KJC reported impressive Q3 numbers – strong volume growth and firm margins q-o-q – despite a tough economic environment. The numbers were in-line with our estimates but demonstrated a significant beat over consensus.
KJC reported a clinical performance with: (a) 16% y-o-y volume growth (I-Sec: 13%) largely aided by market share gains, (b) 90bps improvement in margins q-o-q at 15.9% (I-Sec: 15.8%) led by operating leverage and turnaround of its subsidiaries (tiles and bathware), and (c) strict working capital management (at 62 days up just 2 days q-o-q). KJC reported consolidated PAT at `648 m (I-Sec: `623 m), up 19% y-o-y/29% q-o-q aided by sound operating performance and lower interest cost.
Given in-line Q3 performance, we maintain revenue and earnings estimates and expect KJC to report revenue and PAT CAGRs of 13% and 19.2%, respectively, over FY18-FY21 largely driven by (a) sustained double digit volume growth over next two years aided by its growing competitiveness over unorganised as well as organised players; (b) expected energy savings led by recent sharp fall in crude prices which should drive its Ebitda margin higher to 17.5%/18% by FY20/FY21, respectively.
RoCEs are estimated to inch up to 30% by FY21 led by its stringent working capital management, leaner capex and increasing FCF. We maintain ‘Buy’ on the stock with a target price of `625, valuing it at 30xFY20E earnings.
KJC posted 14.7% y-o-y revenue growth at `7.59 bn (I-Sec: `7.5 bn) aided by 16% volume growth in tiles and 40.6% y-o-y growth in allied products. The growth was largely attributed to market share gains with industry expected to have grown flattish or at low single-digit during the quarter.