Reduce Cera Sanitaryware Ltd For Target Rs.8,809 By Yes Securities
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Tepid topline growth, demanding valuations compel rating downgrade!
Result Synopsis
Cera Sanitaryware Ltd (CRS), reported a topline of Rs4Bn, reporting a degrowth of 7%YoY. Sanitaryware & Faucets (89% of sales) registered a decline of 6%YoY (2-year CAGR remained flattish) owing to soft demand environment. Sanitaryware (53% of sales), degrew by 7%YoY (2-year CAGR was flattish) and Faucets (36% of sales) reported a decline of 4%YoY (2-year CAGR stood at 2%). Other biz combined registered a revenue degrowth of 14% in Q1FY25. Owing to subdued topline and higher discounts, operating margins contracted to 14.5% Vs 16.4%/17.3% in Q1FY24/Q4FY24 respectively. With surplus cash on balance sheet and major capex behind, CRS has announced share buyback of up to Rs1.3Bn, which is ~9.68%/9.66% of equity share capital/free reserves respectively. Management stated that demand has started to improve & and momentum should improve from H2FY25E onwards. Company has maintained their turnover guidance of Rs29Bn by FY27E (16%CAGR over FY24-FY27E) and for FY25E, topline should grow in single digit. For rest of 9MFY25E, management is confident of maintaining 16-17% EBITDA margins. We reckon FY25E topline growth to be muted at 5%YoY, wherein sanitaryware & faucets (88% of sales) should grow by 5%YoY. With improving demand scenario, we reckon FY26E’s revenue to increase by 14%YoY and sanitaryware & faucets is likely to grow by 15%YoY. Going ahead, with healthy topline growth we expect margins to normalize to 16%/16.5% for FY25E/FY26E respectively. Moreover, higher contribution of value-added products should cushion the operating margins. We have revised our FY25E/FY26E EPS downwards by 8%/4% respectively to Rs190/Rs220 respectively. Owing to recent run-up in stock price, at CMP, the stock trades at premium P/E(x) of 45x on FY26E EPS. Hence, we have revised our rating to REDUCE.
Result Highlights
* Revenue stood at Rs4Bn, a decline of 7%YoY (Vs est of Rs4.5Bn).
* Operating margins came in at 14.5% (Vs est of 16.8%) Vs 16.4%/17.3% in Q1FY24/Q4FY24 respectively. Absolute EBITDA declined by 17.5%YoY to Rs581Mn.
* Net profit stood at Rs475Mn, a degrowth of 16%YoY
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SEBI Registration number is INZ000185632.
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