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Revenue target of Rs29Bn deferred by 1.5 years!

Result Synopsis

Cera Sanitaryware Ltd (CERA), registered a subdued revenue growth of 3%YoY owing to sluggish demand scenario. Sanitaryware/Faucets constituted 51%/38% of revenue respectively. Sanitaryware revenue remained flattish on a YoY basis and grew by 23%QoQ (2-year CAGR stood at 8%). Faucets revenue increased by 12%YoY & 32%QoQ (2-year CAGR stood at 20%). Other segments representing 11% of revenue, displayed a decline of 6%YoY. Premium/Mid/Entry level constituted 41%/35%/24% in Q4FY24 respectively. Gross margins contracted in Q4FY24 on account of higher discounts offered to push volumes however, cost optimization and rationalizing spends on publicity enabled the company to expand operating margins. CERA’s cash & cash equivalents stood at Rs8.14Bn as of March’24 Vs Rs6.61Bn in March’23. Management revised their guidance of achieving Rs29Bn turnover to FY27E (implying a CAGR of 16%) from earlier target of achieving the same by September’2025. The sluggishness in demand is expected to continue in Q1FY25E as well, and management believes that key reasons for slowdown are (i) ongoing elections, (ii) heatwave across nation, and (iii) shortage of labor. However, CERA is confident that demand should regain traction from Q2FY25E onwards. We believe that the company’s topline should grow by 11%CAGR wherein Sanitaryware/Faucets are expected to grow by 11%/13% respectively over FY24- FY26E. Though in near-term demand will be lackluster, with surge in real-estate industry, demand is bound to regain traction over mid to long-term. Moreover, with company’s focus on luxury segment and plans to expand their market presence in said segment; overall bathware biz is likely to increase by 12%CAGR over FY24-FY26E. We reckon EBITDA margins should remain at 16.5% over next 2-years. The new sanitaryware plant (for which the complete land acquisition is expected to be done by June’24) will be operational in 18-20 months from 0-date, hence we expect this project will have meaningful impact only from FY27E onwards. At CMP, the stock trades at P/E(x) of 30x on FY26E EPS of Rs229 (revised downwards by 5%) & we continue to value the company at 35x on FY26E EPS, arriving at a target price of Rs8,026. Hence, we UPGRADE the stock to ADD

Result Highlights

* Revenue for the quarter stood at Rs5.48Bn, a growth of 3%YoY & 25%QoQ (2- year CAGR stood at 12%).

* EBITDA margins came in at 17.3% Vs 16.4%/14.0% in Q4FY23/Q3FY24, respectively. Absolute EBITDA stood at Rs950Mn, a growth of 9%YoY & 55%QoQ.

* Net profit stood at Rs757Mn, a growth of 20%YoY & 47%QoQ.

* Cash on books including current investments stood at Rs8.14Bn.

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