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Strong growth momentum to continue!

Our view and valuation

Cera Sanitaryware Ltd (CRS) registered a strong quarter on the back of healthy replacement demand backed by sturdy residential demand. Company’s Sanitaryware/Faucets/Tiles/Wellness segment constituted 54%/35%/10%/1% to total sales respectively during Q1FY23. Sanitaryware & Faucet’s capacity utilization for quarter stood at 109.5% & 102.6% respectively. In order to mitigate the rise in cost, CRS undertook price hike of 3% & 5% in sanitaryware & faucets respectively in May’22. Company’s EBITDA margins came in at 15.8% as compared to 19.2% in previous quarter & 9.5% in Q1FY22

Going ahead, management is confident of doubling their FY22 revenue in coming 40 months & expand their margins by 50 75bps annually. Company’s faucet capacity expanded from 2.5lakh pcs/month in March’22 to 3lakh pcs/month in July’22 & by Q1FY24 additional 1lakh pcs/month will be added which will cater the incremental growth in coming years. Additionally, CRS is in process of finalizing their greenfield capex of Sanitaryware which will be operational within 24 months from Zero date. We reckon demand for faucets and sanitaryware is likely to remain buoyant which will be led by replacement demand. Hence, we reckon CRS’s sanitaryware & faucet to report a growth of 15%/16% respectively over FY22 FY24E. Overall, we expect company’s Revenue/EBITDA/PAT to grow by 17%/19%/24% respectively over FY22 FY24. We have revised our FY23E/FY24E EPS upwards by 6.2%/7.5% respectively & continue to value the company at 30x on FY24E EPS and arrive at a target price of Rs5,516. Hence, we have assigned an ADD rating to the stock.

Result Highlights

* Revenue for the quarter stood at Rs3,972Mn (better than our estimates), reporting a growth of 78%YoY & sequential decline of 9.8%. FY20 FY23 revenue CAGR stood at 14%. In Q1FY23 company's sanitaryware and faucet segment's revenue contribution stood at 54% & 35% respectively.  

* EBITDA margins came in at 15.8% (Vs our expectations of 16%) as compared to 9.5% in Q1FY23 & 19.2% (one off event) in Q4FY22. EBITDA CAGR over FY20 FY23 stood at 22%.

* Company reported net profit of Rs399Mn as compared to Rs135Mn/Rs534Mn in Q1FY22/Q4FY22 respectively. PAT CAGR came in at 33% over FY20 FY23.

* During the quarter, company’s LLP with M/s Milo Tiles LLP has not provided financial results for June’22 & hence the same is not incorporated in CERA’s consolidated numbers. Company stated that MILO is unable to maintain the quality parameters of CERA & has stopped manufacturing operations. As the quantum of impairment of CERA’s investment in MILO is unascertainable, the company has not made any provision for the same. Management believes that impact of this matter is likely to be immaterial on company’s results.

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