₹3 to ₹1240: Multibagger CDGS stock turns ₹1 lakh to ₹3 Cr: Buy?

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With a market worth of 19,714.58 crore, Kajaria Ceramics Ltd. is a mid-cap company that operates in the consumer discretionary goods and services (CDGS) industry. Kajaria is India’s top producer of ceramic wall and floor tiles, vitrified tiles, and designer tiles. Its 82.80 mn square metres of annual aggregate capacity are spread out among eight facilities: Sikandrabad in Uttar Pradesh, Gailpur and Malootana in Rajasthan, Vijayawada and Srikalahasti in Andhra Pradesh, and three plants in Gujarat. Among the multibagger stocks that have made investors crorepati over a long-term investment horizon are the shares of Kajaria Ceramics, let’s find out how.

Share price history of Kajaria Ceramics

Kajaria Ceramics Limited’s shares on the NSE closed on Friday at 1,240.00 a piece, down 0.31% from the previous close of 1,243.85. The stock saw a total volume of 416,593 shares on Friday, which was significantly higher than the 20-Day Average Volume of 206,336 shares. The stock price has skyrocketed from 3.40 as of 1st January 1999 to the current price level which logs in a multibagger return and an all-time high of 36,370.59%. As a result, a 1 lakh investment in the stock 23 years ago would today be worth 3.64 crore. 

The stock has gained 71.44% during the past five years, and it has generated a multibagger return of 135.44% over the past three years. The stock has climbed 8.73% over the past year, but it has dropped 5.72% year to date. On the NSE, the stock had touched a 52-week-high of 1,374.90 on (10-January-2022) and a 52-week-low of 885.30 on (09-March-2022), indicating that at the current market price the stock is trading 9.81% below the high and 40.06% above the low. At the closing price on Friday, the stock was seen trading above the 5 days, 10 days, 20 days, 50 days, 100 days and 200 days Exponential Moving Average (EMA). 

On September 16, 2022, Kajaria Ceramics Limited’s RSI indicator value was 67.10, indicating that the stock was neither overbought nor oversold. For the quarter ended June 2022, the company recorded a promoter shareholding of 47.50%, FIIs holding of 19.58%, DIIs holding of 22.40% and public shareholding of 10.52%. The company holds a book value per share of 137.38 which results in a price-to-book value (P/B) ratio of 9.02 and the TTM PE ratio of the stock is 46.23, making the stock overvalued due to high P/B and PE when compared to its peers such as Cera Sanitaryware, Somany Ceramics, Orient Bell, Asian Granito India, and Exxaro Tiles.

Q1FY23 results of Kajaria Ceramics

On a consolidated basis, the company recorded net sales of 1008.22 Cr in Q1FY23 compared to 561.66 Cr in Q1FY22 representing a YoY growth of 80%. The company’s EBITDA jumped by 91% YoY from 80.42 recorded in the same quarter of the previous year to 153.59 Cr in Q1FY23 whereas the EBITDA margin climbed from 14.32% in Q1FY22 to 15.23% in Q1FY23.

The company reported a Profit Before Tax (PBT) of 125.71 Cr in Q1FY23 compared to 56.88 Cr recorded in Q1FY22, representing a YoY growth of 121%. The company’s Profit After Tax (PAT) grew by 114% year over year (YoY) to 92.30 Cr in Q1FY23 from 43.06 in Q1FY22. The company’s EPS grew by 113% year over year to 5.80 from 2.71 in Q1FY22.

Should you buy the shares of Kajaria Ceramics?

The research analysts of the broking firm ICICI Securities have recommended to ‘BUY’ the stock for a target price of 1,355.00 by keeping a stop loss of 1,110.00. They have kept a target period of 3 months for the stock to hit the set target price.

They have said in their research note that “BSE Consumer durable index has given a breakout from falling channel signalling end of the corrective phase and resumption of structural uptrend. Going ahead, we expect the consumption space to remain resilient in the ongoing festive session, leading to outperformance in coming quarters. Within this space, we remain constructive on Kajaria Ceramics as it is a proxy play of the consumption theme. The stock has generated a breakout above the last seven week’s range ( 1214-1107) as buying demand has emerged from previous major breakout area signalling continuance of the up move.”

“The stock, earlier during July 2022, generated a Double bottom breakout with a base around 100 week’s EMA. In the smaller time frame, it has completely retraced its preceding 13 session’s decline ( 1214-1107) in just six sessions. A faster retracement in less than half the time interval signals strength and a robust price structure. We expect the stock to maintain positive bias and head higher towards 1355 in coming months as it is price parity with the previous major up move ( 970-1214) as projected from last week’s low of 1107,” said the research analysts of ICICI Securities.

They further added that “Kajaria is taking capacity expansion across product portfolio. It has commissioned 4.4 MSM of PVT capacity at its Morbi (Gujarat) plant during April 2022. The other two projects i.e. 4.2 MSM of ceramic floor tiles at Gailpur (Rajasthan) and 3.8 MSM of glazed vitrified tiles at Srikalahasti (Andhra Pradesh) have also been commissioned during May 2022. Further, the company is investing 80 crore to set up a 8 lakh pieces/ annum sanitaryware manufacturing facility in Gujarat, which is expected to be completed by December 2023. Further, it is adding new capacity of 6 lakh pieces/annum in their faucet plant at Gailpur, which will take the total the capacity to 16 lakh pieces/annum and expected to be completed by October 2022. These capex are likely to benefit Kajaria during improved demand scenario.”

“We expect 16% CAGR in tiles volume and 3.5% CAGR in realisations, resulting in tiles revenues CAGR of ~20% over FY22-24 (to 5,351.6 crore) to be driven by a) expected rise in demand from Tier II and below cities, b) healthy capacity utilisation, c) expected increase in Kajaria’s capacity, d) enhanced distribution network and e) strong brand recall. Margin is likely to hover at the current range of 16.5% despite ongoing volatility in gas prices, increased global uncertainty and higher freight and packaging cost. At CMP, Kajaria is trading at ~34x FY24E P/E. With net cash balance sheet and superior brand, it is a quasi-play on improved scenario of real estate and expanding reach to tier II/III cities,” said the analysts.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. 

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