ₹294.10. We had recommended the stock on the basis of sustainable demand momentum, strong deal pipeline and solid operating cash generation. Kolte-Patil Developers has a monopoly on the residential market in Pune. Over 50 projects, including residential complexes, commercial complexes and IT parks totalling about 20 million sq. feet in saleable space, have been developed and built by the company, which has been building landmarks for more than three decades in Pune, Mumbai, and Bengaluru. Looking at the quarterly trends, on a consolidated basis, net sales for Q2FY23 increased by 7.51 per cent to ₹2,261 crore from ₹2,103 crore reported for Q2FY22. It reported operating profit of ₹695 crore for Q2FY23, thus contracting by 2.25 per cent compared to the operating profit of ₹711 crore posted for Q2FY22. The company’s net profit went down to ₹312 crore in Q2FY23 compared to the net profit of ₹316 crore earned in Q2FY22. On the annual front, the net sales for FY22 increased by 6.76 per cent to ₹8,419 crore from ₹7,886 crore reported for FY21.

It recorded operating profit of ₹2,628 crore for FY22, thus improving by 3.59 per cent against operating profit of ₹2,537 crore posted for FY21. The net profit declined by 37.94 per cent to `777 crore in FY22 as compared to ₹1,252 crore recorded in FY21. India’s population is expected to be ₹1.52 crore by 2036 with a 70 per cent increase in the urban areas. India’s urban population is expected to grow from 35 per cent in 2022 to 39 per cent by 2036, driving the growth curve of the real estate sector. 

The company was accredited with ‘A+ Stable’ by CRISIL, one of the highest ratings accorded by CRISIL to any publicly listed residential real estate player in India. In addition, the company is also rated ‘A+ Positive’ by ICRA. Strong collections resulted in operating cash flows of ₹508 crore in FY 2021-22. The company reported value and volume improvement in H2 FY 2021-22 over H1 FY 2021-22. The Mumbai portfolio reported its highest sales value of nearly ₹450 crore as against ₹180 crore in FY 2020-21. Hence, we recommend HOLD.