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Steady state quarter; maintains growth guidance

Cera’s sales grew by 12% YoY to record its highest second quarterly sales of Rs4.6bn. 1H is seasonally a slow period for the company contributing ~45% to the annual sales. Sanitaryware/Faucetware grew by 4/16% YoY contributing 51/36% respectively. New products contributed 29% (in-line to 1QFY24). Gross margins declined by 300bps YoY (-200bps QoQ) at 52.9%. EBITDA margins, however improved marginally by 20bps YoY to 16.5%. For 1HFY24, sales/EBITDA/PAT grew by 10/12/25% with EBITDAM improvement of 40bps to 16.5%. 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 roll forward to FY26 and revise our FY25 EPS estimates by +1% and maintain Buy rating on the stock with new TP of Rs10,886 valuing at 40x (earlier 38x) 1HFY26E EPS. We increase our TM given the consistency in its operating performance.

Continues to grow and expand margins as guided

Cera grew its sales by 18/25% in FY22/FY23. 1H growth stood at 10% due to seasonality and some moderation in demand in tier 2/3 towns led by persistent inflation. 2H usually contributes ~55% 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 2Q) 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 0.22mn invoices uploaded by over 16,500 retailers. It isfirst 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 has come on stream in September’23 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 FY23-26E. 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 (in-line to 1Q) which used to be in the range of 20-25% in last 2-3 years. Cera launched 1000 new products over the last 3 years.

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 17.7% in FY26. We roll forward to FY26 and revise our FY25 EPS estimates by +1% and maintain Buy rating on the stock with new TP of Rs10,886 valuing at 40x (earlier 38x) 1HFY26E EPS

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