CMP (Rs) 501.90

Target Price (Rs) 552.00

ISIN: INE739E01017

July 15th

, 2013

CERA SANITARYWARE LTD Result Update: Q1 FY14

BUYBUYBUYBUY

Stock Data

Sector Furniture & Furnishing

BSE Code 532443

Face Value 5.00

52wk. High/Low (Rs.) 567.00/282.00

Volume (2wk. Avg ) 2012.00

Market Cap (Rs in mn) 6351.04

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 4878.67 6098.34 7074.07

EBITDA 843.25 997.19 1143.02

Net Profit 462.07 540.13 615.40

EPS 36.52 42.68 48.63

P/E 13.74 11.76 10.32

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX CERA SANITARYWARE LTD

SYNOPSIS

Cera Sanitaryware Ltd is a pioneer of the

first sanitary ware segments in India

launching innovative designs & water

saving products.

During the quarter, the robust growth in

the Net Profit of the company and it is rose

by 20.99% to Rs. 111.82 millions.

Revenue for the quarter increase 39.86%

to Rs.1265.89 million from Rs.905.12

million, when compared with the prior

year period.

Cera has added other products like kitchen

sinks, mirrors and sensor products to its

range under Bathware.

The CAGR of company during last Five

years has remained much more than

industry growth rate.

Together, the CERA Style Studios and

CERA Style Galleries have made a great

impact in improving the retail experience

for prospective customers, institutional

buyers and influencers of CERA.

Net Sales and PAT of the company are

expected to grow at a CAGR of 30% and

24% over 2012 to 2015E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Cera Sanitaryware Ltd 501.90 6351.04 36.52 13.74 3.54 80.00

Kajaria Ceramic Ltd 249.35 18348.10 13.66 18.25 5.14 150.00

HSIL Ltd 86.40 5706.40 15.01 5.76 0.51 150.00

Somany Ceramics Ltd 77.00 2656.30 9.16 8.41 1.71 40.00

Investment Highlights STANDALONE

Results updates- Q1 FY14

Cera Sanitaryware Ltd, the total bathroom solutions

provider and the third biggest player in the Indian

Sanitaryware products has reported its financial

results for the quarter and year ended 30th June,

2013. The Q1 results reflect CERA’s continuance of

its high growth rate in excess of 39%, which is a

sequel to management’s commitment to aggressive

business strategies.

Months Jun-13 Jun-12 % Change

Net Sales 1265.89 905.12 39.86

PAT 111.82 92.42 20.99

EPS 8.84 7.30 20.99

EBITDA 213.04 172.11 23.78

The company’s net profit jumps to Rs.111.82 million against Rs.92.42 million in the corresponding quarter

ending of previous year, an increase of 20.99%. Revenue for the quarter increase 39.86% to Rs.1265.89 million

from Rs.905.12 million, when compared with the prior year period. Reported earnings per share of the company

stood at Rs.8.84 a share during the quarter, registering 20.99% increase over previous year period. Profit before

interest, depreciation and tax is Rs.213.04 millions as against Rs.172.11 millions in the corresponding period of

the previous year.

Expenditure :

During the quarter Total Expenditure rose by 42 per

cent mainly on account of Increase in Purchase of

Stock in Trade along with consideration of

Depreciation in the rupee impact. Total expenditure

in Q1 FY14 was at Rs. 1094.86 million as against Rs.

770.45 million in Q1 FY13. Purchase of Stock in

Trade cost is Rs. 423.88 millions against Rs. 269.36

millions in the corresponding period of the previous

year. Employee Benefit Expenses Rs. 166.49 million

and Other Expenses is Rs. 292.34 millions in Q1

FY14 are the primarily attributable to growth of

expenditure.

Latest Updates

• The growth also reflects CERA’s focused endeavors to retain its status as complete bathroom solutions

provider to its customer base across India. The strategic planning in terms of product optimization and

leveraging on Cera’s strong brand image with well supported penetrating distribution network continues to

drive company’s high growth and carving out new standards for itself.

• CERA has expanded its production capacity to 2.7 million pieces per annum from 2.0 million pieces.

• The Company has also added other products like kitchen sinks, mirrors and sensor products to its range

under Bathware.

• The CAGR of company during last Five years has remained much more than industry growth rate.

