Kajaria Ceramics- A Key Beneficiary of the GST Led Formalisation of the Home Improvement Sector

Value investor- India mid & small caps

Bhaskar Chakraborty

Equity Bottom-Up

<ul>
<li>50 new plants in the unorganized sector to manufacture premium GVT tiles has created massive oversupply in the face of weak demand</li>
<li>GVT realizations are down 10-20% YoY</li>
<li>Lax implementation of E-Way bill in the run up to central elections in 2019 is aiding unorganized sector to evade GST allowing them to undercut organized players</li>
<li>Power &amp; Fuel makes up ~20% of revenues of tile makers. With Brent up 12% and INR down 10% against USD in YTDFY19, we expect power and fuel costs to increase 20-25% YoY.</li>
<li>This should shave off 24% from <a href="https://www.smartkarma.com/entities/13916" target="_blank" data-smartkarma-citation="entities:13916:1">Kajaria Ceramics (KJC IN)</a>’s FY19 Ebitda. The impact on <a href="https://www.smartkarma.com/entities/10694" target="_blank" data-smartkarma-citation="entities:10694:1">Somany Ceramics (SOMC IN)</a> will be steeper at 54% of its FY19 Ebitda. <a href="https://www.smartkarma.com/entities/5195" target="_blank" data-smartkarma-citation="entities:5195:1">Cera Sanitaryware (CRS IN)</a>, that derives 18% of its revenues from tiles, will see a much lower impact.</li>
</ul>


50 new plants in the unorganized sector to manufacture premium GVT tiles has created massive oversupply in the face of weak demand
GVT realizations are down 10-20% YoY
Lax implementation of E-Way bill in the run up to central elections in 2019 is aiding unorganized sector to evade GST allowing them to undercut organized players
Power &amp; Fuel makes up ~20% of revenues of tile makers. With Brent up 12% and INR down 10% against USD in YTDFY19, we expect power and fuel costs to increase 20-25% YoY.
This should shave off 24% from Kajaria Ceramics (KJC IN)’s FY19 Ebitda. The impact on Somany Ceramics (SOMC IN) will be steeper at 54% of its FY19 Ebitda. Cera Sanitaryware (CRS IN), that derives 18% of its revenues from tiles, will see a much lower impact.


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