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Sunday 19 August 2012

Cera Sanitaryware: Stock Update

Cera is the third largest player in the Indian sanitaryware market after Hindustan Sanitaryware (HSIL) and Parryware (EID Parry).

The highlights of the company are:

  • Sanitaryware - capacity expansion from 2 million pieces to 2.7 million pieces underway.
  • Faucetware - Initial capacity of 2,500 pcs per day, scalable to 10000 pcs. per day
  • Bathware & Wellness Range - Primarily imports from China; product ranges like shower cubicles, shower panels etc
Financial Results for FY2011-12:
  • Revenues of 320 cr and Net Profit of 31.79cr.
  • EPS was 25.32 up from 20.97 a year back.
  • Paid a dividend of Rs 3, up from Rs 2.5 in 2010-11.
  • EBIDTA margins have been closer to 18-20% consistently.
  • RONW% is around 23% for the last three years.

Management/promoter compensation - Father/son duo (CEO and Executive Director respectively) get a salary of 2.5 cr and 1.9 cr, which is a bit high compared to the net profit of the company. Promoters hold 55% of the stock.

Cera has a strong distribution network with 1000 Distributors / Dealers and 10000 retailers.

The company has maintained its strong revenue and profit performance in the 1st quarter of 2012 as well. Revenue was at 90.5 cr (up 40%) and net profit was 9.24 cr (up 34%).

With a reasonably good demand for sanitaryware and Cera's position as the 3rd largest player in the market, added to its efficient use of capital, the company seems to be well placed for future growth.

I am expecting a EPS of between 28-30 for FY12, so expected FY12 end price is 230-360. The CMP of around 315 is already fairly reasonable.

Recommendation: Cera would be a good buy at closer to the 260-280 range. For long term investors, I would suggest to wait for lower levels than buying now, if you are planning to buy in large quantities. For smaller quantities, buying as a SIP would probably bet a good bet for Cera.


  1. 1) Look at the inventory increase in the latest AR. Why such huge jump?

    2) At what PE this becomes a Sell for you?

  2. Hi JK,

    I did look at the raised inventory levels. It has moved from 50cr to 90 cr. I checked the inventory position of Hindustan Sanitaryware also. It has moved up from 156cr to 206cr. It is definitely not a very healthy sign, but since their quarterly sales have been strong, we may need to wait and see for some more time before making any conclusions.

    I would seriously look at selling on these conditions:-
    1) PEG > 0.8 ~1.0 (currently with about 30% growth and a PE of 12, it is about 0.4)
    2) PE goes above 20. (This is my thumb rule for putting myself on alert for ANY stock).

    I think sanitaryware segment has a long way to go in India. My thesis is that with more nuclear families,people moving from standalone buildings to apartments,increasing awareness of hygiene in rural areas, govt thrust on rural toilets, the segment itself will do well. HSIL is perhaps the best company in this segment but is dragged down by its glassware business.
    (I have positions in both Cera & HSIL.)

  3. Salary being so high leaves a bad taste n question mark on ethical practices of the group. Similar was the problem withnManjushre . Don't you think to avoid the co as such n at present valuations?

  4. Why such high salaries like Manjushree ? How ethical is group otherwise the story seems Ok in terms of size of opportunity

    1. These days all CEOs are taking salaries of around 2cr. So, in absolute terms it is not very high. But the problem is that Cera is not a very large company, so the CEO and his son, who collectively own 55% of the stock, should have been more conservative. Not a big problem, but something worth keeping an eye out for.

  5. Cera has been a family run business so what do you think about the recent demise of the young MD? Structurally the company looks good so I don't see this as a negative but still, just wanted to check your opinion. (I am holding this stock and added more recently when it came down to < 300)