BRACT’s

Vishwakarma Institute of Management (An ISO 9001-2008 Certified Institute)

(Approved by AICTE-New Delhi, Recognized by Government of Maharashtra and Permanently Affiliated to University of Pune) MBA – Programme – Rated as “MH-A” by CRISIL

Recipient of the 19th Dewang Mehta B School Award for the Best B School with Academic Inputs in Marketing Rewarded as “Second Best Professional Institute in Urban Area Category” by the University of Pune

Project Report

On

Kajaria Ceramics

for the subject,

Equity research - course code (313)

Submitted by,

Nikhil Mundada, Roll No – 14011071

MBA – 2nd year (III), Specialization- Finance

Index

Sr No. Particulars Page No.

1 Executive summary 3

2 Project Objectives 4

3 Industry profile 5

4 Company profile 8

5 Corporate governance 11

6 Financial analysis 12

7 Technical analysis 18

8 Conclusion 20

2

Executive summary

Kajaria Ceramics, incorporated in 1985, is the largest ceramic floor and wall tile manufacturer in India. The company's two manufacturing facilities are located at Sikandrabad in Uttar Pradesh and Gailpur in Rajasthan.

Kajaria Ceramics has increased its capacity from 1 mn. sq. mtrs to 46.60 mn. sq. mtrs. in last 25 years and offers more than 1200 options in ceramic wall & floor tiles, vitrified tiles, designer tiles and much more. These tiles come in a wide range of colours and textures to complement bathrooms, living rooms, corridors, study rooms & kitchen, born our of an inspired creativity of those who feel that rooms should be an extension of the beauty reflected. With an unparalleled commitment towards quality we have strived to adopt technologies and standards with the changing times

The company has an in-house research and development facility that focuses on developing new designs and creating cost effective products.

Kajaria Ceramics has received various certifications such as ISO 9001 (for quality management), ISO 14001 (environment management), OHSAS 18001 (for safety and health management) and SA-8000 (for commitment to society). Kajaria Ceramics has pan-India presence with a strong distribution network of about 600 dealers and over 6000 sub-dealers. Equipped with eight stock points, the company has Kajaria World showrooms and owns 19 offices-cum-display centres.

Being largest exporter of ceramic tiles in India, Kajaria Ceramics exports its products to over 20 countries and has an exclusive office/showroom in UAE.

The company has wide clientele namely Unitech, DLF, Parsvnath, Magarpatta, Sobha Developers, DSK, Mantri Group,Prestige Group, Ansals, Hiranandani, Raheja Developers, Omaxe and EMAAR-MGF are among others.

In 2010 Kajaria Ceramics entered into an agreement with Gas Authority of India Ltd.

3

Project objectives

To do fundamental analysis using top down approach

To do fundamental study on Kajaria Ceramics.

To do technical analysis on Kajaria Ceramics

To predict whether to buy sell or hold for company Kajaria Ceramics.

4

Introduction:

Industry Profile:

Ceramic Tiles today have become an integral part of home improvement. It can make a huge difference to the way your interiors and outdoors look and express. The Indian tile industry, despite an overall slowdown of the economy continues to grow at a healthy 15% per annum. Investments in the last 5 years have aggregated over Rs. 5000 crores. The overall size of the Indian ceramic tile industry is approximately Rs 18,000 crore (FY12). The production during 2011-12 stood at approx. 600 million square meters. 

The Indian tile industry is divided into organized and unorganized sector. The organized sector comprises of approximately 14 players. The current size of the organized sector is about Rs 7,200 Crores. The unorganized sector accounts for nearly 60% of the total industry bearing testimony of the growth potential of this sector. 

India ranks in the top 3 list of countries in terms of tile production in the world. With proper planning and better quality control our exports (presently insignificant) contribution can significantly increase.

5

Porter's five forces model :

1) Competitive rivalry2)Power of suppliers3) Power of buyers4) Threats of substitutes5) Threat of new entrants.

As the above factors influence industry performance, it is useful to find out about these factors before you enter an industry or if you are wondering why your business industry is not doing well.

