Buy Cera Sanitaryware; target of Rs 9899: Anand Rathi

Anand Rathi's research report on Cera Sanitaryware

Cera Sanitaryware’s H1 remained soft as revenue was flat at Rs8.9bn. EBITDA declined 11.4% y/y, while PAT inched up 1.7% y/y to Rs1.2bn. Demand was subdued in H1, led by heatwaves in some regions, slowdown due to general elections in Q1 and prolonged rains in Q2. Input cost pressure hurt the gross margin, which fell 21bps y/y to 53.6%. Operating de-leverage hurt the EBITDA margin, which dipped 190bps y/y to 14.6%.

Outlook

We expect 10%/13%/10% revenue/EBITDA/PAT CAGRs during FY24-27. Though the growth rate seems lower, the lean balance sheet with Rs7.9bn net cash surplus in FY24 (surplus of Rs11.9bn likely by FY27, despite capex of Rs1.7bn) made us retain our Buy rating, with a 12-mth TP of Rs9,899, 40.6x FY27e earnings (earlier Rs8,740, 35x FY26e earnings).