Buy Cera Sanitaryware Ltd For Target Rs.7,429 by Prabhudas Liladhar Capital Ltd
Retail Recovery, Price Hikes and Premiumization
We attended CERA Sanitaryware's (CRS) management meet, where the management highlighted sustained recovery in retail demand since Q3FY26 and expects the momentum to continue into Q1FY27 alongside healthy project demand. The company expects to benefit from ongoing disruptions in the Morbi cluster due to labor and infrastructure challenges, enabling market share gains supported by adequate inventory, stronger in-house manufacturing capabilities and stable supply availability. The management reiterated FY27 guidance of ~12% sanitaryware growth, ~18% faucetware growth and EBITDA margin of 13.5%-14%, while indicating that recent price hikes of ~12% in sanitaryware and ~16% in faucetware have been fully absorbed by the market. Growth initiatives remain focused on deeper penetration in existing markets, expansion in underpenetrated states, scaling up premium brand Senator and polymer faucet solutions brand Polypluz, and improving manufacturing efficiencies through higher utilization and lower rejection rates. Overall, the management remains confident of delivering healthy growth, supported by favorable industry dynamics, market share gains, premiumization and distribution expansion initiatives.
We estimate revenue/EBITDA/PAT CAGR of 16.3%/20.9%/24.1% over FY26-28E. Maintained ‘BUY’ rating with TP of INR7,429, based on 30x Mar’28 earnings.
Key Takeaways:
FY27 Guidance and Growth Strategy:
The management has guided for FY27 revenue growth of 18–20%, supported by ~12% growth in the sanitaryware segment (6-7% volume growth and 5–6% price-led growth) and ~18% growth in faucetware (10–11% volume growth and ~8% price impact).
* In addition, the newly launched brands Senator and Polypluz are expected to contribute INR700–800mn to revenue, while the tiles segment is projected to contribute INR2.5bn to the topline in FY27.
* The management expects overall EBITDA margin to remain in the range of 13.5%– 14% for FY27. The key focus in FY27 will be on accelerating topline growth while maintaining margin discipline.
* Growth initiatives are centered around deeper penetration in existing strong markets and expanding distribution in under-penetrated states such as West Bengal, Bihar, Jharkhand, Odisha and Madhya Pradesh. The company is also rationalizing channel density in over-served markets while expanding its sub-dealer and retailer network in rural and semi-urban regions along with increase in advertisement expenses from INR490mn in FY26 to INR850mn in FY27.
Retail Demand Recovery Sustaining:
The management highlighted that retail demand has started recovering after prolonged sluggishness during FY24-25. The recovery became visible from Q3-Q4FY26 and has continued into Q1FY27 despite inflationary pressures. The company expects demand momentum to sustain through FY27. While project demand has remained healthy over the last few quarters, retail demand is now contributing meaningfully, resulting in a balanced growth profile across channels.
Benefiting from Morbi Industry Disruptions:
CRS continues to gain market share amid ongoing operational challenges faced by manufacturers in Morbi. Higher gas costs, labor shortages and infrastructure-related disruptions have constrained production in the region, particularly in sanitaryware. The management believes these issues will persist through Q2FY27. But CRS is relatively better positioned due to stable gas availability, better labor access, improved manufacturing efficiencies and the ability to internalize production of several SKUs. The company had proactively built inventory during Mar’26 and has been able to service demand without any supply-side issues, enabling it to capitalize on market opportunities arising from Morbi disruptions.
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SEBI Registration No. INH000000271
