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We recently interacted with the management of Cera Sanitaryware (CRS). Following are the key takeaways: 1) Demand scenario remains healthy for core categories of sanitaryware and faucetware with both being driven by residential housing and home improvement markets primarily from tier 2 and below cities. The company indicated it is on track to achieve its guidance of doubling revenues in 40 months (starting FY22). 2) CRS has taken no price hikes across segments in Q4FY23 and does not foresee any adverse pressure on margins as raw material cost remains benign QoQ. 3) Brownfield expansion of faucetware facility is on track to commence production from Q2FY24 and will be a major growth driver for the company going ahead. We expect CRS to be a significant beneficiary of the ongoing uptick in housing market and modelrevenue/PAT CAGR of 16.6%/24.6%, respectively, over FY22-25E led by faucetware and sanitaryware segments with continuous high return ratios. Maintain estimates with an unchanged Mar’24E target price of Rs6,746, set at 32x PER (in line with 1-yr forward, five-year average PER).

* Demand for faucetware and sanitaryware remains healthy: As per our interaction with the management, demand for faucetware and sanitaryware remained steady in Q4 with tier-2 and below markets continuing to drive growth for the company. The drivers of this demand have been the uptick in housing market and continuous demand from home improvement market. As per the management, the recent increase in A&P spend due to hiring of two celebrities (Kiara Advani and Vijay Deverakonda) has further enabled CRS to get higher brand recall and increase customer conversions. Management expects demand trends to remain healthy going ahead too as underlying drivers remain intact. CRS management indicated it is on track to achieve its guidance of doubling turnover in 40 months (from FY22) aided primarily by growth in sanitaryware and faucetware segments. We have modelled revenue CAGR of 16.6% over FY22-25E.

* Margins to remain steady at ~16%: CRS has taken no price hikes across segments in the ongoing quarter (Q4FY23) as raw material cost remains benign QoQ and does not foresee any pressure on margins. Management indicated current margins of ~16% are sustainable going ahead, too, led by operating leverage and improved product mix. We have modelled operating margins of ~16.2% over FY22-25E (vs reported average margin of ~15% over FY12-FY22).

* Valuations and view: We continue to like CRS due to its net cash balance sheet, wide distribution, strong brand and comprehensive product portfolio which would position it well to deliver high growth led by the ongoing uptick in housing market. Maintain estimates and ADD rating on the stock with an unchanged Mar’24 target price of Rs6,746. Key risks to our call: 1) Slowdown in demand from housing market, 2) continuous higher input prices, which may dent demand / profitability.

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