Kajaria Ceramics targets volume-led growth as margins sustain after robust Q4FY26 results

Investment View and Valuation

ICICI Direct Research retains a BUY view on Kajaria Ceramics and values the stock at Rs 1,300 per share, based on 34 times FY28E P/E, compared with the CMP of Rs 1,114.

Kajaria is India's largest ceramic and vitrified-tile manufacturer, with annual capacity of 87.8 million square metres across India and Nepal. ICICI Direct identifies its superior brand, net-cash balance sheet, industry-leading margins and return ratios, and expanding reach into tier 2 and tier 3 cities as key strengths. However, a broad demand recovery remains central to the pace of earnings growth.

Robust Q4FY26 Performance

Kajaria Ceramics reported Q4FY26 net sales of Rs 1,373.4 crore, up 12.4 per cent year on year and 17.6 per cent quarter on quarter. Tile sales volume increased 11 per cent year on year to 33.5 million square metres, while tile revenue rose 11.4 per cent to Rs 1,212.6 crore.

EBITDA increased 90.4 per cent year on year to Rs 263.5 crore, with EBITDA margin expanding by 786 basis points year on year to 19.2 per cent, aided by cost optimisation and stronger sales growth. PAT rose 266.3 per cent year on year to Rs 155.8 crore. The quarter included a Rs 4.78 crore impairment loss in subsidiary Kajaria International DMCC.

The FY26 financial summary records net sales of Rs 4,831 crore, EBITDA of Rs 866 crore, EBITDA margin of 17.9 per cent, PAT of Rs 486 crore and EPS of Rs 30.5.

Management Commentary and Operational Updates

• Management did not provide revenue or tile-volume guidance, but expressed confidence that operating margins can remain in the 18 per cent to 19 per cent range.
• Demand was up 8 per cent to 9 per cent through February and benefited from the Morbi shutdown in March.
• Although production fell 7 per cent in Q4FY26, all plants returned to full capacity on April 16.
• Kajaria completed the acquisition of the remaining 15 per cent stake in Kerovit for Rs 50 crore, making the bathware business wholly owned.
• Working-capital days improved to 51 in Q4FY26 from 65 in Q4FY25, owing to lower inventory and receivable days.

Volume Growth Outlook and Capacity Expansion

The broker's volume-growth thesis rests on inventory clearing in the unorganised Morbi cluster and elevated gas and freight costs causing a sustained supply contraction among regional producers. ICICI Direct expects reduced competitive intensity to help branded players gain market share and improve pricing power.

ICICI Direct forecasts tile-revenue CAGR of 9 per cent over FY26 to FY28E, reaching Rs 5,089 crore, with tile sales volume CAGR of 7.1 per cent to about 132.3 million square metres. Overall revenue is projected to grow at a 9.2 per cent CAGR to Rs 5,757 crore in FY28E.

Kajaria is investing about Rs 210 crore to add 10 million square metres of glazed vitrified-tile capacity at Srikalahasti, targeted for completion by Q4FY27.

Gas Costs, Pricing and Margin Outlook

Gas costs increased in April, especially in the South and West. Management indicated that biofuel accounts for 30 per cent of North-plant gas usage at a lower cost, reducing the effective cost there. To protect unit margins, Kajaria raised prices by 12 per cent to 17 per cent in the North and by 16 per cent to 17 per cent in the West and South.

ICICI Direct expects EBITDA margins of 17.1 per cent in FY27E and 17.0 per cent in FY28E, below FY26's 17.9 per cent, because higher volume could increase sales, marketing and other operating expenses.

Broker Estimates

Following estimate realignment, ICICI Direct raised FY27E revenue by 5.5 per cent, EBITDA by 9.1 per cent, PAT by 10.0 per cent and EPS by 10.2 per cent. FY28E revenue, EBITDA, PAT and EPS were raised by 1.0 per cent, 3.1 per cent, 3.7 per cent and 3.7 per cent, respectively.

Key Risks and External Factors

• A sustained slowdown in demand could affect volume growth and earnings.
• Any sharp rise in gas prices could pressure margins.
• Export conditions were weak in March because of the Morbi shutdown, the Middle East conflict and substantially higher logistics costs.