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Result Synopsis

Cera Sanitaryware Ltd (CRS) reported better than expected revenue but margins remained under-pressure owing to higher input cost and elevated other expenses. Revenue stood at Rs4.93Bn, a growth of 6%YoY (2-year CAGR stood at 9%) wherein major growth was driven by faucets biz which reported a growth of 21%YoY (2-year CAGR came in at 19%) constituting 41% of sales Vs 36% in Q2FY24. Sanitaryware biz constituted 46% of revenue Vs 51% in Q2FY24 and registered a degrowth of 4%YoY (2-year CAGR remained flattish). Input cost for the quarter was higher due to rise in brass cost which kept EBITDA margins under pressure at 14.6% Vs 16.5%/14.5% in Q2FY24/Q1FY25 respectively. Moreover, margins were dented owing to higher other expenses. Though the company took price hike of 6% in faucets & 1% in sanitaryware, the same was implemented in Sep’24 and company will reap benefits from coming quarters.

Management Guidance

Management reiterated their long-term guidance of achieving Rs29Bn turnover by Mar’27. For FY25, company aims to report a high-single digit growth. Also, on the back of price-hikes and better product-mix, management expects margins should normalize to 16%-17% in H2YF25. Though the new sanitaryware plant has been deferred and start date will be re-visited post March’25, company does not foresee any impact on growth as sanitaryware plant can operate at 120% utilization levels.  

Our View

Though CRS’ revenue in Q2FY25 was above our estimates, H1FY25’s topline remained flattish on YoY basis. Hence, we have largely maintained our revenue growth estimate for FY25 but owing to contraction in operating margins during H1FY25, we have revised our EBITDA margins downwards from 16%/16.5% to 14.8%/15.5% in FY25E/FY26E respectively. However, owing to lower tax rates in H1FY25, our EPS estimate has been downgraded by a mere 1%/3% for FY25E/FY26E respectively. Going ahead, we reckon demand for Sanitaryware & Faucets to improve from hereon with expected pick-up in demand from retail segment along with higher demand from project business. Hence, we expect Revenue/EBITDA/PAT growth of 11%/9%/8% respectively over FY24-FY27E. Notably, company Revenue/EBITDA/PAT grew by 14%/15%/26% over FY22-FY24. At CMP, the stock trades at P/E(x) of 32x/29x on FY26E/FY27E EPS of Rs214/Rs235 respectively. We have re-valued the company at P/E(x) of 35x on FY27E EPS, owing to slower growth Vs past 2-years, arriving at a target price of Rs8,224. Hence, we upgrade the stock to BUY. 

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