Emkay Global Financial Services has reaffirmed its BUY recommendation on Kajaria Ceramics, maintaining its 12-month target price of INR 1,550, despite the recent disclosure of an INR 20 crore fraud at a step-down subsidiary. The brokerage continues to see over 61% upside potential from the CMP of INR 961 per share, citing strong core fundamentals, improving margins, robust cash flows, and limited balance-sheet impact from the incident.
The coverage update positions the fraud as a one-off exceptional event, not a structural break in Kajaria’s investment thesis.
Coverage View on Kajaria Ceramics: No Change to Core Investment Thesis
Emkay’s coverage stance is clear:
- FY27–FY28 earnings estimates remain unchanged
- Target multiple of 42x is retained, in line with the company’s long-term average
- Exceptional loss to be absorbed in FY26, with no spillover impact
According to the brokerage, the incident does not alter Kajaria’s long-term growth, return profile, or balance-sheet strength.
Fraud Event: Assessed as Isolated and Financially Contained
The fraud occurred at Kerovit Global, a recently incorporated step-down subsidiary focused on premium sanitaryware manufacturing. Emkay highlights that:
- Kerovit contributed ~0.2% of consolidated FY25 revenue
- The INR 20 crore fraud equals ~13% of Kerovit’s FY25 assets, but is immaterial at the group level
- Only INR 60 lakh has been recovered so far; the net loss of ~INR 19.4 crore will be booked as an exceptional item in H2FY26
From a coverage perspective, Emkay does not see this event impacting Kajaria’s:
- Cash flow generation
- Capital allocation plans
- Dividend policy
- Medium-term return ratios
Governance Angle: Detection Strengthens, Not Weakens, the Coverage Case
A key element of Emkay’s continued conviction is how the fraud was detected.
The brokerage notes that the misappropriation came to light during internal MIS and vendor-onboarding audits—systems that Kajaria has been upgrading over the past 1–2 years. These upgrades include:
- Automated vendor onboarding
- Reduced manual intervention in approvals
- Centralized MIS audits across entities
Emkay views this as evidence of improving governance infrastructure, rather than systemic failure. The brokerage explicitly states that detection through internal controls reduces the probability of repeat incidents over the medium term.
Management Actions Support Coverage Confidence
Emkay’s coverage on Kajaria Ceramics also factors in management’s response:
- Immediate termination of the concerned subsidiary CFO
- Filing of a police complaint with the Economic Offences Wing
- Strengthening of internal controls across subsidiaries
- Forensic audit option kept open
The brokerage characterizes management’s handling as decisive and transparent, reinforcing confidence in oversight mechanisms.
Financial Outlook: Earnings and Margins Drive the Rating
Emkay’s BUY rating continues to be anchored in Kajaria Ceramics’s operating outlook:
- Revenue expected to grow from INR 4,640 crore (FY25) to ~INR 5,800 crore by FY28
- EBITDA margins projected to expand from 13.5% to ~17.5%
- FY26 adjusted EPS expected to grow over 46% YoY
- Net cash position to strengthen further
Additionally, the brokerage highlights INR 150 crore in annualised cost savings from group-wide unification and efficiency initiatives implemented since April 2024.
Valuation Framework: Premium Retained in Coverage
Despite near-term noise, Emkay has retained its valuation framework:
- FY26E P/E: ~34x
- Target multiple: 42x, aligned with 10-year historical average
- Target price: INR 1,550
The brokerage justifies the premium on the basis of:
- Market leadership in tiles
- Strong free cash flow visibility
- Negative net debt
- Structural demand from housing and renovation
Conclusion
In Emkay’s coverage assessment, the Kerovit incident is a near-term exception, not a thesis-changing event. With earnings visibility intact, margins improving, and balance-sheet strength undiminished, the brokerage continues to see the recent correction as an opportunity rather than a warning signal.
BUY retained. Target price unchanged at INR 1,550. Upside remains above 60%.
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