Cera Sanitaryware (Cera) Q2FY22 results was beat to our and consensus estimates. Strong demand recovery after an initial hiccup in Q1FY22 led to healthy sales growth, while increased NSR aided operating margin expansion, stated IDBI Capital Equity Research.
Net sales increased by 24.4% YoY to Rs 4,033 million, while EBITDA came in at Rs 616 million, a robust growth of 50.1% YoY. The company reported net profit of Rs440mn, up by 89.1% over Q2FY21.
The management reiterated that demand environment remains healthy and should drive healthy sales growth in H2FY22E. Further, Cera will remain focused on introducing high value products and strengthening distribution reach in future. "We have introduced FY24E in this report and maintain HOLD with a revised target price of Rs 5,483, assigning 32x PER on FY24E," the broking firm said.
Key highlights and investment rationale
Strong demand and increased NSR supported net sales growth
After a subdued Q1FY22, Cera’s net sales growth has been encouraging in Q2FY22. Housing market has been buoyant in key markets which resulted in healthy demand for bathware products. Further, the management stated that due to high freight of containers, imports from China have taken a halt and it bodes well for key organized players. The company’s sanitaryware plant had capacity utilization of 97% while faucet ware plant capacity utilization was at 90%. In terms of segment revenue, sanitaryware/faucet ware/tiles/wellness contributed 52%/34%/12%/2% respectively.
Positive operating leverage supported EBITDA margin expansion
Despite increase in raw material prices, the company’s EBITDA margin expanded by 260bps YoY to 15.3% owing to better product mix and price hike taken to pass on incremental cost. We expect EBITDA margin to be in the range of ~14%-15% in near term.
On a steady growth path, HOLD with a TP of Rs 5,483The building material companies are riding high on strong demand in the domestic market. We like Cera given its healthy market share in domestic sanitaryware and faucets industry, extensive distribution reach, healthy balance sheet and pedigree of management. HOLD with a TP of Rs 5,483.
Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.
