Interesting update. Big positive for organised Tiles players (More so for players like Kajaria, Somany)
NGT orders shutdown of coal gasifiers at Morbi ceramic cluster | Ahmedabad News - Times of India https://timesofindia.indiatimes.com/city/ahmedabad/ngt-orders-shutdown-of-coal-gasifiers-at-morbi-ceramic-cluster/articleshow/68295471.cms
Cera enters the modular kitchen market as well.
I am also not very sure if it is good news or not. Nevertheless, it is news and needs to be followed by those who track the company.
I dont think they have invested much in this line as of now.
My thesis for investing in Cera in part was an optionality of them turning into a complete home styling player. This is definitely a first step in that direction. But the economics of this business line remains to be seen.
Hi Sairam,
Greetingss!!
Did CERA mentioned anywehere they have intended to turn complete home style player…
Atleast a thin line of info from them…how they want see as a compa ny in next 10 yrs…
or it is assumtion during investment…
Please advise
Of course, it’s just an assumption. It looks like a logical follow-up to their venturing into Tiles and to a far lesser extent into Kitchen Sinks and mirrors. But as I mentioned, that’s just an option the company can pull off should it choose to. It will be easy to integrate these offerings to their existing customers without spending much on marketing and distribution.
As of now, the company is concentrated on strengthening their capabilities in Faucets, Sanitaryware and Bathroom Tiles i.e. a complete bath solution. I believe a tailwind is present because of GST and the movement from unorganized to organized segment.
You should refer to the company’s last 2-3 Concalls to understand the same.
Also they have started outsourcing of Bathroom Heater… which is a completely unrelated product wise. So it only indicates one thing… leveraging its brand and distribution network to become a complete bathroomware provider.
Hi Dinesh,
Do you have the link of latest concall of cera ?
Good set of numbers. Need to look further into drivers.
How is Cera Sanitary able to command premium valuations when other industry PE is half the stocks PE? What is cera’s moat compared to competition?
Sanitary-ware as such is a very secular segment. Its a oligopolistic market with 3 players dominating the mid-premium segment (Cera, HSIL, Somany). The EBITDA margins of this segment is ~20% vs 10-15% in other segment. This is because the manufacturer has pricing power as the brand name is visible to the user.
Cera being a professionally run company with good corporate governance enjoyed a higher PE compared to the peers. Even after the crisis in the industry led by RERA, deomon, GST, liquidity crisis, the company has shown 10-20% growth in Sales and PAT. This shows the character of the management and the company.
Note: Invsted at lower levels, so my comments may be biased.
One aspect that most people either do not consider or ignore is that unlike ceramic tiles industry, here branding is a visible and important component. After you fit a tile on the floor / wall, no one knows what brand it is, but you can see the name of the wash basin every time you go and use it. So, it is not easy for others to enter and disrupt this market without spending very heavily in brand building and distribution. Cera, being a mid-market player is now slowly moving towards the affordable luxury/ premium end which is probably a good effort to make.
One good way to check the brand is to go to the websites of real estate projects and go to the page which lists specs and check out CP fittings and Sanitary ware, Tiling etc If you find something like Cera or equivalent written there you know its a good brand. In most spec sheets you will find vitrified tiles without reference to the brand name suggesting that the brand is not a very important consideration. However when it comes to CP fittings, sanitary ware etc you will find the brand name or equivalent listed there.
for e,g http://liferepublic.in/2bhk-3bhk-apartment-hinjewadi-pune#spec-section
Project by Kolte Pati in Hinjewadi with no brands mentioned in spec sheet either in CP or in tiles.
https://www.nyatigroup.com/nyati-elysia-I-II-offering-2-3-bhk-flats-kharadi-pune.php#t2
Similarly for Nyati projects in Pune. No brands mentioned anywhere
https://www.lodhagroup.in/projects/residential-property-in-thane/lodha-upper-thane/amenities
Again no brands mentioned
Sanitary ware/CP fittings mentioned is Jaquar/Parryware or equivalent
Will increase in custom duty will effect tiles manufacturer in short or long term @dineshssairam
Short term? Probably. But seeing as how its a mandatory raise by the government, there should be no problem in passing on the costs.
Long term? Very unlikely, especially for the organized players. Tightening of GST collection and regulatory moves like the Morbi Cluster ban should accelerate the market share loss by the smaller, unorganized players.
Flat results for H1 compared with last year both in terms of revenue and profitability.
Concall Transcript
https://www.bseindia.com/xml-data/corpfiling/AttachLive/d58f910b-54e9-49ed-ac19-77efecb31330.pdf
I found this bit particularly interesting:
On a more shorter term note, maybe this:
Do read the entire transcript. Mr. Ayush Bagla makes many such interesting comments with insights into the business.
What do you think about the growth rates? After reading the concall, I am bit skeptical that the company will be able to return to 15% kind of topline growth. Given it trades at 24-25 times. Don’t you think it is better to allocate into faster growing opportunities?
Disclosure
Hold 4% Cera in my folio. Seriously reconsidering my stance given that I might have overestimated the growth rate business can achieve.
