Kajaria Ceramics set to benefit from new housing policy

MUMBAI: Kajaria Ceramics is set to gain from the new housing policy which has now been now broadened to include middle income (MIG) segment says a March 2017 HSBC Global research report.
The Ministry of Housing and Urban Poverty Alleviation (MHUPA) has broadened the affordable housing policy and now households with income up to INR 18 lakh are also eligible for government subsidies for home loans under the Credit linked Subsidy Scheme (CLSS).

"We calculate this could reduce the purchase price by 2% to 21% and higher benefits will accrue with reducing ticket size. The overall benefits for the buyer could be even higher considering the earlier budget announcements relating to supply-side incentives which are likely to be passed on," the HSBC report said.

Demand in tier II and tier III cities will be more responsive to the new policy. Tier II/tier III cities have a lower housing ticket size due to cheaper land and lower construction costs on the one hand and a higher number of households qualify the set income criteria which will result in higher participation versus metropolitan cities.

Organised tile players derive 70-75% of revenues from tier II/tier III cities and a large part of residential demand is individual house building, which has a much shorter construction period than developer projects; hence, the benefit to Kajaria could flow relatively more quickly.

"Our sensitivity analysis suggests a 10% beat on current volume growth assumptions for tier II/tier III cities in FY19 could result in 8% higher overall volume growth for Kajaria Ceramics," the report said.

Kajaria Ceramics is India's largest tile manufacturer with a 10% market share in a fragmented industry. It commands a 5-6% brand premium over its closest rivals. The introduction of the GST in FY18 leading to market share gains, residential projects approaching completion and government-led housing programmes should drive volume growth, while low gas prices and a richer product mix should support margins. Structural drivers, such as urbanisation and rising disposable income too should favour the growth outlook, it said.