• The CERA Style Galleries opened in several cities in collaboration with CERA dealers have been a success,

with many more dealers coming forward for opening such Galleries. Already 50 CERA Style Galleries are

functional all over the country.

• Together, the CERA Style Studios and CERA Style Galleries have made a great impact in improving the retail

experience for prospective customers, institutional buyers and influencers of CERA.

Risks and Concerns

• Any drastic change in Government policy may affect Sanitaryware and Faucetware manufacturers.

Company Profile

Cera Sanitaryware Ltd was launched in the year 1980 is a pioneer in the sanitary ware segment in India. The first

sanitary ware company to use natural gas, Cera has been on the forefront of launching a versatile color range and

introducing the bath suite concept. It also launched innovative designs and water-saving products. The twin-

flush model launched in India by Cera for the first time, reduces the water needs of households considerably.

WCs designed to flush in just 4 liters of water is another notable innovation by Cera.

Cera Sanitaryware incorporated in the year 1998 is a pioneer in the sanitary ware segment in India. The

company has launched a wide range of bath suite concept.

Cera Sanitaryware sells its products through Cera Bath Studios, which provides consumers, architects and

interior designers a full view of ranges of wash basins, shower panels, shower cubicles, bath tubs, shower

temples, whirlpools, cp fittings etc.

Cera Bath Studios has pan- India presence, are located at Ahmedabad, Bangalore, Chandigarh, Kolkata, Cochin

and Hyderabad, Mumbai.

Manufacturing Unit Cera Sanitaryware manufacturing facilities are located at Kadi, Gujarat.

Products

The company has providing the following products for various purposes.

• Sanitary ware

• Faucets

• Wellness

• Kitchen Sinks

• Mirrors

• Personal Care

• Green Products

The achieving the growth in the rapidly changing retail market in the country, Cera, has launched its one of a

kind Cera Bath Studios in Ahmadabad, Bangalore, Chandigarh, Kolkata, Cochin and Hyderabad, Mumbai. With the

opening of the Cera Bath Studios, the discerning consumers, architects and interior designers can have full view

of the Cera’s premium ranges of WC’s, Wash Basins, Shower Panels, Shower Cubicles, Bath Tubs, Shower

Temples, Whirlpools, CP fittings etc.

Cera Bath Studios will complement its existing network of 600 dealers and 5000 retailers. Several Bathrooms are

displayed live, so that the customers can get a feel of Cera’s vast range of products.

Associate Companies

• Madhusudan Industries Ltd.

• Vikram Investment Co. Ltd.

• Madhusudan Fiscal Ltd.

• Madhusudan Holdings Ltd.

• Cera Foundation

• Swadeshi Fan Ind. Ltd.

Financial Highlights STANDALONE

Balance sheet as at March 31st, 2012-2015E

(A*- Actual, E* -Estimations & Rs. In Millions)

Particulars March (Rs.in.mn) FY12A FY13A FY14E FY15E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 63.27 63.27 63.27 63.27

Reserves and Surplus 1328.54 1731.76 2271.89 2887.29

1. Total Net worth 1391.81 1795.03 2335.16 2950.56

Non Current Liabilities

Long Term Borrowing 116.22 148.92 169.77 181.65

Deferred Tax Liability (Net) 136.18 162.18 178.40 189.10

Other Long Term Liabilities 55.51 70.65 81.25 89.37

Long Term Provisions 166.75 197.48 219.20 232.35

2. Total Non Current Liabilities 474.66 579.23 648.62 692.48

Current Liabilities

Short Term Borrowings 295.95 400.49 472.58 519.84

Trade Payables 189.56 276.10 325.80 355.12

Other Current Liabilities 489.93 610.75 696.26 751.96

Short Term Provisions 104.06 135.01 160.66 179.94

3. Total Current Liabilities 1079.50 1422.35 1655.29 1806.85

Total Liabilities (1+2+3) 2945.97 3796.61 4639.07 5449.89

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 902.60 1250.52 1600.67 1920.80

