Buy Cera Sanitaryware - Microsec

We rate Cera Sanitaryware a BUY. Cera Sanitaryware, incorporated in 1998, is a pioneer in the sanitaryware segment in India. The Company is engaged in the manufacturing of sanitarywares, trading of bathroom accessories and captive non conventional energy. Cera Sanitaryware sells its products through Cera Bath Studios, which provides a full view of ranges of wash basins, shower panels, shower cubicles, bath tubs, shower temples, whirlpools, cp fittings etc to its customers.

Expansion plan to increase the capacity of sanitaryware to fuel growth: Cera has undertaken an expansion plan with a capex of around 140 crore to increase the capacity of its sanitary unit from 2 million pieces per year to 2.7 million pieces per year and also the capacity of faucet plant from 2500 pieces per day to 5,000 pieces per day over a time period of 2 years. This is expected to boost the topline of the company and support its growth plan going forward.

Cera Style Studios and Cera Style Galleries improving retail experience for its prospective consumers: Cera Style Studios and Cera Style Galleries are diplay centres. In Cera Style Studios, consumers, architects and interior designers can have full view of the Cera's premium ranges of Wash Basins, Shower Panels, Bath Tubs, Shower Temples, CP fittings etc. In Cera Galleries, customers can not only touch and feel, but take home their favorite Cera design. Cera Bath Galleries are owned and managed by Cera's dealers. It has currently 7 Cera Studios and 36 Cera Style Galleries. They have been of a great impact in improving the reatil experience for its prospective customers.

Strong Growth in Financials, Strong ROE and Low D/E from past 5 yeas : Cera's Net Sales increased by 31% to INR319 crore and Net profit jumped by 21% to INR32 crore in FY12. ROE of the company came at 25.6% with a D/E ratio of 0.24. In the last 5 years, Net sales and PAT have grown at an average growth of 25% and 29% respectively. Average ROE of the company came at 24%.

VALUATION

At the CMP of INR350 the stock discounts its FY13E EPS of INR32.8 by 10.7x and its FY14E EPS of INR42.2 by 8.3x. With Strong Brand Value, Consistent financial growth, Strong ROE and under-penetrated organised industry, the prospect of the company looks bright.

Key Concern

Any major slowdown in the Real-estate sector may negatively impact its top line as well as bottomline.

Increase in the Raw Material prices (like Sand, Sandstone, clay, chemical fitting) may negatively impact the bottomline of the company.

Source : Equity Bulls

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