Cera SanitaryWare Ltd

Stock Opportunities Not-so-Hidden Gems
141

Q3 results out. Little disappointing in my view.

sales up 25% YoY to 160Cr from 128 Cr in Q32012

operating profit declined to 21.75cr from 22.5cr yoy

eps dropped to 8.50 from 9.48 yoy and slight rise from 8.40 qoq

9-month eps @ 25.73 vs 25.50 yoy

starting to look expensive.

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http://www.bseindia.com/xml-data/corpfiling/AttachLive/Cera_Sanitaryware_Ltd_130214_Rst.pdf

143

Unimpressive results for 2nd straight quarter…

PAT degrowth while sales grew nicely.

Why?? Is this due to higher marketing spend or due to entry into low margin tile division??

Press Release talks only about good things, & is muted on reasons for drop in Profits.

Meanwhile market ignores all this… Stock unchanged @ 756.

144

It may be seeing impact of real estate slump on it’s margins???

And it doesn’t look like real estate may improve sooner!! Time to start offloading this one slowly?

(Disc. I am invested in Cera)

145

Key concall takeaways:

  1. At the start of the year,the management expected 40-50% kind of growth continuing in FY14,but since it wasn’t turning out that way(that’s what I understood!) they took a call to grow,maybe even at the expense of margins.
  2. The margins were also hit by higher input costs.The company is aware of the new gas pricing,but has stated that it is equal for every company & doesn’t affect Cera alone.They are confident that they will ride out in the scenario of higher cost.
  3. Also,due to the change in product mix & higher focus on Faucetware(lower margin than Sanitary),the earlier 17% kind of margins won’t be regained anytime soon.However,some improvement is possible.
  4. The management expects to regain 50%(150 bps) of the lost margins in FY15 through various price rises ranging between 4-11.5%,across all segments.
  5. The company has market share of 30%+ in Tier-II & Tier-III cities,with share at 38-40% in Kerala.
  6. Regarding Faucetware,they admit that its lower margin but with higher sales & greater topline as a whole,the EPS will still continue to grow at a good tick.The idea is to gain scale & then use brand equity.
  7. The company has taken various cost-cutting measures,primary being the setting up of two windmills,which would reduce input cost substantially(2.2-2.5/unit from the earlier 6-7/unit)
  8. A total of 40cr. was spent on CapEx.17cr. being on the Windmills.
  9. The dealer network is at about 10,000 & will grow at 20% for the next 2-3 years.
  10. Regarding competition,the company believes it has a high acceptance across the country & is a ‘welcome’ player.They see themselves as a ‘Value-for-Money’ player.The inventory at Factory level is Nil.
  11. Sanitaryware capacities are working at almost 100% capacity utilisation.Faucetware at 80%+.Outsourcing is the major contributor for Faucets.For capacity expansion,Cera is open to JVs as well.
  12. The net debt & cash levels are at comfortable levels.
  13. Ad spends will be under 5% of topline.The sponsorship of ‘Nach Baliye’ wasn’t at a high cost.
    14)The company expects to achieve a ‘moderate’ growth of 32% topline in the next 2-3 years.This factors in the current eco. environment & not a significant turn in it.

All in all,the management sounded upbeat & knows what its doing.And that’s the biggest assurance for me. :slight_smile:

146

Cera up over 9% , Is it because of the news of insider(director) Ganga Somany buying of 3000 Shares on March 5th.

Here is the disclosure.

http://www.moneycontrol.com/stocks/reports/cera-sanitary-disclosures-under-reg134-134asebi-prohibitioninsider-trading-regulations-1992-776586.html

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More insider buying disclusures today

http://www.bseindia.com/corporates/ann.aspx?scrip=532443&dur=A&expandable=3

148

Good results. Sales grew 38% and PAT 39% in q4.

FY15 guidance of 30% sales growth.

http://www.moneycontrol.com/news/results-boardroom/confidentclocking-30-revenue-growthfy15-cera_1075439.html

149

I agree, good set of numbers. For me the good point was the steady and almost recovering margins, despite the share of low margin faucets business in product business increasing.

Here is the angel broking report:

http://www.angelbroking.com/Research/5366/ResultUpdates/CeraSanitarywareLtd.aspx

Apart from the topics mentioned in the report, I am curious to understand the impact of gas pricing changes on Cera. Currently I think energy costs are about ~5% of total expenses, adn EBITDA margins are ~15%.

By the way, Cera locked in UC today @ 1154 on good volumes. Any specific triggers that one might be aware of?

150

Nikhil,

Management’s guidance of 30% is the reason for today’s rally.

151

Hi Nikhil/Kunal

Pending buy orders for some thousand shares were there… Hence the circuit may be…

Regards

mallikarjun

152

I bought CERA in July 13 when it tanked inline with general mkt sentiments. I loved its consistency in results, strong mgmt who knows his craft well and most important is its taking mkt share fast from unorganized players with a strong brand building efforts.

So far their strategy is working well. They are expanding in faucet-ware and in tiles. These are logical additions to CERA portfolio but at the same time i am careful here that they should be value additive otherwise CERA would become a sell candidate.

Overall a great story, my investment is north of 130+% in 6-8 months, i am loving more some of my investments like my underwear (u know what i mean), my toilet seat :slight_smile: :-).

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This is what called creating BRAND

https://play.google.com/store/apps/details?id=com.cera

154

The stock is up 10% or so today as well. Its peers, HSIL is up 9% and Kajari up 2.6% today. Over the last 5 day period, Cera is up 46%, HSIL up 24%, and Kajaria is up 9%.

I think something industry-wide is up, not sure what.

155

Then the whole sector is getting re-rated Nikhil…

156

As per Narendra Modi, their government will focus on Sanitary system if voted for power. It seems the entire sector is getting re-rated.

157

Cera Results are out for Q1 FY15

Revenue up by 28% at 162 crore yoy

Profits up by 22% at 13 crore yoy

158

Q2 2015 results were out yesterday. Topline growth along with margin expansion as predicted by the management a couple of quarters ago.

Sales up 26% to 200 cr from 159 cr yoy

Operating profit up 38% to 29cr from 21cr yoy

Profit from ordinary activities up 44% to 25.7cr from 17.9cr yoy

Net profit up 48% to 15.8 cr from 10.6 cr

yoy

159

Hi… can someone tell me why are the operating margins of cera n kajaria falling since past 3yrs? … for cera it has come down from 20% to 15% - are they giving excessive discounts to push up the sales?

160

Building brand is a costly affair, which pays in long term.