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Cera Sanitaryware
Performance highlights
Y/E March (` cr) Total operating income Operating profit OPM (%) Adj. PAT
Source: Company, Angel Research
BUY
CMP Target Price
% chg (qoq) 23.4 1.3 (287)bp 16.7 4QFY12 100 16 15.9 9 % chg (yoy) 57.6 30.1 (278)bp 50.3
`447 `562
12 Months
Investment Period
Stock Info Sector Market Cap (` cr) Net debt Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Ceramic products 565 13 0.3 478 / 236 7,885 5 19,287 5,871 CERA.BO CRS.IN
Cera Sanitaryware (CSL) reported a strong set of numbers for 4QFY2013. The top-line surged by 57.6% yoy to `158cr, 21.5% higher than our expectation of `130cr. The EBITDA grew by 30.1% yoy to `20.8cr, in line with our estimate of `20.7cr. The EBITDA margin dipped by 278bp yoy and came in at 13.1% mainly due to the rise in raw material cost. Net profit grew by 50.7% yoy to `14cr on account of higher other income and a lower tax expense for the quarter.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 55.5 5.0 13.0 26.5
3m (4.1) 5.8
1yr 12.6
3yr 8.7
69.3 258.8
FY2011 243 27.0 27 38.4 18.8 21.7 20.6 5.1 27.4 25.6 2.3 12.1
FY2012 319 31.5 32 16.7 16.7 25.3 17.6 4.1 25.5 23.2 1.8 10.8
FY2013 488 52.7 46 44.3 15.4 36.5 12.2 3.1 29.0 26.7 1.2 7.7
FY2014E 630 29.1 54 17.1 14.4 42.8 10.4 2.5 26.6 25.6 0.9 6.1
FY2015E 795 26.2 65 19.5 13.6 51.1 8.7 2.0 25.2 25.0 0.7 5.1
158
79
128
54
23.4
45.7 9.9 9.0 27.6
100
39
57.6
100.4 30.9 29.5 62.8
488
214
321
124
52.2
72.4
50.0
16
42.3
15
39.3
12
43.8
58
38.7
43
52.2
36.3 39.8 54.4
10.2
42
11.5
39
12.3
33
11.9
141
13.3
101
26.7
137
30.2
108
32.5
84
28.8
413
31.4
267
21
13.1
20
16.0
1.3
(287)bp
16
15.9
30.1
(278)bp
75
15.4
53
16.7
40.9
(123)bp
2
3
2
3
9.3
4.5
1
2
88.5
23.6
7
9
4
8
85.3
20.6
4
20
2
18
87.5
9.6 (4.9) 16.7
2
15
94.3
34.9 7.6 50.3
9
68
7
49
31.6
39.4 28.3 45.3
12.4
6
14.0
6
14.5
5
13.9
22
15.2
17
28.8
14
33.2
12
36.1
9
31.9
46
34.6
32
8.8
9.3
9.3
9.5
9.9
158
128
( ` cr)
16
111
( ` cr)
(%)
100
91
12
75
73
60 40 20 0
82
65
20 10 0
6 3 0
4QFY11
1QFY12
2QFY12
12
12
30
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
Revenue (LHS)
EBITDA (LHS)
Investment arguments
Companys emphasized focus on marketing and high brand visibility
Owing to continuous marketing activities, that has led to greater visibility of the Cera brand, the advertisement cost for the company has been consistently moving northwards. Marketing expenses constitute around 16% of the net sales and have grown at a 36% CAGR over FY2008-12.
4QFY13
55
(` cr)
30 20 10 0
25 19.3 15 5 -5
Commssion
% change yoy
CSL intends to widen its reach by opening more retail formats of Cera Style Galleries which display the complete range of Cera products. Moreover, CSL had a massive media campaign during the launch of its new re-designed logo by employing former Miss Asia Pacific turned actress, Dia Mirza, as the brand ambassador.
(%)
13.3
(%)
80
14
12
16
100
40
18
20
21
complimentary products to CSLs existing product portfolio, it would be easy to penetrate these new products into the market, through utilization of the existing distribution channels. CSL is aiming at a revenue of `20cr from the tiles segment in the first year of launch itself.
of
sanitaryware
in
total
domestic
Owing to changing lifestyles, sanitary products are now perceived as more than basic necessity. Their role has widened to being status statements; thus commanding a higher allocation of the spending budgets of individuals. Increase in disposable incomes of people has been a vital factor supporting the demand for sanitaryware products. Also, requirement of personal space and privacy are gaining inevitable place, subsequently leading to nuclear families. This has led to augmented residential figures, thereby increasing demand for sanitary products. This trend is expected to continue providing sustainable demand visibility for sanitary products.
(` cr)
25,000 20,000 15,000 10,000 5,000 0 FY2011 FY2012 FY2013E Production FY2014E FY2015E Installed Capacity Capacity Utilization
40 20 0
(%)
60
Financials
Following are the key assumptions used to forecast the financials of the CSL:
FY2014E 36,000 90.0 17.0 25.2 7.0 900 40.0 25.7 20.0
FY2015E 36,000 90.0 17.0 25.2 7.0 900 50.0 37.5 30.0
(` cr)
20 10 0
(` cr)
2 0
(%)
60
10
(%)
27.0
30
(` cr)
(%)
40
Competition
CSL, with a market share of 23%, competes with the market leader - Hindustan Sanitaryware & Industries (HSIL; ~41% market share) and the unlisted peer Roca Parryware (~26% market share). CSL with a RoE of 25% and EPS of `51.1 for FY2015E looks attractive vis--vis its competitor HSIL.
250 150 50
Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Oct-08 Oct-09 Oct-10 Oct-11
-50
Price
Source: Company, Angel Research
1.5x
5.5x
9.5x
12.5x
Oct-12
Apr-13
Concerns
Risk from un-organized players: The main risk associated in the sanitaryware segment is from the unorganized and local players. The unorganized sanitaryware manufacturers enjoy the benefit of nil excise duty and sales tax and hence their products are ~70% cheaper than the organized sector products. Increase in excise duties from 8% to current 12% will make products from organized players more expensive. Advent of foreign brands in India is also becoming a threat since increased purchasing power may lead to shift in consumer preferences to bigger brands. Changes in government policy related to housing construction, imports, etc are bound to impact the industry. Further slowdown in the housing segment will impact fresh demand for sanitaryware.
The company
CSL, a Gujarat based company, is the third largest sanitaryware company in the organized sector with about 22% market share in India. Apart from sanitaryware and faucets, CSL also deals in the wellness range, consisting high-end and luxury bath tubs, steam cubicles, shower partitions and shower panels. Of the total sales volume, ~55% of its products are being produced in-house while the remaining 45% are outsourced from other parties, including those from China and Oman. The company has also expanded its brand presence to other related categories like showers, faucets, PVC cistern seat cover, etc. It entered the tiles segment recently which will be completely outsourced.
Sanitaryware industry
The Indian sanitaryware Industry, estimated at around `1500-1800cr, contributes to ~8% of the worlds sanitary production. In India, the organized market dominates the high-end products segment but a majority share is still captured by the unorganized segment in the low-end products segment. The industry has a sustained growth rate of 12-14% p.a. due to increasing housing demand, purchasing power and consciousness towards hygiene. India is emerging as the second largest sanitaryware market in the world and is expected to witness robust growth owing to following:
10
11
12
13
14
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Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Cera Sanitaryware No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
15