Cera SanitaryWare Ltd

Promoter / promoter group purchasing from open market triggered the stock to move up today.

Considering the expansion plans and company’s past growth,it seems like a best bet in these un-certain times.

regards,

Shanid V H

With the tax breaks housing loans below 25 lakhs, there may be an uptick on low cost housing in tier-2, tier-3 cities. Cera, HSIL, Kajaria, Asian Paints, Berger Paints type of “construction ancillaries” can do well in this kind of scenario.

construction ancillaries

Add housing loan companies catering to these below 25 lacs category houses. And these companies dont need to worry about raw material costs or expansion plans.

I think companies like gruh, gic hsg, canfin will grow very well and canfin which seems the most undervalued of the lot will probably provide the best returns.

Yes, playing housing finance cos will be a good defensive bet. Canfin is available at mouth-watering levels considering its strong growth visibility.

CERA is looking good too. Hitesh Bhai, whats your take on Cera technically?

vinod,

technically, cera is close to breakout levels of close above 445. Its relative strength as compared to overall markets is quite good probably next only to ajanta pharma in our universe of stocks.

Overall market condition remains a key monitorable risk.

construction ancillaries

** Add

** plans.I **

returns.

Canara bank has recently got a new Chairman Mr RK Dubey who is very aggressive n dynamic.He should naturally like Mr C Illango the dynamic n aggressive MD of canfin n as such do not disturb him.in PSUs CMD is the most important person who drives the whole co.THis good combination together with Mr Iyer the ex DMD of SBI who is the Chairman of canfin should take the co to next orbit for sure.

Just wait for March results.

**

Promoters on buying spree…

Q4/Fy-13 Results out…

Total Income up 57.6% to 157.96 Cr from 100.22 Cr.
EBIDTA up 29.9% to 20.73 Cr from 15.96 Cr.
Net Profit up 50% to 13.93 Cr from 9.29 Cr.

EBIDTA margin is 13.1% v/s 16% (Q3-13) and 15.9% (Q4-12)
NET Profit margin is 8.8% v/s 9.4% (Q3-13) and 9.3% (Q4-12)

Total Raw material costs as a %ge to Income is 50% v/s 42.3% (Q3-13) and 39.3% (Q4-12)
Employee costs to Income is 10.2% v/s 11.5% (Q3-13) and 12.3% (Q4-12)
Power & Fuel and Other expenses to Income is 26.7% v/s 30.2% (Q3-13) and 32.5% (Q4-12)

Financial costs to EBIT is 12.2% v/s 11.2% (Q3-13) and 8.5% (Q4-12)

Tax Rate 28.9% v/s 33.2% (Q3-13) and 36.2% (Q4-12)

Raw material costs which doubled from last year hurt EBIDTA. But lower tax incidence helped net profit. Financial costs too almost doubled to 2.2 Cr from 1.17 Cr.

Fy-13 v/s Fy-12:
Total Income up 52.7% to 487.87 Cr from 319.39 Cr
EBIDTA up 41.2% to 75.33 Cr from 53.37 Cr
Net Profit up 44.2% to 46.21 Cr from 32.04 Cr

Reported Full-Year EPS 36.51 v/s 25.32

At 02:40 pm on 25/04/2013, stock on BSE trading flat at Rs. 443/-

Another super quarter.

50+% growth is kinda unbelievable.

However, strangely, stock dint move even though results were announced before market close.

May be market is disappointed at low dividend payout ratio ( though dividend has increased every year).

Q4/Fy-13 Results out…

Fy-13 v/s Fy-12: 36.51

Either the stock could be a mutlibagger or beggar depending on the sanctity of the data

It has already been a multibagger :slight_smile: Depends on when you got on the bandwagon. It has gone up 600% (vs 13% of the Sensex) in the last 5 years.

If you look at the price chart for Cera you will see that it had not corrected in the severe mid cap correction that happened. The market was expecting this result. If you go back and hear the management concalls post Q2, they were confident of close to 50% growth. They have just delivered as they had thought they would.

I think at around 12 PE based on fy 13 eps figures and cmp of around 440 odd, the stock seems fairly valued and in line with similar midcaps.

One reason why stock did not correct in the mid/small cap carnage was that there were rumours abuzz about promoter selling out to some interested buyer as his dynamic son who was the guiding force for the company passed away.

Hi Hitesh,

Son’s death is indeed a traumatic event. But I’ve been observing the promoter’s behaviour post that event. He has shifted son’s equity ownership into his DIL’s name, and has grown the business in the following two quarters. He has been actively buying shares in the open market, albeit in small amounts. Further, he has been meeting the press and expressing optimism about future. This doesn’t look like the behaviour of a broken man who just wants to retire, IMHO.

As for the results, I noticed a softening of EBITDA magins. YOY margins have been declining since last two quarters. This could be due to changing product mix, but nevertheless bears some looking into.

While debtor days have gone up from 52 to 60 days, inventory days have fallen sharply from 104 to 70.

Any idea if they are going to have an analyst meet? Would love to know the operating margins in the taps/faucets business relative to sanitaryware.

Cheers,

Anil

I did a few primary checks. My findings are given below. The biggest takeaway from me is the fact that unorganized units in Morbi are feeling pressure. They have started doing contract manufacturing for big players. This is evident not only in sanitary ware but tiles where you would have read of stakes being bought in small companies in that region.

