Cera Sanitaryware - Stock Update

I was reading the latest annual report for Cera and I am capturing the key points here:

• Company’s brand extension to other related categories like showers, faucets, PVC cisterns and seat covers has helped in accelerating the growth.
• This year Cera forayed into tiles in a modest way and launched digital wall and floor tiles, vitrified tiles in both soluble salt and double charge and also regular porcelain tiles.
• Even though there was significant drop in construction sector in the fiscal under review, Cera was unaffected by sporadic upheavals in construction activities because of its well-established mid-segment product positioning in the market. The demand in mid-segment housing is likely to be least affected by any impending slow-down and hence the company is confident of maintaining its growth rate.
• Vikram Somany got a total salary of 3.3cr which was up from 2.5 cr last fiscal.
• Promoters hold 55.5% of the stock (no major change since last year)
• Revenues of 487 cr and Net Profit of 46.21 cr.
• EPS was 36.51 up from 25.32 a year back (up 44.91%)
• Paid a dividend of Rs 4, up from Rs 3 in 2011-12.

FY14E EPS ~ 40-41

FY15E EPS ~ 52-53

Expected PE range (low – high) – 10-15

I am expecting a price of close to 600 at FY14 end, which is about 13% up from the CMP of 530. And

750 by FY15, which is about 40% higher from current levels. A good buying zone is 450-475, if the price gets to that level. I would NOT buy at current levels.

Disclosure: I am invested in Cera Sanitaryware and have a vested interest in the stock.

Stock Update: Cera Sanitaryware

The company announced that it has appointed Shri S.C. Kothari, as C.E.O. of the Company. Mr Kothari  joined Cera as Corporate Finance Head. In 2002 was made CEO of the company. He had retired from the company in Aug.2008. So, this looks like an interim measure to bring in the previous CEO back at the helm. 

I am getting a feeling that option 3 is playing out from my previous post.

Valuation for the company and political uncertainty in India continues to be high and investors need to be cautious.

P.S.: Looking at some companies. Should be able to post about them in a couple of weeks.

Stock Update: Cera Sanitaryware

With the untimely death of Mr. Vidush Somany, the MD of Cera, there are a lot of questions in the mind of investors. Here are possibilities:-

1) There will not be any significant long term impact to the performance to the company. Mr. Vikram Somany, the founder and CMD of the company will continue to drive the company.

2) If there are no natural successors, then Mr. Vikram Somany may decide to sell out to another company at a later point in time.

3) If there are other potential natural successors, then Mr. Vikram Somany may continue at the helm or hand over to a professional CEO, till the successor is groomed.

Whichever scenario plays out, the business may see short-to-medium term weakness as it adjusts itself on the loss of its prime mover. The valuation is also not cheap.

Recommendation: Adventurous investors can continue to hold with a stop loss around 320-325 levels. I would suggest gradual profit booking of atleast 50% of your positions and then waiting to see how the business actually pans out. At this moment the risk-reward is NOT in favour of the long term investor.

Disclosure: I am invested in Cera Sanitrayware and HSIL and my views are likely to be biased. Please do your own due diligence before investing.

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.

Indian sanitaryware market - Cera &HSIL

According to a recent survey conducted by UNICEF, there are about 638 Million people in India who do not have proper sanitation facilities. Nearly 50% population use open toilets. Another Indian report mentioned that India has more mobile phones than proper toilets!

According to another recently published report, " the market for sanitary ware products is expected to grow enormously in the coming years. It is forecasted that global sanitary ware market will record a whooping turnover of US$ 89.5 Billion by 2017 where maximum growth is anticipated from emerging economies such as China and India. The mature market such as United States and Europe will encounter a sluggish growth for the next five year period."

The sanitary ware market for high end products in India is dominated by the organized segment but the unorganized segment has captured major share in low-end products segment. The market was dominated by the domestic players but now the international players are performing extremely well out of which some have registered growth of even more than 30% y-o-y. HSIL, Cera, Parryware and Somany are the major players present in the sanitary ware market in India.

Improving literacy rates, liberalized FDI policy in the real estate sector, favorable demographics, increasing purchasing power, customer friendly banks, and favorable reforms initiated by the Government to attract global investors is driving the growth for sanitary ware market in India which is forecasted to reach US$ 1.8 Billion within next five years.

Note: I am invested in both Cera & HSIL, so have a vested interest in both. Please due your own due diligence and consult your financial advisor before investing.

HSIL & Cera sanitaryware - Looking for one and finding another!

I was looking at HSIL (Hindustan Sanitaryware) and it came across as an excellent and boring business!! They make about 50% revenues from sanitaryware and the other 50% from glassware, specially colored bottles for soft drinks like Sprite, beer and industrial chemicals. It is a good solid business, run by what seems to be able management. I have bought a small initial quantity as well.

Then I stumbled upon Cera sanitaryware. It is a much smaller company but focused on only the sanitaryware segment. The basic comparison is given in the table below.

	HSIL	Cera
Sales	1073.88	254.95
PAT	87.35	26.54
EPS	13.23	20.97
Sales growth (5 yrs CAGR)	21.79%	23.39%
PATgrowth (5 yrs CAGR)	31.61%	30.79%
EPS growth (5 yrs CAGR)	25.76%	29.48%
OPM%	17.68%	19.47%
NPM%	7.21%	10.79%
Div Yield%	1.67%	1.19%
RoE%	11.66%	23.79%
RoCE%	13.38%	29.65%
Asset Turnover ratio	0.99	2.14
Debt-Equity ratio	0.59	0.34
Div payour ratio	24.49	13.85
PE	9.2	8.6
P/B	1.4	2.3
Stock returns (last 5 yrs)	63.09%	183.19%
Sensex return (last 5 yrs)	26.80%

Having looked at Cera, I think it definitely merits a closer look and probably a bigger slice of the investment pie than HSIL.

P.S: I am an interested part in these stocks as I hold HSIL and intend to buy into Cera. Please do your own due diligence before investing.