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.

Stock Update: Supreme Industries (NSE: SUPREMEIND)

Supreme has been going strength to strength. Although it has not been able to sell its Supreme Chambers, it has shown consistent growth and operating results. It has its yearly closing in June. So, what was published last month was the full year results.

• Polymer processing went up by 9.8%. 
• Revenue was at 2965 cr, up 20% yoy
• Net Profit was at 232 cr, up 36.91% yoy
• Standalone EPS of 18.93
• Final dividend of 4.5/share was announced taking the full year dividend to 6/share.

Supreme has 4 major business segments.

Segment	Volume growth	Value growth
Plastic Piping	14%	28%
Packaging Products	9%	19%
Industrial Products	8%	14%
Consumer Products **	-10%	6%

** excluding PP Mats business which was discontinued

• The value added products segment has gone up by 31.5%
• Committed to capex of 280 cr primarily in capacity expansion in cross laminated films, protective packaging unit at Hosur, composite LPG cylinder & pipe unit and plastic piping unit.
• Total planned capex of around 1100 cr in the next 5 years, to be funded from internal accruals.
• The company expects a volume growth of around 16% and value growth of 25% in 2013.

Expected EPS for June 2013 : 21.5-23
PE range : 12-15
Possible price range (June 2013) : 258-345

In my previous update of the company, I had expected an FY12 EPS between 15-16 and a target price range of 180-240 by June end 2012. Both have been positively surpassed. The stock is making new highs recently. Expecting a one year forward price of close to 320-350. I continue to hold Supreme and it continues to be the largest position in my portfolio. I see no reason to other that sit tight on it.

Disclosure: I am invested in Supreme. Please due your own due diligence before investing.

Guru Speak: Chalie Munger's Speech in 2010

Charlie Munger's 2010 Speech

Guru Speak: Seth Klarman's MIT Speech in 2007

Seth Klarman MIT Speech2007

Want to be a better investor? Chuck your online portfolio

There are many things which you can do to evolve as better investors. Multidisciplinary learning, reading annual reports, deep knowledge in some business areas, asset allocation, position sizing, concentration vs diversification, portfolio management etc. In this post, I want to share one area which subtly pushes you to becoming a better investor.

These days nearly everyone maintains an online portfolio. These portfolios provide real-time (or delayed by a few minutes) portfolio value. It maintains your buy price, number of stocks, current market price and total current market price of holding.

Now let me come to why you should NOT maintain an online portfolio. It is important to know and understand what action we are taking based on the information I possess. Having an online portfolio does not help in taking any action. For example, if the market value of your portfolio rises 0.5% on a day, do you start thinking that "Wow, I am 0.5% richer, let me sell all my holdings!!". You don't. You mostly stare blankly at the computer/mobile/tablet screen and feel happy (if the portfolio is up), sad (if it is down), very happy (if it is up more than the index) or very sad (if it is down more than the index). So, if you don't really do anything productive with your online portfolio, isn't it time to question why you need it in the first place?

Here are some distinct benefits of NOT having an online portfolio:

• You don't waste time on tracking prices on a daily (or hourly) basis
• You actually do something productive with your time (like reading annual reports, sector reports or getting your day-job completed)
• Your time horizon for investing increases as you are not on a minute-by-minute tracking mode
• You maintain an offline (paper or simple spreadsheet) and update the prices once-a-quarter (or more infrequently if you like). Simple fact of having to look up individual prices will deter you from updating frequently!!
• You will limit the number of stocks in your portfolio from 100s to a much lower number if you have to track prices manually!!

This is one easy way to inculcate a good investing practice. (Apart from stopping to listen to the chatteratti on CNBC). Try it and see if it works for you.

Seth Klarman - Psychology of Leadership

Energy Infrastructure - Need to look into the future

With shale oil and natural gas recoveries in various parts of the world, the future of the oil economy is already starting to change. According to the 2010 World Energy Outlook by the International Energy Agency, the world shale oil resources may be equivalent of more than 5 trillion barrels of oil of which more than 1 trillion barrels may be technically recoverable. In comparison, the world's proven conventional oil reserves are estimated to be at 1.3 trillion barrels. This means that the quantity of economically recoverable shale oil is almost equal to the amount of oil. But, the major difference is that majority of the world's shale oil deposits are in USA. In fact, the top 6 shale oil deposits discovered till date are all in the US. 


On the other hand shale gas, a natural gas which is extracted from shale rock formations, prices has crashed in the US due to excessive supply. In July, the supply is going to exceed the demand and storage capacity put together. This may mean a further crash in prices. That is why the import terminals in the US have applied for converting to export oriented ones. US has the 2nd largest shale gas reserves, after China which has the highest. Gas price in US is currently in about $2.5 per million British thermal units (mBtu). The latest figures from the U.S. Energy Information Agency (EIA) indicate that natural gas supply could exceed demand by 2016, enabling North America to become a net exporter of LNG. In India, domestic gas is sold between a price range of $4.2 and $5.65 per mBtu. Imported gas is sold for $13-14 per mBtu. The landed cost for US imported gas is likely to be much cheaper than the current rates.


Politically, US may start losing its interest in Middle Eastern politics and become a dominant energy exporter themselves. Also, this will mean that the concept of "peak oil" that was first propagated in the 1970s will lose its relevance.


From an Indian perspective, it makes sense to start building infrastructure for LNG on a larger scale. Building cars, filling stations, LNG terminals and storage tanks to power plants which run on LNG are needed. All this would take time and we should take up this challenege. Dr. manmohan Singh has expressed his desire to focus on the infrastucture sector. I would hope that this takes a high priority on his agenda, for the sake of India's future.