Tile major Kajaria Ceramics’ uneventful Q1FY18 – net profit declined 24% – has failed to dim promoter Rishi Kajaria's optimism. In two tranches (on August 17 and 21), promoter entity Kajaria Securities acquired 304,000 shares, worth Rs.19.31 crore, thereby increasing its stake in the firm to 40.69%. The overall promoter holding in the company is now 47.39%.
While de-stocking at the dealer’s level in the wake of implementation of GST impacted volume growth in Q1FY18, the firm’s increased expenditure on advertisement and promotion impacted margins. Having signed up Akshay Kumar, Kajaria has allocated Rs.100 crore towards ad expenses for FY18, of which about Rs.28 crore was spent in the first quarter.
The management expects demand growth of 6-9% in FY18 compared with 3-5% in FY17 and believes a revival in demand will kick in H2FY18. The uniform GST rate of 28% on tiles (against the pre-GST rate of 28-31%) across all states, and the resultant consolidation in the market space (as unorganized players occupy a major market share) is expected to benefit organised tile companies. Analysts reckon that government initiatives like Swachh Bharat Abhiyan, Housing for All will give a further fillip to sales.
Kajaria has been an investor darling as the company’s past five year performance has been impressive, with net sales compounding at 14.2%, while profit grew 25% annually. On a year to date basis, the stock is up 31.2%, outperforming the benchmark Sensex, which has gained 18.7%. During the past year, domestic mutual funds have increased their stake from 3.98% to 5.27%; while FIIs have taken money off the table and reduced their stake from 27.2% to about 24%.
Among domestic mutual funds, Franklin Indian Smaller Companies Fund & Franklin Templeton Mutual Fund held a stake of 2.02% for the quarter ended June 2017. Among FIIs, Goldman Sachs reduced its stake from 1.4% to 1.29% and Steadview Capital Mauritius from 1.97% to 1.22%, during the same period. The holding of Government’s Pension Fund Global, Norway’s sovereign fund remained unchanged at 3.08%.