Kajaria Ceramics Ltd is the leader in domestic ceramic tiles market. The share price for the company has gone down from a peak of INR 1455 in October to 1039 in May registering a steep decline of 45%. Have the fundaments of the company changed or has MR.Market gone to extremes as is his nature?
Kajaria cermaics has a long track record of operations(almost 3 decades), multiple manufacturing facilities and a diversified product range supported by a pan India distribution network. The company has a strong brand recall in India.
Above table shows the last 10 year P&L for Kajaria Cermaics. The sales for the company have doubled in the last 10 years but growth has slowed in the last 2 years. The raw material cost has risen to 44% in the last year.(Note: Always look for rise/fluctuations in raw material prices for a commodity company), Market cap has almost doubled in the same period from 7.6k Crore to 13.7k Crore.
The investing framework we need to understand this company is being the lowest cost producer in a commodity industry. Real estate projects are the major consumer of tiles and a piece of tile is indistinguishable from another, once installed. So to pass on the volatility the input materials used to make tiles, the company needs to be either the largest player or have some synergy. Here Kajaria is uniquely positioned as it has the largest market share. Kajaria tiles has 14% market share in overall tiles sales in India. Second biggest player is Somany tiles with 10% market share.
A close look at the balance sheet tells that the Trade receivables for the company is at 540 crores which is almost 20% of the Balance sheet size.
On comparison with Somany tiles limited whose trade receivable is at
It seems that the Somany tiles is at almost 35% of the BL size. This is majorly due to the inventory maintained in channel by tile companies. So the dominant players have again the advantage of being able to absorb this cost in the BL.
For a company based on FOFO(Franchise owned , Franchise Operated),the feedback of dealer owners matters a lot. Dealers of Kajaria are provided with adequate sales & profitability with below advantages.
1. Brand recognition and Customer pull: The “Kajaria” brand name has immense trust and pull among Indian consumers. Customers have a pre-fixed preference for Kajaria Tiles, this stremlines the sales process and ensures a steady sales.
2. A wide range of products: The sheer variety, coupled with a regular infusion of new and innovative designs, empowers dealers to meet diverse customer demands without having to rely on multiple brands.
3. Robust supply chain: Dealers consistently highlight Kajaria’s robust support system as a key differentiator. This includes marketing and promotional support, showroom design assistance, and, most importantly, a reliable and efficient supply chain. The company’s widespread manufacturing presence ensures timely delivery of products, minimizing stockout situations and enabling dealers to confidently commit to customer timelines.
The unorganized sector commands 60% of the market share in the overall tiles market. Thus allowing for size growth and cost efficiency being blocked for major players in the market. So Kajaria does have large headroom to grow and unlock value for shareholders. But before taking an investment decision, please do your own diligence to build conviction in your investment decision.