Buy this Multibagger small cap building materials stock, stock price may jump, gained 11.7% in a week

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Stock market outlook

On September 07, on NSE, shares of the company closed at Rs 5,572.70 each after gaining 4.19%. The 52-week low is Rs 3,515 as of May 10, 2022 each and the 52-week high is Rs 6,450 each as of October 19, 2021, respectively.

Returns on investment

Returns on investment

Cera stock over the past week has fallen 11.7%. While in the past 1 and 3 months, it gave positive returns of 17.95% and 36.79%, respectively. Over the past year, the stock has returned a positive 29.45%. While over the past 3 years, the stock has given multibagger returns of 128.45%. Over the past 5 years, it has given a positive return of 90.27%.

Better demand outlook and record use: an upward cycle of home improvements

Better demand outlook and record use: an upward cycle of home improvement

Cera Sanitaryware Ltd. (Cera), with 2 decades of experience, a strong brand and an extensive retail network, has a considerable market share of 17% in 80% organized Sanitaryware (SW) and 7% in Faucetsware ( FW) organized at 65%. ) market. “We like Cera thanks to 1) superior margins (15% EBITDA margins compared to 8% of its counterpart HHIL) supported by its strong focus on SW and FW activities (89% of revenue) 2) a network of strong distribution (15,644 dealers and retailers, 157 Cera Style Galleries) and after-sales service with 10-year warranty vs. peers’ 5-year warranty on some SKUs 3) Large CAPEX (₹197 Cr) after one use record high (100-120%) indicates strong demand ahead 4) robust rebound in the residential market (unit sales hit a 6-year high in H2CY22) as well as a focus on home improvement “said the brokerage.

Cera recorded revenue/EBITDA/PAT growth of 7%/6%/9% CAGR respectively from CY17-22. On CY22-25E, we expect the company to deliver revenue/EBITDA/PAT CAGR of 21%/21%/24% respectively with an EBITDA margin/PAT/ROE/ROCE margin of 16% 10%/17%/22% in FY23E.

Strong presence in the sanitary ware and fittings sector

Strong presence in the sanitary ware and fittings sector

With over 17%/7% market share in the organized SW and FW market, followed by 32% for Parryware (as of 2020) across all swimwear, Cera has been focused on launching innovative products, creating a niche position, especially in premium SKUs (10%/18% of SW/FW revenue) such as touchless faucets, wall-mounted sensor faucets, etc., which are well positioned to capture the tendency to modernize the house.

Diversified distribution network to conquer the Tier 3 market

Diversified distribution network to conquer the Tier 3 market

Cera, with a strong distribution network, particularly in the Tier 3 market (56% of revenue) that will support rural demand, has also introduced a dealer-owned showroom concept, called 157 style CERA, as well as 8 “Cera Style Studious”, 15,644 sales partners and 342 technicians (for after-sales service).

CAPEX will double turnover in the next 3.5 years

CAPEX will double turnover in the next 3.5 years

After record usage (100-120%), Cera is looking to expand its SW capacity from 25 Lakh ppa (coins per year) to 37 Lakh ppa (for ₹128 Cr, by H2 FY25) and FW capacity from 30 Lakh ppa at 48 Lakh ppa (for ₹69 Cr, by Q1FY24). Management has planned to double its revenue in 3.5 years with an increase in EBITDA margins of 50 to 75 basis points year-on-year.

Strong rebound in residential real estate, upward trend in home improvement and government push towards affordable housing

Strong rebound in residential real estate, upward trend in home improvement and government push towards affordable housing

Residential units for sale (B2B, where Cera generates 30% of revenue) hit a 6-year high in H2CY22 (1,58,705 units), concurrently a 23% decline in unsold inventory (6,96,011 units) from its maximum levels (9,00,181 units) of CY16 has been seen with the government’s emphasis on affordable housing, PMAY-G, PMAY-U, etc., adding to demand.

Initiate Hedging with Buy – Target Price of ₹6,564

Initiate Hedging with Buy – Target Price of ₹6,564

Due to strong demand and record usage, we expect the company to post strong revenue/EBITDA/CAGR PAT of 21%/21%/24% in FY22-25E with a slight increase in margins of 50 bps year-on-year. – According to DCF, we value the stock at ₹6,564/share, a decent upside of 19%.

Disclaimer

Disclaimer

The stock was selected in Bonanza Research’s brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

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