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Steady performance to continue, assign NEUTRAL!

Result Synopsis

Cera Sanitaryware Ltd (CRS) registered a steady performance in Q2FY24 wherein revenue grew by 11.5%YoY & 8%QoQ to Rs4.63Bn. Gross margin contracted sequentially by 296bps & 197bps YoY to 52.9%. However, due to lower employee cost & other expenses EBITDA margin remained steady at 16.5% as compared to 16.3%/16.4% in Q2FY23/Q1FY24 respectively. Sanitaryware sales (51% of revenue) grew by 5.3%YoY & 4%QoQ to Rs2.36Bn (5-year CAGR came in at 8%), faucet sales (36% of revenue) registered a growth of 18%YoY & 11.2%QoQ to Rs1.67Bn (5-year CAGR came in at 22%). Other segment revenue stood at Rs603mn, a growth of 21% YoY & 17% QoQ. Mix of Entry/Medium/Premium segment stood at 25%/32%/43% respectively during the quarter. Sanitaryware & Faucets plant operated at 91% & 122% respectively.

Company has expanded its faucet capacity to 4lac pcs/month from 3lac pcs/month during the quarter. For new Sanitaryware unit, title deed would be executed in next 1-2 months and unit will be commissioning in 24 months from 0-date. Management expects sanitaryware segment to grow by 12-17%YoY & has guided overall revenue growth of 19-25%CAGR for medium-term.

Overall, we remain positive on Cera’s growth trajectory, given the healthy industry tailwinds & strong presence in Tier II & III towns (which account for ~66% of revenue). Moreover, company's wide product offering & constant innovation will enable Cera to expand the share of premium products to its overall revenue. Thus, we expect topline to grow by 13%CAGR over FY23-25E with marginal improvement in its margins to 16.5%/17% in FY24E/FY25E respectively. Consequently, EBITDA/PAT is likely to grow by 16%/20% CAGR over FY23-25E. Cera continues to maintain a robust balance sheet with healthy cash balance of Rs7.51Bn as on Sep'23 & the same is likely to strengthen as we expect company to generate FCF of Rs4Bn over FY24-FY25E. At, CMP stock trades at P/E(x) of 41x/35x on FY24E/FY25E EPS of Rs 197/Rs233 respectively. We continue to value the company at P/E(x) of 35x on FY25E EPS, arriving at a target price of Rs8,139, assigning a NEUTRAL rating.

Result Highlight

* Consol revenue stood at Rs4.63bn (our est of Rs4.49bn), registering a growth of 12%YoY & 8%QoQ.

* EBITDA Margin came in at 16.5% (our est 16.5%) as compared to 16.3%/16.4% in Q2FY23/Q1FY24 respectively.

* Net Profit increased by 12%YoY & remained flat QoQ to Rs574Mn.

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