Kajaria Ceramics share value

Kajaria Ceramics is the largest manufacturer of ceramic/vitrified tiles in India. It has an annual aggregate capacity of 46.60 mn. sq. meters, distributed across seven plants-Sikandrabad in Uttar Pradesh, Gailpur in Rajasthan, four plants in Morbi in Gujarat and one at Vijayawada in Andhra Pradesh.

Let's take a look at financials:

Kajaria financials and margins

Using a three stage DCF model, I arrived at the following value with these assumptions:
- profit growth of 20% for the next 5 years, 15% for years 5-10 and 4% thereafter
- discount rates of 11%, 13%, 15% using the Capital asset pricing model (CAPM)

Kajaria Ceramics share value

Even after assuming a very optmistic growth of 20% and 15%, Kajaria Ceramics is not worth more than 4000 Rs.Cr. according to my DCF valuation. That implies a downside of at least 10% for the stock. The company is executing and growing well, but at these levels, the margin of safety is nonexistent and buying this stock would present an unfavorable risk/reward ratio. That doesn't mean it can't go a bit higher though. DCF valuation is only a rough metric and Mr. Market can carry stocks far beyond their reasonable values.

Kajaria competition

Looking at some of it's competitors (indirect or direct), Kajaria Ceramics is valued around the average, with slightly higher profit,sales growth and ROE.

It is a good business with a leading position in India, however I'm not a buyer at these levels. I will rather sit and wait till a more favorable opportunity appears.