Buy Cera Sanitaryware Ltd For Target Rs.7,222 - Anand Rathi Share and Stock Brokers
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Highest quarterly revenue; retaining a Buy
With its highest quarterly revenue and good operating margins, Cera Sanitaryware’s strong performance in Q3 continues. While it continues to operate at 100%, it continues to gain market share. The ongoing expansions are on track and the B/S is robust with healthy cash generation. The higher retail share, high SKU-addition focus, price rationalisation, etc., are key positives. We retain our Buy rating, with a higher TP of Rs7,222 (earlier Rs6,820), at a PE of 33x FY25e
Highest quarterly revenue. Consistent efforts in improving efficiency, product development, higher B2C-sales focus, etc., helped revenue grow to its highest of Rs4.6bn, up 17.8% y/y. Utilisation continues at a high 105% (sanitaryware) and 115% (faucets). EBITDA expanded 19.3% y/y to Rs729m with a ~16% EBITDA margin on softening costs and low-priced gas. With a leading position in sanitaryware and second in faucets, Cera continues to gain market share while peers are struggling due to high manufacturing costs, huge Chinese imports, and a commoditised business.
Expansion update. De-bottlenecking led to faucet capacity rising to 300,000 a month in Q1 FY23. Capacity expansion of 100,000 faucets a month would be complete by FY24. Land due-diligence for the sanitaryware expansion, and gas & water approvals are ongoing, expected to be complete in 6-9 months. Capex would be via internal accruals (faucets ~Rs690m, sanitaryware ~Rs1.29bn).
Business outlook, Valuation. The guidance of higher utilisation, doubling revenue every 3.5 years and expanding the EBITDA margin 50-75bps annually were retained. Having a Just-in-Time purchase system with dealers, inventory days rose to targeted levels of 80-90 days. The B/S continue to be firm where cash & equivalents increased to Rs5.97bn (Rs5.8bn in Mar’22). We expect 18%/20% revenue/EBITDA CAGRs over FY22-25. We retain a Buy, with a TP of Rs7,222, at 33x FY25e PE. Risks: Slowdown in demand; higher input costs
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