It helps Cera because they are growing absolute profits without incurring as much capex as they used to earlier. There is some margin reduction as traded component of sales increases. I am willing to accept this. I have a position in Cera.

The second biggest takeaway is the fact that spends per bathroom in sanitary ware are increasing (commodes or western loos vs. Indian loos).

Buying behaviour is changing.

Sanitary ware dealer from Mumbai (deals only in Parryware and Hindware)

  • Cera has a lower recall than Parryware or Hindware. Mumbai has greater new demand as compared to replacement demand. He feels this is because many old homes are waiting for redevelopment and hence not incurring home-related expenditure.

  • Dealers face problems with product supply sometimes from Cera. With Hindware and Parryware there are no such problems.

  • Chinese imports are present in the market in a sizable way. Their quality is relatively poor.

  • He said that 5-6 years back, Morbi, Gujarat, manufactured products (domestic unorganized) had close to 40-50% of the market. Chinese products then appeared and today they have eaten share from the Morbi manufacturers to the extent of 20%. Organized continues to be close to 50-60%.

Sanitary ware dealer from Nashik

  • Is a Cera dealer since 9 years.

  • Has a good opinion of Cera, in terms of supply, designs and management foresight.

  • Over the last 4-5 years he said that they have had strong price increments which have been accepted by the market.

  • He mentioned that customers are increasingly getting brand conscious.

  • Said that practically there is not much of a price difference between Cera, Hindware and Parryware.

  • I asked him about the sanitary ware market dynamics. He said that outsourcing has increased significantly from domestic manufacturers from Morbi, Gujarat. The company provides technical guidance and designs, and reserves its right to plant capacity.

  • Morbi sanitary ware and tiles quality was always good in his opinion. But Morbi plant owners have been forced to sell their production increasingly to branded players like Hindware, Parryware and Cera.

  • Customers are shifting away from Indian toilets (squatting pans) to Western toilets (commodes). A squatting pan used to cost around Rs. 1,000 five years back. Today, many customers install a Western toilet which costs around Rs. 4,500.

  • They also install a faucet along with the commode and a flush valve which was not present in Indian toilet configuration. This adds at least around Rs. 1,000 more.

  • This means around a 5 times increase in spends for a growing segment of customers._ _

Architect from Mumbai

  • Mentioned that Cera is picking up over the last few years in Mumbai in the non-premium buildings segment .

  • It does not have a premium positioning in the minds of the developer community in Mumbai.

Developer who has projects in Mumbai and Nashik

  • Has an ongoing premium project in Nashik.

  • He said that there is a definite shift in market from unorganized to organized sales.

  • Their firm otherwise installs Hindware and Parryware products. In premium projects they install foreign brands.

  • Young buyers are decision makers for real estate purchases and items like **sanitary ware, door handles and locks are âvisibleâ **when a prospective customer walks in to a flat. Brands matter for these items. Technically, cement and paint matter more but most people donât understand these items that go into flat construction.

_Interiors firm employee in Mumbai
_

  • Said that Cera is a second-rung brand as compared to Hind, Parry and the imported ones like Toto, American Standard, etc.

  • He usually does corporate offices of financial services firms in Mumbai. The segment of the market that he works in is brand conscious and installs mostly foreign brands.

_
_

3 Likes

Hi Kunal,

Great to see your groundwork and sharing of the same.

Thanks,

Ayush

Thanks Ayush.

Regards,

Kunal

Cera - Where Growth Has Become a Habit

Market is rewarding all the growth stories.Much awaited re rating started soon after publishing of annual report of cera for 2012-13…it was a joy reading the cera story,but could not find any details of expansion plans (3 million pieces peranum sanitarywares & expansion of faucetware unit).

Over all management saying they are committed for growth.

Anybody have gone through the AR ,any positive triggers which i could not find…??

regards,

Shanid V H

The latest presentation has a new slide that talks about Wellness products. This is a segment that is basically traded goods. This data was not shared in the previous year.

http://www.cera-india.com/Content.aspx?conId=CorporatePresentation

Do have a look. I find this interesting because I don’t mind them selling more traded goods and using the brand name.

Incidentally, look at Bajaj Electricals. Most consumers don’t know that apart from fans they do not manufacture a thing. How many care? Quality conveyed by product and the mental peace associated with a brand are keeping people happy.

If the company maintains quality control on contract manufacturing, there is no reason to complain.

P.S. I am not advocating Bajaj Electricals. It is a good consumer appliances business married to a very poor projects business. Bad for shareholders even at this valuation in my opinion.

Cera is trading at a trailing PE of 15.

What is the ideal valuation for a company like Cera ? Would it be better to enter into the scrip at the current price?

I was reading up Cera’s AR for this year. The company is doing well and growth is expected to be good (20%+) even in FY14. But, given that it is a mid-market player, I would be very reluctant to pay up for it. Price wise 450-475 is a good buy zone, though I am not sure if it will get there in a hurry. Need to keep that in mind if & when there is a correction in the market. My personal FY14 price expectation is about 600, which does not leave a lot on the table from the current levels.

FY14E EPS ~ 40-41 and FY15E EPS ~ 52-53.