GST – A Potential Game Changer
Currently, 60% of domestic tiles volumes are controlled by the unorganised players, out of which a large portion has been able to compete mainly due to avoiding payment of taxes. Complete audit trail of transactions under the GST regime would make it extremely difficult for these players to avoid taxes any more. It is estimated that 10-20% of the unorganised players would be out of business in due course. This should benefit large organised players like Kajaria and fasten the process of conversion of the industry from unorganised to organised.
Huge Headroom for Further Growth In spite of being the market leader, Kajaria just has a market share of 10% in overall and 20% in organised tiles industry providing huge upside potential for growth.
Increasing distribution reach, enhanced range of products, focussed advertising spends and faster conversion to organised industry would propel growth for Kajaria in coming years, in our view.
Outlook & Valuation
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We expect Kajaria to post consolidated revenues of Rs28.8bn and Rs33.1bn and net profit of Rs 3bn and Rs3.6bn in FY18E and FY19E, respectively. Based on expected EPS of Rs22.6, the stock currently trades at reasonable P/E multiple of 31.5x FY19E earnings. Looking ahead, we expect Kajaria to command premium multiples in coming years on the back of market leadership, superior financial performance and strong new product funnel along with faster consolidation of organised industry under GST regime. We initiate coverage on the stock with BUY recommendation and Target Price of Rs861, based on 34x Sep’19 EPS
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