Competitive Rivalry

Competitive rivalry is a good starting point to when analysing a particular industry. If entry to an industry is easy then competitive rivalry is likely to be high. If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high. Generally competitive rivalry will be high if:

• There is little differentiation between the products sold by competitors.• Competitors are approximately the same size of each other.• If competitors have similar strategies.• It is costly to leave the industry (exit barriers)

6

Power of Suppliers

Suppliers are also essential for the success of an organisation as they provide businesses with the resources they need to produce their products and services. Supplier power can come from:

• If there is one or just a few suppliers that can provide the resources a business needs.• If it is expensive to move from one supplier to another (known also as switching cost)• If there is no other substitute for the product provided by the supplier.

Power of Buyers

Buyers or customers can exert influence and control over an industry in certain circumstances. This happens when:

• There is little differentiation over the product and substitutes can be found easily by customers/buyers. •Buyers/customers are sensitive to price fluctuations.• Switching to another product is not costly for customers/buyers.

Threat of Substitutes

Are there alternative products that customers can purchase instead of yours? alternative products that offer the same benefit as your products? The threat from substitute (competitor) products is high when:

• The price of the substitute (competitor) product falls.• It is easy for consumers to switch from one substitute product to another.• Buyers are willing to substitute products from different competitors.

Threat of New Entrant

The threat of new organisations entering the industry is high when it is easy for an organisation to enter the industry i.e. entry barriers are low.When a new business is deciding whether to enter an industry it will look at:

How loyal customers are to existing products, How quickly it can achieve economy of scales Would it have access to suppliers and Would government legislation prevent them or encourage them to enter the

industry.

7

Company Profile:

Kajaria Ceramics is the largest manufacturer of ceramic/vitrified tiles in India. It has an annual aggregate capacity of 62.10 mn. sq. meters, distributed across eight plants-Sikandrabad in Uttar Pradesh, Gailpur in Rajasthan, five plants in Gujarat and one at Vijayawada in Andhra Pradesh.

The motivating factor remains the zeal, the zeal to be the best, to be at the top and to achieve the highest echelons of excellence. The manufacturing units are equipped with cutting edge technology. Intense automation, robotic car application and a zero chance for human error are just few reasons why Kajaria remains at the top in the industry.

Founded 27 years ago with a single-minded vision, to be the best in providing tile solutions, Kajaria has since then grown stronger with its hard work, innovations and patronage from our discerning customers.

The Indian consumers' rapidly growing appetite for style and aesthetics is the inspiration behind every design of Kajaria Ceramics. Kajaria has today become a synonym for quality, service and innovation - not only in the domestic market but in the international market too.

Kajaria Ceramics has increased its capacity from 1 mn. sq. mtrs to 62.10 mn. sq. mtrs. in last 27 years and offers more than 1500 options in ceramic wall & floor tiles, vitrified tiles, designer tiles and much more. These tiles come in a wide range of colours and textures to complement bathrooms, living rooms, corridors, study rooms & kitchen, born out of an inspired creativity of those who feel that rooms should be an extension of the beauty reflected. With an unparalleled commitment towards quality we have strived to adopt technologies and standards with the changing times.

Be it technology, research, design or quality, Kajaria has set its sight on all these factors adopting new production techniques in order to enhance the quality of its products. Due to creativity and design ability of our team, our design comprises both innovation and exclusivity.

Leveraging the two invaluable assets - the Kajaria brand and unparalleled, multi-layer distribution network - to expand the product bouquet to cater to the growing aspirations of the discerning Indian customers.

8

Board of Directors :

S.No Name Designation

1 Ashok Kajaria Chairman

2 Ashok Kajaria Managing Director

5 Dev Datt Rishi Executive Director - Technical

12 Basant Kumar Sinha Executive Director - Technical

3 Chetan Kajaria Joint Managing Director

4 Rishi Kajaria Joint Managing Director

6 Raj Kumar Bhargava Non Executive Independent Director

7 Ram Ratan Bagri Non Executive Independent Director

8 Debi Prasad Bagchi Non Executive Independent Director

9 H Rathnakar Hegde Non Executive Independent Director

10 Sandeep Singhal Non Executive Independent Director

11 Sushmita Shekhar Non Executive Independent Director

9

SWOT ANALYSIS

Strength of the company

Good Training System.

