Buy Cera Sanitaryware; target of Rs 250: Sushil Finance

“Cera Sanitaryware Ltd. (CSL) is a pioneer in the sanitaryware segment in India. CSL is mainly engaged in manufacturing & marketing of sanitaryware & wellness products. The company is currently expanding its existing capacities in sanitaryware from 2 mn pcs to 2.7 mn pcs to meet the increasing demand for its products. It has recently commissioned its Faucetsware Plant to manufacture faucets popularly known as CP fittings and also plans a second faucetsware plant with three times the capacity of the present one. It has a strong brand recognition and distribution network of 6000 dealers. Its Revenues have grown at a CAGR of more than 25% since last 4 years making it one of the fastest growing sanitaryware companies in India.”

“1CSL has delivered a good set of numbers in Q2FY12. It has posted net sales of Rs. 732.9 mn, registering a growth of 29% YoY. Its EBIDTA increased by 14% to Rs.117 mn, while the EBIDTA margins decreased by 200 bps to 16%. It’s APAT increased by 26% at Rs. 76.5 mn. It registered an AEPS of Rs. 6.05 during Q2FY12. During H1FY12, CSL has posted net sales of Rs. 1379.3 mn, registering a growth of 28% YoY. Its EBIDTA increased by 16% to Rs.238.3 mn, while the EBIDTA margins decreased by 190 bps to 17.3%. It’s APAT increased by 21% at Rs. 145.5 mn. It registered an AEPS of Rs. 11.5 during H1FY12. The major reason for fall in margins was due to increase in other cost. The increase in other cost was contributed mainly by high media & advertising costs. Moreover, its cost of inputs has also increased along with labour costs and the company was not able to pass on the cost increase.”

“Cera markets its other Bathware & wellness range of products consisting of shower cubicles, shower panels, steam cubicles, etc under the brand name CERA. It has also added other products like kitchen sinks, mirrors and sensor products to its range under Bathware. Most of these products are imported or outsourced, and given the strong market response, growth could further accelerate going forward. In order to expand its market reach & increase visibility, Cera has been focusing on expanding its distribution network to reach even in smaller towns and fortifying its relationship with housing developers and influencers like architects, interior designers and plumbing consultants to leverage India’s huge untapped growth potential and is confident of increasing its growth numbers significantly in the coming years.”

“Considering its performance during Q2FY12 we have tweaked our numbers slightly but have retained the top line & the bottom line. We expect its FY12 and FY13 revenues to grow 20% & 18% respectively, we expect its EBIDTA Margins to decrease by 100 bps & 30 bps in FY12E & FY13E respectively and its APAT to grow by 20.6% & 15.8% in FY12E & FY13E respectively. At the CMP of Rs.176, the stock is available at an attractive valuation of 6.3x its FY13E earnings of Rs.27.8. We retain our “BUY” Rating on the stock with the target price of Rs 250 (9x FY13E Earnings),” says Sushil Finance research report.

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