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Recommendations India

Cera Sanitaryware 3QFY2014 performance highlights and results update

February 17, 2014, Monday, 12:14 GMT | 07:14 EST | 17:44 IST | 20:14 SGT
Contributed by Angel Broking

Cera Sanitaryware (CERA) reported a poor set of numbers for 3QFY2014. Its top-line surged by 25.1% yoy to Rs.160cr, 8.5% lower than our expectation of Rs.175cr. However, the EBITDA grew marginally by 0.6% yoy to Rs.21cr, lower than our estimate of Rs.25cr. Moreover, the EBITDA margin dipped by 313bp yoy and came in at 12.9%. Subsequently, the net profit dipped by 9.9% yoy to Rs.11cr against our estimate of Rs.14cr, while the net profit margin came in at 6.7% from 9.3% in 3QFY2013.

Competitive pricing with robust marketing efforts to lead growth

CERA, due to its consistent marketing efforts (marketing cost has grown at 46.3% CAGR over FY2008-13), has gained significant brand visibility in the market. In addition, its sanitaryware products are priced competitively compared to its peers, providing it an edge, and thereby enabling it to generate more volumes. Thus competitive pricing along with robust marketing efforts are the success strategies of Cera.

Outlook and Valuation

We expect CERA’s consistent marketing efforts coupled with expansion of its product portfolio (in the tiles segment) to help it post a revenue CAGR of 29.9% over FY2013-16E to Rs.1,069cr. The EBITDA and net profit are expected to grow at a CAGR of 18.2% and 15.6% over the same period to Rs.124cr and Rs.71cr respectively. The stock is currently trading at a PE of 13.3x FY2016E. As we rollover to FY2016E, considering the recent run up in the stock, we maintain our Accumulate recommendation with a revised target price of Rs.846, based on a target PE of 15x for FY2016E.

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