We hosted a Group Call with Nilesh Jetpriya – President, Morbi Ceramic Association. He cited that Morbi exports have sharply risen to 40-45% of production now, and could rise to 60% more than lengthy term. FY22 volume development at 15-20% seems plausible. Morbi players could hike costs by +15%, due to expense inflation. This could alleviate competitive intensity and sustain pricing stability in domestic tiles industry – KJC is the industry leader. We raise FY22-24e EPS by ~3%. Retain Buy PT at Rs 1,355.
Exports: Morbi cluster is the important supplier to exports. Exports seem to be de-risking geographically, with GCC now at 25% of exports (earlier 45%), followed by the USA at 10-12%. Overall tile exports could rise to ~60% of Morbi production more than the longer term. KJC is domestic-focused, with negligible exports.
Rising input fees price tag hikes: With a view to pass-on input expense escalation, Morbi players could hike costs by +15% going forward. This augurs properly for organised players, as their price tag differential converges with the unorganised players.
Positive study-by means of for KJC: KJC is most likely to advantage from increasing Morbi exports and price tag hikes. We raise KJC’s FY22-24e EPS by ~3%, in view of sturdy catalysts – (i) Housing revival (ii) industry leadership (iii) optimising mix (60% worth-added sales) (iv) industry share gains (export focus by Morbi players) (v) margin focus (retained 15%+ more than FY16-21) and (vi) B/S strength (net money).
We view KJC as a robust play on housing revival / home furnishing. Retain Buy with revised PT of Rs 1,355 (vs Rs 1,250). Retain target PE at ~40x, a premium to hist. 5-yr avg. KJC stays one of our Top SMID Picks.