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MUMBAI : Shares of tile manufacturer Kajaria Ceramics Ltd fell around 2% on the NSE on Wednesday reacting to the company's subdued June quarter earnings.

The company's volumes growth declined, impacted by covid-led restrictions. On a sequential basis, volumes fell 40% to 15.26msm in Q1FY22. Production volume declined by 19% sequentially, with average capacity utilization at 75%.

Another disappointment was its elevated raw material prices leading to steep margin erosion. The company's management said that the average gas price increased to 31.5-32/scm in Q1FY22 from 28/scm in the previous quarter. Scm is short for standard cubic metre.

Further, packaging costs and freight expenses also rose during the quarter. As a result, Ebitda margin declined by 570 basis points (bps) to 14.3% in Q1FY22. Ebitda is short for earnings before interest, tax, depreciation, and amortization. One basis point is one hundredth of a percentage point.

In a bid to tackle cost inflation, the company's management said it has increased prices by nearly 4.5% across all tile products. The company took a price hike in January and then in July. Similarly, it has hiked prices of bathware products by 10% since May 2021 due to increase in brass prices. Further, prices of sanitaryware increased by 6%. The management has stated that it will monitor market conditions for further price hike.

While the management did not share any guidance on margins for FY22, it is confident about achieving sales volume growth of 15% in FY22 despite the operating performance getting affected in Q1FY22. Analysts say, given the sharp jump in costs, more price hikes are necessary to save operating margins.

Meanwhile, the company announced that it will add 4.20 million square metres (msm) of capacity at its Rajasthan plant. This would boost its production capacity of ceramic tiles from 25.20 msm per annum to 29.40 msm per annum. This expansion is expected to be completed by March 2022.

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