Kajaria Ceramics: Building a Strong Foundation Amidst Market Softness

Kajaria Ceramics Limited, a leading name in India's tile industry, recently announced its financial results for the second quarter of Financial Year 2026 (Q2 FY26). The company navigated a challenging market environment, reporting a marginal 1% year-on-year growth in consolidated revenue, reaching INR 1,186.56 crores. This subdued top-line performance was primarily attributed to a soft market and the strategic closure of its plywood division. However, the quarter was marked by a significant surge in profitability, underscoring the company's robust cost optimization efforts and strategic recalibration.

The profitability metrics painted a much brighter picture. The consolidated EBITDA margin witnessed a substantial increase, climbing to 17.94% in Q2 FY26 from 13.47% in the corresponding period last year, a remarkable 447 basis point improvement. This translated into a 34% year-on-year growth in EBITDA, reaching INR 212.90 crores. Profit After Tax (PAT) also saw an impressive jump of 58%, rising to INR 132.96 crores from INR 84.27 crores in Q2 FY25. This strong bottom-line performance highlights the effectiveness of the company's internal efficiency drives.

Strategic Transformation: Kajaria 2.0

Kajaria Ceramics is embarking on a new chapter, dubbed 'Kajaria 2.0', focusing on bold transformation, fresh thinking, and renewed energy. This strategic shift is being led by the recently elevated Vice Chairman, Chetan Kajaria, and Managing Director, Rishi Kajaria. The core pillars of this transformation include delivering above-industry growth rates, achieving superior operating margins, and generating higher free cash flow.

One of the immediate impacts of this transformation is a comprehensive cost optimization journey. The company has implemented significant measures, such as reengineering packing boxes across all its plants, which is projected to yield annual savings of INR 30-35 crores. Furthermore, efforts to reduce purchase prices, optimize outsourced tile production, and streamline the workforce have resulted in the removal of approximately 250 employees. The unification of sales and purchases is also enabling better negotiations and leveraging the company's scale.

Market Penetration and Distribution Enhancement

To counter the soft market conditions and drive future growth, Kajaria has engaged a management consultant. This consultant will guide the company in identifying 'white spaces' in the market, strengthening its distribution network, and enhancing market share. The company plans to increase its number of exclusive showrooms and unify its pricing and discount structures, making it simpler for dealers to understand the entire product portfolio.

Another key initiative is the increased focus on engaging architects, interior designers, and influencers. A dedicated team of 18-20 people has been formed to foster relationships with these key decision-makers, promoting Kajaria, Kerovit, and Gresbond products. The company is also placing greater emphasis on securing government projects to drive additional volumes.

Segmental Performance and Outlook

The tile segment, which includes own manufacturing, subsidiaries, and outsourcing, remained largely flat year-on-year, contributing INR 1,051 crores to the revenue. The bathware segment, however, registered a healthy 14% growth, reaching INR 102 crores. The adhesives segment also showed strong growth, with revenue increasing to INR 32 crores from INR 18 crores in Q2 FY25. The plywood division was discontinued due to a lack of strategic fit and continued losses, reflecting management's commitment to pruning underperforming assets.

Management expressed confidence in achieving volume growth in the coming quarters, particularly in Q3 FY26 and H2 FY26, anticipating a revival in demand post the monsoon season. They also guided for full-year exports of INR 18,000 crores and indicated an increase in advertising spend in the second half of the fiscal year.

Financial Discipline and Future Outlook

Kajaria Ceramics demonstrated strong financial discipline, with working capital days reducing by 2 days to 56 days as of September 30, 2025. The company also declared an interim dividend of INR 8 per equity share for FY26, consistent with its dividend policy of paying 40-50% of its earnings. The management's focus remains on optimizing existing manufacturing capacities before considering new expansions.

The company's proactive measures, including strategic leadership changes, aggressive cost optimization, and enhanced market penetration strategies, position it well to capitalize on future demand recovery. Despite the current market softness, Kajaria Ceramics is building a resilient and efficient organization, aiming for sustained growth and superior profitability in the long term.