2 Stocks From Tiles And Bathware Space Prabhudas Liladher Sees Potential

In a coverage report on Ceramic tiles & Bathware sector, a part of home building materials, will grow manifold and is estimated to touch Rs 2.7 trillionn by FY26 from Rs 1.3 trillion in FY22 as per Prabhudas Lilladher. The leading brokerage feels that the share price of Kajaria Ceramics and CERA Sanitaryware, from the tiles and bathware space has potential to grow further. Given below are the details.

Buy stock of Kajaria Ceramic, with a target price of Rs 1,302

Indian ceramic tiles industry is fragmented with multiple organised (55% market share) and unorganised players (45% market share), it was second largest consumer of ceramic tiles in the world with more than 11% share and 2069MSM consumption annually (CY21). India's consumption has increased by 10% in CY21 against ~7% for world consumption. The Indian tiles industry is around Rs 527 billion with exports comprising close to 24% of sector's revenue.

Organised players intend to increase their penetration by increasing dealer network and by doing advertising promotion and of their brands, they continue to gain market share. Kajaria Ceramic is a market leader, given its brand focus, premiumization and robust distribution approximately 8.4% share in the overall tiles market. It has reported 11.3% volume CAGR over FY10-22 - highest in the tiles space that helped it gain market share. Company has also worked hard to build a brand over last few years, with advertising spends rising over 3% of sales (from ~1.8% of sales in FY14). Moreover, it has increased its distribution network over years to 1,800 active dealers at present (9MFY23), with sales per dealer rising to ~Rs 22 million.

According to Prabhudas Lilladher, "Kajaria Ceramic, stands focused on B2C business that accounts 70% of total revenue and expect it to gain further market share and maintain premium leadership. We believe KJC will continue to outperform as compared to its peers given vibrant product range, aggressive spending on branding, extensive distribution network of 1,800 active dealers with

over 5,000+ associate dealers and sustained capacity expansion. The stock has not moved anywhere since past one year and is trading at 34x/29x FY24/25E earnings. With healthy PAT CAGR of 28.9% over FY23-25, RoCE of 26% and free cash flow of Rs 5.5 billon by FY25, we initiate coverage on the stock with 'BUY' rating and target price of Rs 1,302, valuing at 35x FY25 earnings (at 5-year average 1 yr fwd. PER).

Buy stock of Cera Sanitaryware with 'BUY' rating and TP of Rs 7,280

Cera Sanitaryware has gradually diversified its product basket from sanitaryware player to a dominant player in faucetware space and also entered tiles segment. Sanitaryware and allied products were about 90% of its revenues in FY11, which reduced to ~53% in FY22. Tiles segment contributes around 10-12% to its overall revenue and faucets contributes ~34% revenue, thus it has successfully transitioned itself from a sanitaryware player to a total bathroom solution provider.

Faucetware is a bigger category with total addressable market size of Rs 110bn and CRS has grown at a CAGR of 38.7% over FY11-22. CRS's market share is around 4%, implying strong opportunity to scale in this category. Faucetware segment is expected to grow at around 13.8% over FY23-25 (vs 12% for sector) and led by series of efforts undertaken by the company is expected to capture incremental market share. Faucetware segment is expected to grow at around 13.8% over FY23-25 (vs 12% for sector) and led by series of efforts undertaken by CRS, the company is expected to capture incremental market share. CRS is the market leader in the Rs 55 billion Sanitaryware segment with ~11% market share.

According to the brokerage, "Cera Sanitaryware is well placed to gain from market leadership in sanitaryware, strong cash flow generation and sustained investments in premiumisation & capacity expansions. The company has guided to double its FY22 revenue within 40 months (by FY26)and is focused on B2C business which accounts ~75% of total revenue. We expect further gain market share, while maintaining premium leadership. Given healthy PAT CAGR of 16.4% over FY23-25, RoCE of 24.2% by FY25 and free cash flow of Rs 1.34 billion by FY25, we initiate coverage on the stock with 'BUY' rating and target price of Rs 7,280, valuing at 35x FY25 earnings."

Disclaimer:

The stocks have been picked from the brokerage report of Prabhudas Lilladher, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.