Kajaria Ceramics flags fraud at bathware arm; brokerages see limited impact

Kajaria Ceramics has reported a vendor-related fraud of about ₹20 crore at its bathware subsidiary chain, identified during a system upgrade and capital work-in-progress (CWIP) reconciliation at its step-down subsidiary Kerovit Global. According to  PL Capital, the incident involves alleged embezzlement and fund siphoning by Dilip Kumar Maliwal, CFO of Kajaria Bathware, a wholly owned subsidiary of Kajaria Ceramics.

 

Kerovit Global is a subsidiary of Kajaria Bathware, which itself is a step-down subsidiary of Kajaria Ceramics. 

 

Kajaria Ceramics has terminated the concerned executive, filed a police complaint, initiated recovery efforts, and indicated it may commission a forensic review. The estimated exposure of around ₹20 crore will be recognised as an exceptional item in FY26, with about ₹0.6 crore already recovered.

 

PL Capital has termed the episode a near-term governance negative, but with limited impact on core earnings, and has maintained its ‘Hold’ rating, while cutting the target price to ₹1,083 per share from ₹1,288. 

 

“We expect revenue/Ebitda/PAT compound annual growth rate (CAGR) of 6.8 per cent/15.3 per cent/20.7 per cent over FY25-28E,” the brokerage said. Ebitda refers to Earnings before interest, tax, depreciation and amortisation. 

 

Meanwhile, Motilal Oswal Financial Services has maintained ‘Buy’ with an unchanged target of ₹1,252, based on 30x Sep'27E earnings per share (EPS).

 

“In the current soft demand scenario and intense competition from organised brands and Morbi-based players, we believe that sustaining Ebitda margins of more than 18 per cent will be a tall task for Kajaria Ceramics. However, medium to long-term outlook remains optimistic,” Motilal Oswal said.

How was the fraud detected?

Kajaria Ceramics recently rolled out a structured digital vendor onboarding framework across the parent and subsidiaries, supported by a third-party platform. Under this system, vendors submit goods and services tax (GST), PAN and bank details through a secure link, which are digitally validated, and any discrepancy halts further transactions.

 

During this extended vendor validation and CWIP reconciliation at Kerovit Global, inconsistencies were flagged. Management found that capex, though completed, continued to be shown as CWIP – CWIP stood at ₹6 crore in FY25 and increased to ₹14 crore in M9FY26, aggregating to ₹20 crore. The vendor in question had been associated with Kajaria for nearly eight years, but the fraudulent activity is believed to have occurred over the past two years.

 

Payments made by Kerovit to a vendor entity effectively resulted in self-payments linked to the CFO, under the misrepresentation that they were towards plant and machinery procurement. The company has filed a formal complaint with local police, and investigations are underway. No depreciation was charged on the amount, as it remained classified under CWIP.

Governance response and control strengthening

The company has indicated that the matter will be placed before the appropriate Board Committee to review the incident and further strengthen internal controls. Management is considering a forensic audit, alongside re-verification and additional reviews to prevent recurrence.

  

Disclaimer: View and outlook shared on the stock belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.