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Top Ceramic Stocks- Quantitative Analysis

Top Ceramic Stocks- Quantitative Analysis

Published on 29 September 2021 Views 23 Comments 0

Which is the best Ceramic Sector Mid-Cap & Small CapStock? Here is a Detailed Quantitative Analysis of the 7 Ceramic Sector Companies according to Market Capitalization, which is compared on 15 different parameters based on Q1FY22 results.

Introduction:

As per reports of Messe Muenchen India & EAC International Consulting, The ceramic industry came into existence about a century ago and has matured over time to form an industrial base. Over the years, the industry has been modernizing through innovations in product profile, quality, and design to emerge as a modern, world-class industry, ready to take on global competition.
Though there are several large companies in the ceramics sector, small and medium enterprises (SMEs) account for more than 50% of the total market in India.
The Rs 26,500-crore ceramic tiles industry in India is set to witness nearly 9% growth in demand this year, higher than the 3-5% growth recorded last year. Initiatives such as Swachh Bharat Abhiyan (SBA), the building of smart cities, the development of industrial corridors, and housing for all schemes will drive the growth shortly.
Lured by the demographic profile and improving prospects of the housing and construction sector, many foreign companies are entering the Indian ceramics sector intending to leverage the opportunity.
Indian ceramic industry is dominated by ceramic tiles industry, with a market of 4.9 bln EUR in 2017; the overall ceramic industry is expected to grow at ~9% CAGR to become ~7.5 bln EUR by 2022.

Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.

Ceramic Sector Quantitative Analysis

Companies selected for Analysis:

We have selected the following Seven Mid Cap & Small Cap Ceramic Sector companies for our Quantitative Analysis.

Market Capitalization of 7 Ceramic Sector Stocks:

  • Kajaria Ceramics- 18,666 Cr.
  • Cera Sanitaryware- 5,770 Cr.
  • Somany Ceramics- 3,011 Cr.
  • Pokarna- 1,584 Cr.
  • HSIL- 1,525 Cr.
  • Asian Granito India- 893 Cr.
  • Orient Bell- 494 Cr.

The procedure of Analysis and its Interpretation

  • These 5 Companies are analyzed on the following 15 parameters and ranked and scored accordingly. For example, a company with a higher PE ratio is provided a lower rank, hence has scored lesser points. Similarly, if a company has higher RoE, it has a higher rank and has scored higher points.
  • Here, 1 means that the company has scored the lowest points and 5 means the company has scored the highest points.
  • In the end, we have added all the points together and companies are ranked accordingly.

Parameters of Quantitative Analysis:

1) PE Ratio:

Top 7 Ceramic Sector Companies- PE Ratio

Top 7 Ceramic Sector Companies- PE Ratio

  • PE of a company means that how much investors should pay for the stock based on their current earnings. A company with a lower PE Ratio is considered to be undervalued and has a huge potential to unlock its value. Hence, full points will be rewarded to that company.
  • With the lowest PE Ratio of 12.29, Asian Granito gets the first position and 7 points. And Cera Sanitaryware with the highest PE of 51.28 among peers is awarded 1 point only.

2) EV/EBITDA:

Top 7 Ceramic Sector Companies- EV/EBITDA

Top 7 Ceramic Sector Companies- EV/EBITDA

  • EV/EBITDA ratio measures Enterprise Value (EV) to the Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA). This ratio assesses the overall financial performance of the firm.
  • EV/EBITDA of value below 10 is considered healthy.
  • Here, HSIL bags the first position among the Top 7 Companies with the lowest EV/EBITDA ratio of 7.18. Kajaria Ceramics with the highest EV/EBITDA ratio of 29.48 receives the last position and one point only. While Cera Sanitaryware also scores 6th position with EV/EBITDA of 29.24.

3) Return on Capital Employed (ROCE):

Top 7 Ceramic Sector Companies- Return on Capital Employed (ROCE)

Top 7 Ceramic Sector Companies- Return on Capital Employed (ROCE)

 

  • ROCE signifies that how the company is using its capital to generate a return for the company and investors. The high ROCE, the better it is for the company.
  • In this parameter, Kajaria Ceramics outperforms other peers by scoring the highest ROCE of 22.23% and hence obtains the 1st position as well as 7 points.
  • Somany Ceramics gets the last position and 7 points due to the lowest ROCE of 5.15%.

