Top Conviction Ideas : Buy Cera Sanitaryware Ltd for Target Rs. 7,900 - Axis Securities Ltd
Recommendation Rationale
* Operational Performance: Cera’s retail segment showed sluggish demand, with a flat YoY growth for Q2FY26. The overall topline contribution for sanitaryware and faucetware was 47% and 40%, respectively. The Project business contributed to 39% of the topline and maintained a healthy momentum. Wellness/Tiles reported a 10%/(34%) growth YoY. Sales from premium products contributed 42%, 36% for mid-segment and 22% for entry-level products. Tier 3 cities contributed the highest to the sales with 41%, while Tier 1/Tier 2 contributed 36%/23% of sales. Capacity utilizations stand at 85% for Sanitaryware and 97% for faucetware for the quarter. Management has guided towards an optimistic H2FY26 with a 10-12% topline growth and a 7-8% growth for the full year FY26.
* Premium Brands – Senator and Polipluz: Cera’s new premium brands, Senator and PoliPluz, are key growth drivers aimed at strengthening its presence in the high-end segment. Together, they are expected to contribute Rs 40–45 Cr in sales during H2FY26, with a target of around Rs 150 Cr in FY27. Both brands are expected to enjoy superior margins — Senator at about 22% and PoliPluz at around 25% — supported by differentiated design and a focused retail push. The company plans to invest Rs 10–12 Cr this year in showrooms, influencer campaigns, and branding to build strong visibility and customer recall in the premium category.
* Cost Discipline and Margin Focus: Cera maintained strong operational efficiency during the quarter, effectively managing expenses despite increasing input prices, especially in brass. Gas stood at 3.6% of revenues, with 80% being procured from Gail and the rest from Sabarmati. Management expects margins to stay healthy in the 14.5–15% range for FY26, supported by steady realisations and efficiency gains. In the faucetware segment, growth was modest in Q2 due to a high base and softer retail sentiment, but demand is expected to recover in H2 with festive and housing-related pickup. The company continues to focus on improving product mix, maintaining price discipline, and leveraging operational efficiencies to sustain profitability even in a cautious demand environment.
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