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Recommendations India

Cera Sanitaryware 4QFY2014 performance highlights and results update

April 29, 2014, Tuesday, 10:26 GMT | 06:26 EST | 14:56 IST | 17:26 SGT
Contributed by Angel Broking

Cera Sanitaryware (Cera) reported a strong set of numbers for 4QFY2014. Its top-line surged by 38.1% yoy to Rs.218cr, 8.4% higher than our expectation of Rs.201cr. On the operating front, the EBITDA grew by a whopping 69.4% yoy to Rs.35cr while margins expanded by 297bps yoy to 16.1%. The growth in margin was mainly owing to decline in raw material cost as a percentage of sales by 271bp yoy. Consequently, the net profit rose by 38.4% yoy to Rs.19cr (higher than our estimate of Rs.12cr), amidst higher tax outgo (40.5% of PBT).

Competitive pricing with robust marketing efforts to lead growth

Cera, due to its consistent marketing efforts (marketing cost has grown at a CAGR of 46.3% 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 27.0% over FY2014-16E to Rs.1,070cr (in FY2016). The EBITDA and net profit are expected to grow at a CAGR of 27.0% and 19.3% over the same period to Rs.134cr and Rs.74cr respectively. The stock is currently trading at a PE of 15.0x FY2016E. As we rollover to FY2016E, considering the recent run up in Cera’s stock price, we maintain our Accumulate recommendation with a revised target price of Rs.934, based on a target PE of 16x for FY2016E.