4) Return on Equity (ROE):

Top 7 Ceramic Sector Companies- Return on Equity (ROE)

Top 7 Ceramic Sector Companies- Return on Equity (ROE)

  • RoE signifies how well the company generates the return on shareholders’ investment. Companies with higher RoE are considered good.
  • In this parameter, Kajaria Ceramics again outperforms other peers by scoring the highest ROE of 21.03% and hence obtains the 1st position as well as 7 points.
  • Orient Bell with the lowest RoE of 5.41% receives the last rank.

5) Debt-to-Equity Ratio:

Top 7 Ceramic Sector Companies- Debt to Equity Ratio

Top 7 Ceramic Sector Companies- Debt to Equity Ratio

  • The debt-to-equity ratio is a leverage ratio that measures the debt of a company against its total shareholder’s equity.
  • Accordingly, the lesser is the debt, the better it is for the company, and vice-versa.
  • Since Ceramic Industry is a capital-intensive industry, debt plays a great role here.
  • With the lowest Debt-to-Equity Ratio of 0.05, Kajaria Ceramic scores first rank and 7 points as well. Cera Sanitaryware with 0.10 Debt-to-Equity Ratio, gets 2nd rank.
  • Pokarna has the highest D/E ratio of 0.84 and is hence given 7th rank.

6) Interest Coverage Ratio:

Top 7 Ceramic Sector Companies- Interest Coverage Ratio

Top 7 Ceramic Sector Companies- Interest Coverage Ratio

  • The Interest Coverage ratio is in direct relation with the D/E ratio. It can be calculated by dividing EBIT from Interest Expenses.
  • This ratio gives the ability of the company to pay interest from its operating profit.
  • Since Kajaria Ceramics and Cera Sanitaryware are zero-debt companies, they maintain a good Interest Coverage Ratio. Kajaria Ceramics, with an Interest Coverage Ratio of 39.54, the highest among peers, gets the first rank.
  • Due to a low-Interest Coverage Ratio of 1.19, Somany Ceramics is ranked and scored accordingly.

7) Pledged %:

Top 7 Ceramic Sector Companies- Pledged (%)

Top 7 Ceramic Sector Companies- Pledged (%)

  • Any Companies from the list of this quantitative analysis have not pledged any shares and hence all the companies are rewarded with first rank and 7 points.

8) Institutional Holding (FII + DII):

Top 7 Ceramic Sector Companies- Institutional Holding as a % of Free Float

Top 7 Ceramic Sector Companies- Institutional Holding as a % of Free Float

  • Institutional Investors (FII + DII) as a % of Free Float has the highest stake in Kajaria Ceramics, collectively of 76.2% and hence it is rewarded with full points and first rank.
  • FIIs and DIIs also hold a 58.1% stake in Cera Sanitaryware and hence it secures the 2nd position in this criterion and scores 6 marks.
  • Asian Granito India has the lowest stake of institutional investors of 1.2% in the Company’s shareholding pattern and hence is given 1 point only.

9) Operating Profit Margin (%):

Top 7 Ceramic Sector Companies- Operating Profit Margin%

Top 7 Ceramic Sector Companies- Operating Profit Margin%

  • Operating Profit Margin can be calculated by dividing Operating Profit by Total Revenue. It is sometimes also called EBIT (Earnings before Interest and Tax) Margin.
  • Higher the Operating Profit Margin (%) of a company, better the operational efficiency of a company and vice-versa.
  • Here, the first position is acquired by Pokarna with an Operating Profit Margin of 21.4%. Next to Pokarna is HSIL, which gets the second position with an Operating Profit Margin of 14.6%.
  • Pokarna has recorded the highest OPM % because it is Engaged in the Granite business, they Manufactures & Exports (88%) of their products. The Companies have High-value products like Quartz surfaces, Granite tiles which offer higher OPM%. The Revenue mix of the company are as follows: Quartz Surface: 74.1% and Granite Products: 25.1% 
  • With the lowest OPM of -5.1%, Orient Bell has scored the last rank among the others.