Good Organisational Climate.

High Market Share

Skilled Employees5.Strong Functional Structure6.Standard Quality Product

Weakness of the company

Low margin

High price

Sales representatives are less

There is no proper mechanism to handle the grievance of thecustomers

Opportunities for the company

Due to liberalization, demand for ceramic tiles have steppedup all over the globe.

National market through good advertisement.

Company provides better credit facility to dealers.

Company introduces promotional programs

Threats faced by the company

High competition

Liberal credit policy of other brand

Promotional programs of other brand

Complicated national market

Good replacement facility if other brands

10

Corporate Governance

The Board of Directors and the Management of Kajaria Ceramics are committed

to the enhancement of shareholder value,

Through sound business decisions, prudent financial management and high

standards of ethics throughout the organization

By ensuring transparency and professionalism in all decisions and transactions

Achieving excellence in Corporate Governance by conforming to, and exceeding

wherever possible, the prevalent mandatory guidelines on Corporate Governance

and by regularly reviewing the Board processes and the Management systems for

further improvement

The company has adopted a Code of Conduct for the members of the Board and

senior management, who have all affirmed in writing their adherence to this Code.

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Financials Analysis:

Kajaria Ceramics

Standalone Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '15

Mar '14 Mar '13 Mar '12 Mar '11

12 mths

12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 15.89 15.12 14.72 14.72 14.72

Equity Share Capital 15.89 15.12 14.72 14.72 14.72

Share Application Money 0.00 25.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 706.24 477.46 342.07 267.18 207.84

Networth 722.13 517.58 356.79 281.90 222.56

Secured Loans 54.35 60.97 150.45 174.80 200.03

Unsecured Loans 25.51 0.00 20.00 0.00 0.00

Total Debt 79.86 60.97 170.45 174.80 200.03

Total Liabilities 801.99 578.55 527.24 456.70 422.59

Mar '15

Mar '14 Mar '13 Mar '12 Mar '11

12 mths

12 mths 12 mths 12 mths 12 mths

12

Application Of Funds

Gross Block 856.07 810.72 749.85 722.95 699.80

Less: Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Less: Accum. Depreciation 341.84 306.64 285.14 253.89 220.76

Net Block 514.23 504.08 464.71 469.06 479.04

Capital Work in Progress 3.71 11.94 6.85 1.76 0.06

Investments 79.19 44.95 37.16 12.35 9.01

Inventories 201.96 151.80 176.53 175.78 151.51

Sundry Debtors 191.78 158.32 136.58 141.01 90.90

Cash and Bank Balance 6.05 3.95 2.79 5.90 2.99

Total Current Assets 399.79 314.07 315.90 322.69 245.40

Loans and Advances 198.38 74.36 61.34 53.70 62.32

Fixed Deposits 0.00 0.00 0.00 0.00 0.00

Total CA, Loans & Advances 598.17 388.43 377.24 376.39 307.72

Deferred Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 335.46 324.65 316.35 367.83 344.62

Provisions 57.85 46.19 42.37 35.04 28.64

Total CL & Provisions 393.31 370.84 358.72 402.87 373.26

Net Current Assets 204.86 17.59 18.52 -26.48 -65.54

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 801.99 578.56 527.24 456.69 422.57

