Kajaria Ceramics earnings surge as pricing and capacity expansion underpin FY27 growth

Investment View and Valuation

Motilal Oswal Financial Services retained its Buy rating on Kajaria Ceramics following a strong 1QFY27 performance and robust management guidance for FY27. The broker identifies recovery in sales volumes, sustained high margins and strong cash generation as the core drivers.

The target price was revised to Rs 1,500, based on a valuation of 30x FY28E EPS, compared with the report CMP of Rs 1,198.

Strong 1QFY27 Financial Performance

Kajaria Ceramics reported consolidated 1QFY27 net sales of Rs 13,281 million, up 20.4 per cent year on year and 10 per cent ahead of Motilal Oswal's estimate. EBITDA increased 39.3 per cent year on year to Rs 2,604 million, exceeding the estimate by 20 per cent, while adjusted PAT rose 55.5 per cent to Rs 1,695 million, 27 per cent above estimate.

The EBITDA margin expanded by 266 basis points year on year to 19.6 per cent, compared with 19.2 per cent in 4QFY26, supported by contained employee costs and other expenses. Net cash increased to Rs 9,850 million as the net working-capital cycle improved to 46 days.

Revenue Growth and Pricing Trends

Tile sales volume grew 6 per cent year on year to 28.8 million square metres, below the broker's 8 per cent estimate, as gas unavailability constrained production. Despite the volume shortfall, tile revenue increased 17.8 per cent to Rs 11,615 million, with blended tile net sales realisation rising 11.1 per cent year on year to Rs 403 per square metre.

Realisation growth was recorded across own manufacturing, subsidiaries and outsourced or imported tiles. Sanitaryware and faucets revenue grew 32.8 per cent year on year to Rs 1,215 million, while adhesives revenue increased 80.8 per cent to Rs 451 million.

Management implemented a blended tile price increase of about 11 per cent in 1QFY27 following a sharp rise in gas prices amid geopolitical tensions in the Middle East. Prices increased by 40–45 per cent in Morbi and by about 10 per cent in other markets, narrowing the price gap with Morbi-based players to about 20 per cent from approximately 40 per cent.

FY27 Growth Outlook and Capacity Expansion

Management is targeting more than 20 per cent tile-revenue growth in FY27, split equally between volume and value growth, and expects a healthier volume recovery in the second half. It guided for an EBITDA margin of 18–19 per cent and sanitaryware and faucetware revenue growth of 35–40 per cent, supported by 15–17 per cent price-led growth.

Kajaria Ceramics is increasing its focus on the historically weak project segment and has secured orders from two large projects.

The company plans FY27 capital expenditure of Rs 4,000 million to add about 20 million square metres of GVT tile capacity. The Rs 1,650 million expansion at Gailpur, Rajasthan, will add 11 million square metres of GVT capacity and is expected to be completed by April 2027. The Rs 2,100 million, 10 million square metre Srikalahasti expansion is on track for commissioning by March 2027.

Earnings Estimates and Return Metrics

Following the stronger 1QFY27 performance and management guidance, Motilal Oswal raised its FY27E and FY28E estimates as follows:

The broker forecasts FY26–28 tile volume, revenue, EBITDA and PAT CAGRs of 10 per cent, 16 per cent, 18 per cent and 23 per cent, respectively. It expects FY28E RoE of about 20 per cent, pre-tax RoCE of about 28 per cent, pre-tax RoIC of about 35 per cent and annual free cash flow above Rs 5,000 million.

Key Risk

The key downside risk is a strong comeback by Morbi players, which could intensify competition and weaken Kajaria Ceramics' financial performance.