A person tracking stock movement on the Bloomberg terminal in Mumbai. (Photographer: Anirudh Saligrama/BloombergQuint)

BQEdge | Who Is Playing Villain For Zee Entertainment’s Stock?

BQEdge is specially curated for BQBlue subscribers. Every day this note will offer special equity market and stock-specific insights and flag select emerging trends in the tricky-to-trade derivatives market.

Today’s Edition

  • Why Zee Entertainment’s strong third-quarter earnings has failed to lift its stock price
  • Will Kajaria Ceramics see an earnings upgrade?

Watch | The Fault In Zee Entertainment’s Charts

Kajaria Ceramics On A Strong Footing

Kajaria Ceramics Ltd., India’s largest tile manufacturer, is a likely candidate for an earnings upgrade by analysts. The company uses gas as a source of energy to manufacture ceramic tiles. The gas price is based on a three-month average crude price.

Kajaria sources gas from Gujarat Gas Ltd. and GAIL (India) Ltd. – and both suppliers have on average cut gas prices for January 2019 by close to 15 percent to Rs 28-30 per standard cubic meter, according to information shared by gas distributors and tile companies with BloombergQuint. This is expected to have a beneficial impact on Kajaria’s profit margin.

Earlier, when crude prices were on the rise, analysts tracked by Bloomberg made several downward revisions to their FY19 and FY20 margin estimates for Kajaria. In fact, in the last one year, analysts have cut their Ebitda margin estimates for both years by 400 basis points to factor in these higher crude-linked costs.

Now a case can be made for an upward revision in margin estimates.

Also, with crude prices currently in the range of $55-60 per barrel, gas prices are expected to further fall in the coming months. Sanjeev Singh of Emkay Broking expects prices to fall by another 7-8 percent for tile makers in February 2019 if crude prices remain at current levels.

This will bode well for Kajaria Ceramics – whose share price dropped 33 percent in 2018 – its worst yearly drop in over a decade.