Kajaria Ceramics

Kajaria Ceramics reported a challenging Q3 FY25 with consolidated revenue increasing by a modest 1% year-over-year to ₹1,164 crores. Despite this, tile volumes showed resilience, growing 6.7% to 28.90 million square meters. However, EBITDA margins remained soft at 12.78%, and Profit After Tax (PAT) saw a significant 25% decline to ₹78 crores, primarily attributed to lower realizations and initial losses from the new Sanitaryware unit in Morbi.

The Tiles segment recorded a 3% growth, reaching revenues of ₹1,041 crores. The Bathware segment also grew by 2.5% to ₹95 crores, though it incurred losses due to the new Morbi unit. The Plywood segment experienced a substantial decrease in revenue, falling to ₹8 crores from ₹34 crores in Q3 FY24, while the Adhesive segment showed strong growth, increasing to ₹20 crores from ₹13 crores.

The company faced sustained weakness in the domestic market, particularly in retail sales, which are currently very low. Export performance was also subdued, with India's tile exports falling 16% in value during the first 8 months of the current year, totaling ₹11,600 crores. This decline was largely due to the Red Sea crisis and uncertainty in the Gulf market, although management noted that freight rates for UK exports have begun to normalize, dropping from ₹4,000 to ₹1,750 per container.

Kajaria's domestic tile plants operated at an impressive 105% capacity in the December quarter, with outsourced sales volume growing 17% year-over-year. The Nepal project, commissioned in September '24, achieved 70% utilization in Q3 FY25, and the company aims to increase this to 80-85% by March-April. A positive development for the Nepal project is the locking of interest rates at 9%, a significant reduction from the initial 14%.

Management is optimistic about future EBITDA margin improvement, expecting them to reach 14-15% next year, driven by the stabilization of the new Sanitaryware plant and operating leverage from increased volumes. Employee costs, which saw an increase, are targeted to return to FY23-24 levels by FY26 through cost-cutting measures and anticipated sales growth. Fuel prices remained constant in Q3, with no significant change expected in Q4.

Despite a flat industry, Kajaria is actively gaining market share from smaller, less efficient players who are contemplating or undertaking shutdowns due to overcapacity. The company is expanding its distribution network, aiming to penetrate smaller towns across India, targeting Vidhan Sabha numbers (4110 locations) beyond its current 1,880 dealers, of which 460 are exclusive.

The company maintains a cautious but optimistic outlook for demand in the near to medium term. Key triggers for demand revival include potential RBI rate cuts, expected around February 7th, and increased buying power resulting from government budget allocations. Management anticipates an overall volume growth of 8-9% for FY25 and expects things to improve as infrastructure investments by the government pick up in Q4 FY25 and Q1 FY26.