Recommendations » India

Cera Sanitaryware 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Cera Sanitaryware (CSL) reported strong set of numbers for 3QFY2013. Top line soared by 55.2% yoy to Rs.128cr and was 14.3% higher than our expectations of Rs.112cr. The company’s EBITDA came in at Rs.20.5cr, 50.1% higher yoy attributable mainly to higher top-line. EBITDA margin came in at 16.0%, marginally lower by 54bp yoy and 42bp against our estimate of 16.4%. Net profit rose by 50.5% yoy to Rs.12cr from Rs.7.9cr in prior period and our estimate of Rs.10.5cr.

Expanded capacity and high brand visibility to aid revenue growth

CSL has already expanded its capacity of sanitaryware unit from 2.0mn pieces per annum (p.a.) to 2.7mn pieces p.a. and is planning to expand further to 3mn pieces p.a. by January 2013. The expansion will enable CSL to en-cash the opportunity from the growing demand. The growth in demand is on the back of a) changing lifestyle of people, b) increasing awareness for improving sanitation coverage and c) revival in construction activities. Moreover, continuous marketing activities which have created high visibility for the brand (marketing cost has grown at 36% CAGR over FY2008-12), are expected to continue supporting revenue growth going forward.

Outlook and valuation

We expect CSL’s constant development on the marketing front coupled with expansion of product portfolio (tiles segment) to help post a revenue growth of 36.6% CAGR over FY2012-14E to Rs.596cr. The EBITDA and net profit are expected to grow at a CAGR of 34.6% and 33.4% to Rs.97cr and Rs.57cr respectively in FY2014E. At the current market price of Rs.422, CSL is trading at a PE of 9.4x and EV/Sales of 1.0x on FY2014E. We recommend Buy on the stock with a target price of Rs.495, based on a target PE of 11x for FY2014E earnings.