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Cera’s sales grew by 8% YoY to record its highest first quarterly sales of Rs4.3bn. 1Q is seasonally a slow quarter for the company contributing 18-20% to the annual sales. Sanitaryware/Faucetware grew by 7/8% YoY contributing 53/35% respectively. New products contributed 29% (v. 34% in 4QFY23). Gross margins improved 130bps YoY (+140bps QoQ) at 54.8%. EBITDA margins inclined by 60bps YoY and stood flat QoQ at 16.4%. We maintain our bullish stance on Cera on account of sustained growth in real estate market, market leadership of Cera and strong balance sheet. We revise our FY25 EPS estimates by +2% and maintain Buy rating on the stock with new TP of Rs9,317 valuing at 38x (earlier 35x) FY25E EPS. We increase our target multiple given the consistency in its growth and operating performance.

Continues to grow and expand margins as guided

Cera grew its sales by 18/25% in FY22/FY23. 1Q growth stood at 8% due to seasonality. 2H usually contributes 62-64% to total sales. Management remains confident of growing by 17-19% in FY24. This is led by 3 key factors – better product availability, higher contribution (29% in 1Q) from new products compared to industry average of 10% and Cera's Retail Loyalty Program. This program has completed more than a year of operation registering over 0.185mn invoices uploaded by over 15,300 retailers. It is first such program in the industry that is helping Cera improve stickiness with the retailers. Cera has now commenced similar loyalty program for plumbers.

Capacity expansion on track

The brownfield faucetware capacity will come on stream this month and will reach at peak production (4L pcs/mo) by end of FY24. Management expects to clock peak sales of Rs2.5bn from this facility giving an asset turn of 4x+. Apart from this, Cera is doing Greenfield expansion in Sanitaryware with addition of 12L pieces per month over existing base of 25L. Cera is in final process of land acquisition in GJ and total deeds are expected to be executed in next three months. We believe this capacity will add to the sales by start of FY26 and will add Rs3.3bn to sales at peak.

Maintain guidance of doubling of sales in 3.5 years

Given the robust demand, management maintains its guidance of doubling the sales over FY22-1HFY26. Growth momentum is expected to continue with CAGR sales growth expectation of 17-19% over FY23-25E. The growth will be further aided by increasing contribution from new products (launched within last 3 years) and possible market share gains. Cera achieved higher contribution of 29% from its new products in this quarter (vs 34% QoQ) which used to be in the range of 20-25% in last 2-3 years. Cera launched 699 new products in FY23 vs. historical average of 75-100. Company will be focused to increase penetration of these newly launched products in FY24.

Valuations remain attractive

We expect Cera’s sales/EBITDA/PAT to grow at CAGR of 17/19/21% respectively over FY23- 25E and EBITDA margins to expand from 16.2% in FY23 to 17% in FY25. Healthy momentum in real estate cycle and strong replacement demand should drive the growth momentum for Cera. We revise our FY25 EPS estimates by +2% and maintain Buy rating on the stock with new TP of Rs9,317 valuing at 38x (earlier 35x) FY25E EPS.

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