10) Sales and Net Profit Growth- 5 Year CAGR:

Top 7 Ceramic Sector Companies- Sales and Net Profit Growth- 5 Year CAGR

Top 7 Ceramic Sector Companies- Sales and Net Profit Growth- 5 Year CAGR

  • In terms of Sales Growth in the last 5 years based on CAGR growth, Asian Granito India recorded the highest sales growth of 7.7% and hence gets first position and 7 points. Next to Asian Granito is Cera Sanitaryware and Kajaria Ceramic has recorded Sales Growth of 5.9% and 2.8% respectively. Pokarna and Orient Bell with negative sales growth of -5.6% and -2.9% get the 7th and 6th rank respectively.
  • In terms of Profit Growth in the last 5 years based on CAGR growth, Orient Bell recorded the highest profit growth of 30.4% and hence gets first position and 7 points. Next to Orient Bell is Asian Granito India and Kajaria Ceramic has recorded Sales Growth of 23.3% and 5.9% respectively. Here, Somany Ceramics gets the last rank as it has profitability growth has remained negative in the last 5 years of -20.2%.

11) Sales and Net Profit Growth- 3 Year CAGR:

Top 7 Ceramic Sector Companies- Sales and Net Profit Growth- 3 Year CAGR

Top 7 Ceramic Sector Companies- Sales and Net Profit Growth- 3 Year CAGR

  • In terms of Sales Growth in the last 3 years based on CAGR growth, Asian Granito India recorded the highest sales growth of 4.8% and hence gets first position and 7 points. Next to Asian Granito is Cera Sanitaryware and Kajaria Ceramic has recorded Sales Growth of 1% and 0.9% respectively. Pokarna and Orient Bell with negative sales growth of -4.3% and -8.1% get the 6th and 7th rank respectively.
  • In terms of Profit Growth in the last 5 years based on CAGR growth, Kajaria Ceramics recorded the highest profit growth of 9.4% and hence gets first position and 7 points. All other companies have recorded negative profitability growth in the last 3 years, wherein Somany Ceramics profitability has gone down by a massive 46.5% and hence it gets the last position.

12) Inventory Turnover Ratio:

Top 7 Ceramic Sector Companies- Inventory Turnover Ratio

Top 7 Ceramic Sector Companies- Inventory Turnover Ratio

  • Inventory turnover signifies a parameter that measures how fast the inventory is sold or consumed in the given period, the higher the better.
  • Here Orient Bell secured the 1st rank with the highest Inventory turnover of 7.27 and get full 7 points.
  • Pokarna got the last rank due to a poor Inventory turnover ratio of 2.94, hence only 1 point was given.

13) Cash Conversion Cycle:

Top 7 Ceramic Sector Companies- Cash Conversion Cycle

Top 7 Ceramic Sector Companies- Cash Conversion Cycle

  • CCC refers to the no. of days a company takes to sell its inventories and collect its receivables.
  • The shorter (even negative) the cash conversion cycle of a company is, the better it is considered and vice versa.
  • In the case of the Ceramic Sector, CCC is quite lengthy in comparison to the FMCG sector.
  • Here, Orient Bell posts a great result with a CCC of 43.6 days. The company has a CCC of 3.59 days, the lowest among the other competitors, and hence gains first position and full points.
  • The worst performer in this context is Pokarna, which has a CCC of 104 days and hence ranked 7th and given 1 point only.

14) Final Score:

Top 7 Ceramic Sector Companies- Final Score

Top 7 Ceramic Sector Companies- Final Score

  • Summing up the marks scored by the 7 Mid-Cap and Small-Cap Ceramic Sector Companies, Kajarai Ceramics outscores every other player and gets the first position with 84 points.
  • Next to Kajaria Ceramics are Cera Sanitaryware and Asian Granito India with 74 and 71 points respectively.
  • Due to poor performance in the majority of parameters, Pokarna gets the lowest score of 48 points.
  • On account of healthy scores, Kajaria Ceramics and Cera Sanitaryware appears to be strong Ceramic Companies.
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