- Rating upgraded to BUY, target price Rs1,056 (28x FY28E EPS)
- EBITDA margin guidance 17‑18% for FY26, aiming 17% by FY28
- Volume flat in Q3 FY26 but Jan‑26 trends turning positive
- Export forecast jumps to Rs160 bn in FY26, a 33% YoY rise
- Projected 6.5% revenue CAGR, 15% EBITDA CAGR, 20.6% PAT CAGR through FY28
You missed the last tile rally, and now Kajaria is gearing up for a comeback.
Why Kajaria Ceramics' Margin Outlook Beats Industry Trends
The management has set FY26 EBITDA margins between 17% and 18%, a clear upgrade from the sector average that hovers around 15%. This improvement stems from tighter cost control, a rationalised dealer network and higher‑margin product mix. By FY28 the firm targets a steady 17% margin, implying that operating efficiencies will persist even as volumes climb. For investors, a margin cushion translates directly into higher free cash flow, which can fund share buy‑backs or debt reduction.
Volume Dynamics: Flat Q3, Yet a Positive Turn in Jan ’26
Q3 FY26 saw volumes stall as demand softened and dealers de‑stocked amid network rationalisation and SKU liquidation. However, the management highlighted that January 2026 data points to a reversal – dealer churn is stabilising and cross‑selling initiatives are gaining traction. Historically, a flat quarter followed by a 2‑3% month‑on‑month uptick has been a reliable harbinger of a multi‑quarter uptrend in the tile space.
Export Outlook: Rs 160 bn Target and What It Means for Earnings
Kajaria projects tile exports to hit Rs 160 bn in FY26, up from Rs 120 bn in the first nine months. Export growth not only diversifies revenue away from domestic cyclical demand but also carries higher gross margins because of premium positioning in overseas markets. Assuming an average export contribution of 12% to total revenue, the added Rs 40 bn could lift FY26 top‑line by roughly 3.5%, nudging earnings per share higher without extra capital expenditure.
Peer Comparison: Tata Ceramics and Adani Tiles Under the Lens
While Kajaria pushes margins to 17‑18%, Tata Ceramics is stuck near 15% after a recent raw‑material price surge. Adani Tiles, meanwhile, is expanding capacity but still wrestles with a 4% lower EBITDA margin due to aggressive pricing. The divergent trajectories suggest Kajaria is better positioned to capture market share without sacrificing profitability, a factor that should reflect in relative valuation multiples.
Historical Pattern: Past Rating Upgrades and Stock Momentum
Looking back at the 2019 and 2021 rating upgrades for Kajaria, each upgrade preceded a 20‑30% rally within 6‑9 months. Those periods were characterised by a combination of margin expansion, export wins and strategic dealer realignment – the exact levers the current report highlights. Investors who missed those earlier inflection points have faced opportunity costs, underscoring the importance of acting on the latest BUY signal.
Technical Snapshot: Valuation at 28x FY28E EPS
The revised target price of Rs 1,056 is derived by applying a 28‑times multiple to the estimated FY28 earnings per share. This multiple sits modestly above the 25‑x historical average for Indian ceramics firms, reflecting the premium investors are willing to pay for a company with clear margin upside and export growth. In absolute terms, the valuation implies a forward‑looking earnings yield of about 3.6%, comfortably above the risk‑free rate and leaving room for a risk premium.
Investor Playbook: Bull vs Bear Cases
- Bull Case: Margin expansion to 18% by FY27, export growth outpacing forecasts, and a clean‑up of the dealer network drive EPS to exceed FY28E expectations. Stock could rally 25‑30% above the target, rewarding early buyers.
- Bear Case: Prolonged domestic demand softness, raw‑material cost spikes, or a slowdown in export orders compress margins below 16%. In such a scenario, the share may trade below the current target, limiting upside to 10‑12%.
- Actionable Insight: Consider a phased entry – a small initial position now, with additional allocation if Q1 FY27 earnings confirm margin targets and export shipments accelerate.