Capital Work in Progress 109.47 43.33 34.66 38.13

a) Total Fixed Assets 1012.07 1293.85 1635.33 1958.93

b) Non Current Investments 0.01 0.01 0.01 0.01

c) Long Term loans and advances 151.67 213.48 277.52 344.13

1. Total Non-Current Assets 1163.75 1507.34 1912.86 2303.07

Current Assets

Current Investment 10.93 13.81 15.88 17.95

Inventories 917.54 940.24 980.67 1029.70

Trade receivables 454.55 831.30 1124.11 1403.98

Cash and Bank Balances 312.95 403.54 492.32 571.09

Short-terms loans & advances 79.30 93.62 105.79 116.37

Other current assets 6.95 6.76 7.44 7.73

2. Total Current Assets 1782.22 2289.27 2726.21 3146.82

Total Assets (1+2) 2945.97 3796.61 4639.07 5449.89

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 3193.90 4878.67 6098.34 7074.07

Other Income 68.47 89.94 100.73 108.79

Total Income 3262.37 4968.61 6199.07 7182.86

Expenditure -2660.25 -4125.36 -5201.88 -6039.84

Operating Profit 602.12 843.25 997.19 1143.02

Interest -40.06 -70.92 -89.36 -105.44

Gross profit 562.06 772.33 907.83 1037.58

Depreciation -77.05 -94.22 -111.18 -124.52

Profit Before Tax 485.01 678.11 796.65 913.06

Tax -164.64 -216.04 -256.52 -297.66

Net Profit 320.37 462.07 540.13 615.40

Equity capital 63.27 63.27 63.27 63.27

Reserves 1328.54 1731.76 2271.89 2887.29

Face value 5.00 5.00 5.00 5.00

EPS 25.32 36.52 42.68 48.63

Quarterly Profit & Loss Statement for the period of 31st Dec, 2012 to 30th Sep, 2013E

Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E

Description 3m 3m 3m 3m

Net sales 1280.19 1579.54 1265.89 1443.11

Other income 20.04 37.54 13.91 14.74

Total Income 1300.23 1617.08 1279.80 1457.86

Expenditure -1074.86 -1372.22 -1066.76 -1226.65

Operating profit 225.37 244.86 213.04 231.21

Interest -20.13 -22.00 -14.26 -16.83

Gross profit 205.24 222.86 198.78 214.38

Depreciation -25.63 -26.85 -28.10 -29.51

Profit Before Tax 179.61 196.01 170.68 184.88

Tax -59.60 -56.68 -58.86 -59.90

Net Profit 120.01 139.33 111.82 124.98

Equity capital 63.27 63.27 63.27 63.27

Face value 5.00 5.00 5.00 5.00

EPS 9.48 11.01 8.84 9.88

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 25.32 36.52 42.68 48.63

EBITDA Margin (%) 18.85% 17.28% 16.35% 16.16%

PBT Margin (%) 15.19% 13.90% 13.06% 12.91%

PAT Margin (%) 10.03% 9.47% 8.86% 8.70%

P/E Ratio (x) 19.82 13.74 11.76 10.32

ROE (%) 23.02% 25.74% 23.13% 20.86%

ROCE (%) 37.65% 39.99% 38.06% 35.64%

Debt Equity Ratio 0.30 0.31 0.25 0.21

EV/EBITDA (x) 10.71 7.70 6.45 5.59

Book Value (Rs.) 109.99 141.85 184.54 233.17

P/BV 4.56 3.54 2.72 2.15

Charts

Outlook and Conclusion

� At the current market price of Rs.501.90, the stock P/E ratio is at 11.76 x FY14E and 10.32 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.42.68 and

Rs.48.63 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 30% and 24% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.45 x for FY14E and 5.59 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.72 x and 2.15 x respectively for FY14E and FY15E.

� CERA is confident of sustaining its growth in coming years with its business strategies of continuously

upgrading product basket, leveraging on strong brand image, optimizing product potential, capacity

utilization and distribution network-all backed up by well structured sales & marketing plans.

We expect that Cera will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this

particular scrip with a target price of Rs.552.00 for Medium to Long term investment.

Industry Overview

The 50-year old, Rs. 1,000 crore sanitary ware industry in India is going through a metamorphosis, with several

foreign brands eyeing India as a potential market and developers and traders "looking at China as a source for

cheaper Sanitaryware. Some of the foreign brands have commenced production in India, while some are

establishing offices in India, apart from those who have already got well-established in this country in the past

few years. Added to this is innumerable small scale industries located mainly in Gujarat, manufacturing low-end

Sanitaryware.

