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Focus on premiumization leads margins expansion

We are maintaining our ‘BUY’ rating given the recent significant correction in stock price. Cera Sanitaryware (CRS) has reported decent results in the challenging weak demand scenario. However, CRS has taken price hike of 6%/1% in faucet/sanitaryware during FY25. The B2B segment showed improved momentum in the quarter, partially offsetting the slower demand in the retail space for CRS. CRS reported 5.8% growth in revenue with 130bps expansion in EBITDA margin in Q4FY25 due to cost management and operational leverage. CRS is expected to outperform the industry by 6-7%, with EBITDA margin of 15-16% by the end of FY26. The company continues to hold off on its sanitaryware expansion plans until there is an improvement in the demand environment. We estimate revenue/ EBITDA/PAT CAGR of 13.8%/13.9%/12.6% over FY25-27E. We downward revise FY26/FY27E earnings estimate by 2.4%/1.8% and reduce TP to Rs7,319 (Rs7,456 earlier), based on 30x FY27E earnings. Maintain ‘BUY’ rating.

Revenues increase by 5.8%, PAT increase by 14.0%: Revenues increase by 5.8%, YoY to Rs 5.8bn (PLe:Rs5.8bn). EBITDA increase by 13.9% YoY to Rs 1081mn (PLe: Rs848mn) and EBITDA margin expanded by ~130bps YoY to 18.6%. (PLe:14.7%) mainly due to effective cost management, enhancing operational efficiency. PBT increase by 11.5% YoY to Rs 1110mn (PLe:Rs891mn). PAT increase by 14.0% YoY to Rs863mn (PLe:Rs677mn). Net Working Capital increases from 60 to 80days. Cash and cash equivalent stood at Rs 7.2bn.

Con call highlights: 1) The company aims to outperform the industry by 6-7% and reach its revenue target of Rs 29bn by Mar'27, depending on demand recovery in the retail market, but for FY26 margins is expected to be in the range of 15-16%. 2) Capacity utilization for the sanitary and faucet segments was 90% and 95%, respectively, in Q4FY25. 3) CERA has established a dedicated team, led by Mr. Ramesh Baliga (CBO) Chief Business Officer, to drive the Senator brand as an independent premium retail line, while also partnering with the Spectacle of Architecture and Interior Designing to strengthen its presence in metro markets. 4) Senator and Luxe will contribute 10% to the topline by FY27 i.e. Rs 290-300mn. 5) B2B contribution rose to 40% of sales vs 35% in Q4FY25 and expecting good project demand in future. 6) Tier1/Tier2/Tier3 Cities contributed 35%/21%/44% of total sales in Q4FY25 7) 42% of total sales came from premium category, 35% from mid-category and 23% from entry-level category in Q3FY25. 8) CERA expanded its product range with 431 new SKUs and strengthened its market presence with 342 new stores, including 17 Senator stores and 4 company-owned experience centers in FY25. 9) Gas prices from GAIL increased by 1.2% YoY to Rs 28.7/SCM, while Sabarmati prices rose by Rs 8.8% YoY to Rs 55.6/SCM, with a supply mix of 73:27 in Q4FY25. 10) The advertising was spent at Rs 130mn in Q4FY25 vs Rs 154mn in Q4FY24. 11) 24,400 retailers enrolled in retailer loyalty program. 12) The company invested Rs 230mn in capex for FY25 and plans to invest Rs 240mn in FY26, focusing on routine investments, brand development, and implementing systems for 150-200 dealers to enhance billing transparency and operational accountability.

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