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Cera Sanitaryware
Increasing brand visibility to be key driver
Y/E March (` cr) 1QFY14 127 20 15.7 4QFY13 158 21 13.1 14 % chg (qoq) (19.9) (4.1) 258bp (20.0) 1QFY13 91 16 17.2 9 % chg (yoy) 39.9 27.5 (152)bp 21.2
BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Ceramic products 667 13 0.3 567/282 7,826 5 19,676 5,935 CERA.BO CRS IN
`527 `613
12 Months
Cera Sanitaryware (CSL) reported strong set of numbers for 1QFY2014. Top line surged by 39.9% yoy to `127cr, 8.2% higher than our expectation of `117cr. On operating front, EBITDA grew by 27.5% yoy to `20cr while margins dip by 152 basis point yoy to 15.7% owing to rise in raw material cost. Net profit rose by 21.2% yoy to `11cr, amidst higher EBITDA growth on account of higher tax expense (35% of PBT) and lower other income.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 55.5 0.1 18.7 25.7
3m 6.1 19.7
FY2011 243 27.0 27 38.4 18.8 21.7 24.3 6.0 27.3 25.6 2.7 14.3
FY2012 319 31.5 32 16.7 16.7 25.3 20.8 4.8 25.5 23.2 2.1 12.7
FY2013 488 52.8 46 44.3 15.4 36.5 14.4 3.7 29.0 26.7 1.4 9.0
FY2014E 631 29.4 54 16.7 14.5 42.6 12.4 2.9 26.5 25.7 1.1 7.3
FY2015E 797 26.2 65 19.9 13.7 51.1 10.3 2.3 25.3 25.0 0.8 6.2
127
55
158
79
(19.9)
(30.3) 3.0 (16.9) (22.2)
91
34
39.9
62.3 25.5 26.3 42.4
488
214
321
124
52.2
72.4
43.5
17
50.0
16
37.5
13
43.8
58
38.7
43
52.2
36.3 14.1 44.7
13.2
35
10.2
42
14.7
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11.9
115
13.3
101
27.7
107
26.7
137
30.6
75
23.5
387
31.4
267
20
15.7
21
13.1
(4.1)
258bp
16
17.2
27.5
(152)bp
101
20.7
53
16.7
89.3
407bp
1
3
2
3
(35.0)
4.5
1
2
15.1
29.2
7
9
4
8
85.3
19.0
1
17
4
20
(62.9)
(13.1) 4.1 (20.0)
2
14
(11.8)
23.9 29.2 21.2
9
94
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49
31.6
92.8 28.3 127.0
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6
12.4
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158
20
21
128
127
( ` cr)
16
111
( ` cr)
(%)
100
91
73
60 40 20 0
82
65
20 10 0
6 3 0
1QFY12
2QFY12
12
12
30
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
Revenue (LHS)
EBITDA (LHS)
Investment arguments
Emphasized focus on marketing and high brand visibility
Owing to continuous marketing activities, that has led to greater visibility of the Cera brand, the advertisement cost for the company has been consistently moving northwards. Marketing expenses constitute around 16% of the net sales and have grown at a 46% CAGR over FY2008-13.
(` cr)
30 20 10 0
20 10 0 FY2008 FY2009 FY2010 Commssion FY2011 FY2012 FY2013 % change yoy Advertisement Distribution
Source: Company
CSL intends to widen its reach by opening more retail formats like Cera Style Galleries which display the complete range of Cera products and Cera Style Studios which are company-managed touch and feel experience centres. Currently, CSL has 50 Cera Style Galleries operational pan-India. Both the above retail formats have been a success as evident from CSLs robust top-line growth. CSL also had a massive media campaign during the launch of its new re-designed logo by employing former Miss Asia Pacific turned actress, Dia Mirza, as the brand ambassador.
(%)
40
1QFY14
30
(%)
80
14
12
16
100
40
18
20
of
sanitaryware
in
total
domestic
Owing to changing lifestyles, sanitary products are now perceived as more than basic necessity. Their role has widened to being status statements; thus commanding a higher allocation of the spending budgets of individuals. Increase in disposable incomes of people has been a vital factor supporting the demand for sanitaryware products. Also, requirement of personal space and privacy are gaining inevitable place, subsequently leading to nuclear families. This has led to augmented residential figures, thereby increasing demand for sanitary products. This trend is expected to continue providing sustainable demand visibility for sanitary products.
(` cr)
25,000 20,000 15,000 10,000 5,000 0 FY2011 FY2012 FY2013E Production FY2014E FY2015E Installed Capacity Capacity Utilization
40 20 0
(%)
60
Financials
Exhibit 7: Key assumptions
Particulars (%) Finished Goods: Sanitaryware Installed capacity (MT) Capacity utilisation Sales quantity growth Sales value growth Sale Price/ unit growth Faucetware Installed capacity (units) Capacity utilisation Sales value growth Tiles Sales value (` cr) Raw Material Sanitaryware value growth Traded Goods value growth Sandstone/clay value growth Brass Ignots value growth
Source: Company, Angel Research
FY2014E 36,000 90.0 17.0 25.2 7.0 900 40.0 43.0 20.0
FY2015E 36,000 90.0 17.0 25.2 7.0 900 50.0 37.5 30.0
(` cr)
20 10 0
(` cr)
2 0
(%)
60
10
(%)
27.0
30
(` cr)
(%)
40
Competition
CSL, with a market share of 23%, competes with the market leader - Hindustan Sanitaryware & Industries (HSIL; ~44% market share) and the unlisted peer Roca Parryware (~26% market share). CSL with a return on equity of above 25% and EPS of `51.1 for FY2015E looks attractive vis--vis its competitor HSIL.
(` )
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jan-09
Jan-10
Jan-11
Jan-12
Price
Source: Company, Angel Research
1.5x
5.5x
9.5x
13.5x
Jan-13
Jul-13
Concerns
Risk from un-organized players: The main risk associated in the sanitaryware segment is from the unorganized and local players. The unorganized sanitaryware manufacturers enjoy the benefit of nil excise duty and sales tax and hence their products are ~70% cheaper than the organized sector products. Increase in excise duties from 8% to current 12% will make products from organized players more expensive. Advent of foreign brands in India is also becoming a threat since increased purchasing power may lead to shift in consumer preferences to bigger brands. Changes in government policy related to housing construction, imports, etc are bound to impact the industry. Further slowdown in the housing segment will impact fresh demand for sanitaryware.
The company
CSL, a Gujarat based company, is the third largest sanitaryware company in the organized sector with about 22% market share in India. Apart from sanitaryware and faucets, CSL also deals in the wellness range, consisting high-end and luxury bath tubs, steam cubicles, shower partitions and shower panels. Of the total sales volume, ~55% of its products are being produced in-house while the remaining 45% are outsourced from other parties, including those from China and Oman. The company has also expanded its brand presence to other related categories like showers, faucets, PVC cistern seat cover, etc. It entered the tiles segment recently which is completely outsourced.
Sanitaryware industry
The Indian sanitaryware Industry, estimated at around `1500-1800cr, contributes to ~8% of the worlds sanitary production. In India, the organized market dominates the high-end products segment but a majority share is still captured by the unorganized segment in the low-end products segment. The industry has a sustained growth rate of 12-14% p.a. due to increasing housing demand, purchasing power and consciousness towards hygiene. India is emerging as the second largest sanitaryware market in the world and is expected to witness robust growth owing to following:
10
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13
14
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Cera Sanitaryware No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
15