13

Contingent Liabilities 308.78 225.24 116.80 150.61 178.53

Book Value (Rs) 90.87 65.17 48.49 38.31 30.25

Profit and loss account

Kajaria Ceramics

Standalone Profit & Loss account

------------------- in Rs. Cr. -------------------

Mar '15 Mar '14 Mar '13 Mar '12 Mar '11

12 mths 12 mths 12 mths 12 mths 12 mths

Income

Sales Turnover 2,378.20 2,003.44 1,707.26 1,401.76 1,005.50

Excise Duty 145.06 125.56 119.06 88.97 52.23

Net Sales 2,233.14 1,877.88 1,588.20 1,312.79 953.27

Other Income 2.74 6.49 0.39 1.13 0.32

Stock Adjustments 45.56 -25.40 4.91 15.47 -3.92

Total Income 2,281.44 1,858.97 1,593.50 1,329.39 949.67

Expenditure

Raw Materials 1,345.39 1,104.75 898.97 724.93 550.69

Power & Fuel Cost 288.13 243.80 232.72 193.78 92.66

14

Employee Cost 169.20 149.83 122.13 103.66 75.81

Other Manufacturing Expenses 0.00 0.00 0.00 0.00 0.00

Selling and Admin Expenses 0.00 0.00 0.00 0.00 0.00

Miscellaneous Expenses 189.93 121.04 117.80 105.45 81.90

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00

Total Expenses 1,992.65 1,619.42 1,371.62 1,127.82 801.06

Mar '15 Mar '14 Mar '13 Mar '12 Mar '11

12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 286.05 233.06 221.49 200.44 148.29

PBDIT 288.79 239.55 221.88 201.57 148.61

Interest 5.97 26.27 35.48 46.98 29.94

PBDT 282.82 213.28 186.40 154.59 118.67

Depreciation 39.38 36.49 38.36 37.08 29.50

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 243.44 176.79 148.04 117.51 89.17

Extra-ordinary items 0.00 0.00 0.00 0.00 0.00

PBT (Post Extra-ord Items) 243.44 176.79 148.04 117.51 89.17

Tax 75.08 60.06 47.49 36.80 28.51

Reported Net Profit 168.36 116.74 100.55 80.72 60.66

Total Value Addition 647.26 514.66 472.65 402.89 250.36

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 31.79 26.45 22.08 18.40 14.72

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Corporate Dividend Tax 6.36 4.50 3.58 2.98 2.39

Per share data (annualised)

Shares in issue (lakhs) 794.69 755.84 735.84 735.84 735.84

Earning Per Share (Rs) 21.19 15.45 13.66 10.97 8.24

Equity Dividend (%) 200.00 175.00 150.00 125.00 100.00

Book Value (Rs) 90.87 65.17 48.49 38.31 30.25

16

Valuation:

PRICE EARNING RATIO =MARKET PRICE OF SHAREEARNING PER SHARE

YEAR 2015 = 930 /25.04 = 37.17

37.17 is the PE of Kajaria Ceramics on date 23November 2015

So estimated price:

for FY 2016 =

EPS of 2016xP/E of Kajaria Ceramics

29.71 * 37.17 =Rs 1104.32

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TECHNICAL ANALYSIS:

Technical Analysis is the forecasting of future financial price movements based on an

examination of past price movements. Like weather forecasting, technical analysis does

not result in absolute predictions about the future. Instead, technical analysis can

help INVESTORSanticipate what is “likely” to happen to prices over time. Technical

analysis uses a wide variety of charts that show price over time.

PRINCIPLES:

At the turn of the century, the Dow Theory laid the foundations for what was later to

become modern technical analysis. Dow Theory was not presented as one complete

amalgamation, but rather pieced together from the writings of Charles Dow over several

years. Of the many theorems put forth by Dow, three stand out:

a.       Price Discounts Everything

b.      Price Movements Are Not Totally Random

c.       “What” Is More Important than “Why”

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Simple moving average (SMA)

A simple moving average is formed by computing the average (mean) price ofa security

over a specified number of periods. It places equal value on everyprice for the time span

selected. While it is possible to create moving averagesfrom the Open, the High, and the

Low data points, most moving averages arecreated using the closing price.

The above is a three-month chart of Kajaria Ceramics with two simple

moving averages. The red line is the shorter, 20-day moving average, while

the blue line represents the longer, 50-day moving average. Most traders will

use the cross of the short-term moving average above the longer-term

moving average to initiate a long positionand identify the start of a bullish

trend.

19

Conclusion:

After doing the fundamental as well as the technical analysis we can come to the

conclusion that the company is strong fundamentally, even the projection of balance

sheet and profit and loss shows that the company is going to grow as its exports are

increasing by 31.7% and also it model DOST is performing very well in the market. The

company is also going to launch some new products in the market. The market share of

the company grew to 28% which is good and indicates increase in sales.

The shareholders holding the shares of Kajaria Ceramics should continue to hold the

shares as the shares price is going to increase in the future. They can hold/buy it for short

term as well as for a long term because both the technical as well as are strong of the

company.

20