Brokerage firm Prabhudas Lilladher has initiated coverage on Cera Sanitaryware and Kajaria Ceramics stocks with buy recommendations as the brokerage firm is positive about the ceramic tiles and bathware sector.
The brokerage firm has pegged a target price of ₹7,280 on Cera Sanitaryware stock, implying an 18 percent upside from the stock's March 21 closing of ₹6,169.50 on BSE.
For Kajaria Ceramics, the brokerage firm has fixed the target price of ₹1,302, implying a 24 percent upside from the stock's March 21 closing of ₹1,052.50 on BSE.
Prabhudas Lilladher is bullish on these two stocks as it is positive about the tiles and bathware sector. It highlighted that the ceramic tiles sector (domestic consumption volume) reported a 5.4 percent CAGR over FY17-21, while the sanitaryware and facets sector (value) reported 8.3 percent and 12 percent CAGR, respectively, over FY17-21.
Shares of Kajaria Ceramics hit their 52-week high of ₹1,279.95 on BSE on September 21, 2022, and as of March 21 closing, they are down 18 percent from their one-year peak.
Shares of Cera Sanitaryware hit their 52-week high of ₹6,789.05 on BSE on February 22, 2023, and as of March 21 closing, they are down 9 percent from their one-year peak.
The brokerage firm highlighted that the Indian tiles industry is valued at around ₹52,700 crore with exports comprising about 24 percent of the sector’s revenue.
As per it, organised players account for roughly half of the market size (nearly ₹18,500 crore) and major listed players such as Kajaria Ceramics, Prism Johnson, Somany Ceramics, Nitco and Asian Granito, etc., control a major chunk of organised market (about 55 percent of organised players).
Kajaria Ceramics accounts for about 8.4 percent share of the overall domestic tiles market and about 18 percent share in the organised market, Prabhudas Lilladher said.
On the other hand, India’s sanitaryware industry is pegged at ₹5,500 crore, clocking a nearly 8.3 percent CAGR over FY17-21. The domestic faucet-ware industry at ₹11,000 crore, is growing at a faster clip than sanitaryware at about 12 percent over FY17-21, the brokerage firm observed.
The brokerage firm believes bath-ware players will maintain their healthy growth and margins profile along with return ratios in excess of 20 percent, mainly with healthy sales volume growth and premiumisation.
"Given vast growing long-term opportunities and a major play, Cera Sanitaryware should trade at a rich valuation and continue to be a compounding story," said Prabhudas Lilladher.
"Considering strong underlying demand along with healthy growth momentum, we initiate coverage on Kajaria Ceramics and Cera Sanitaryware underpinned by (a) healthy growth in the real estate sector, (b) increased government spending on irrigation, WSS (water supply and sanitation) and urban infrastructure, (c) benefits from industry consolidation, and (d) shift from unorganised to organised market, due to geographical expansions of large organised players," said Prabhudas Lilladher.
The brokerage firm expects Kajaria Ceramics to clock a revenue CAGR of 14.7 percent, EBITDA CAGR of 24.1 percent and PAT CAGR of 29.8 percent over FY23-25E.
For Cera Sanitaryware, the brokerage firm expects a revenue CAGR of 13.6 percent, EBITDA CAGR of 16.3 percent and PAT CAGR of 16.4 percent over FY23-25E.
According to a MintGenie poll, 24 analysts have a ‘strong buy’ call on the Kajaria Ceramics stock while 14 analysts have a 'strong buy' call on the Cera Sanitaryware stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.