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
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 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
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
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
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
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
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%.
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.