The Company’s brand CERA, with its impeccable legacy of over three decades, continues to grow, much above the

industry rate, despite the competition from peer brands-both domestic and international. The Company’s well-

entrenched and loyal distribution network, nation-wide sales and service teams, immaculate product quality and

continuous advertising and promotional activities through television, print, OOH and POP have helped place

CERA in an enviable platform in the minds of the customers.

The Company’s brand extension to other related categories like showers, faucets, PVC cisterns and seat covers,

etc. has also helped in accelerating the growth.

During the year 2012-13, the Company 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.

Such brand extensions will continue in the coming years as well, which will help CERA establish itself as a total

home solutions brand.

The industry structure remains unchanged with domestic and International brands continuing their efforts to

gain the larger share of the pie of Indian market. Some of them have even set up their manufacturing bases.

Indian ceramic industry

The outlook for the tile industry appears to be positive over the medium term. This optimism stems from the

likelihood of robust demand over the medium term: The real estate market is expected to grow at CAGR 15% to

16% over 2010 to 2015. Estimates suggest a shortage of an approximate 2.5crore housing units in the middle

and low income groups at the beginning of the Eleventh Plan. It is also expected that the medium housing

segment will record around 25% CAGR while luxury housing will experience a 33% CAGR during 2009-13. The

residence owners are looking for value-added products and the retail market is expected to grow from present

5% to 10.4% by 2012. The healthcare segment is also expected to further improve the demand for tiles. This

should result in increased demand of high-value products from the organized realty sector.

Production

India accounted for 8% of the world's sanitary ware production. The market size is estimated to be Rs. 10,500

million. The branded segment accounts for a larger share of 60% and is growing at a rate of 15-17%, whereas

the market share of the non-branded segment has shrunk to 40%, growing at a lower pace of 8-9%. The

organized sector, comprising nine units, reported a production of 108,000 TPA against a total capacity of

118,000 TPA; the 250 units in the unorganized sector produced about 180,000 TPA against a total capacity of

220,000 TPA.

Sanitary ware industry statistics

The organized sector produces fully vitrified sanitary ware, using latest technology and best ceramic raw

materials available in India. The unorganized sector has adapted technologies to manufacture basic sanitary

ware products. Unorganized sanitary ware manufacturers come under the small-scale category and enjoy the

benefit of zero excise duty. The cost of producing sanitary ware in India is substantially low compared to the

developed countries because of cheap labour costs and the indigenous, abundant and economical availability of

most of raw materials.

Demand drivers

Housing: Research indicates an increased demand for permanent, non-slum houses across India driven

primarily by the growth in population, urbanization and income. The total stock of housing in 2007 was

estimated at 255 million units and is expected to grow to 286 million units by 2011, adding an average 7.75

million units annually.

Housing demand estimation

A Planning Commission Survey Report indicates a shortage of about 24.71 million houses in India. A home with

hygienic toilets has become a basic necessity, as people in India are looking for improved sanitation. The

concept of formal toilets is fast growing even in villages, where toilets did not exist even until two years ago. An

increasing demand for housing, government initiatives for the housing sector and sanitation consciousness has

led to a growing market for sanitary ware in India over the last five years.

Hospitals:

The size of India's private healthcare sector is expected to double from Rs. 690 billion to Rs. 1560 billion by

2012 (National Commission on Macroeconomics and Health estimates). Of the proposed Rs. 1000-1500 billion

investment in healthcare, nearly 80% will come from the private sector, driving the demand for high-end

sanitary ware.

Hotels

Estimates suggest that the hotel industry can supply 110,000 rooms, with a 150,000 room deficit. Demand will

exceed supply by at least 100% over the next two years. The government has applications for 300 hotel

projects, nearly half in the luxury range, leading to a growing demand for premium sanitary ware products.

Housing finance

Coupled with rising incomes and increasing middle-income households, there has been an availability of easy

financing and aggressive lending by private banks/housing finance companies. This has provided the much-

needed liquidity to households to fund their growing housing demands. Consequently, mortgage penetration in

India has grown at a robust five-year CAGR of 127%. However, the home loans to GDP ratio in India continues

to be a meagre 5% as against 50% in the US and UK, indicating vast room for growth.

Opportunities and Threats

Even though there was significant drop in construction sector in the fiscal under review. The Company is

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 the growth rate.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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