Good Show By Cera Sanitaryware - Reiterate Buy

Cera Sanitaryware has yet again surprised with its better than expected September quarter results. The company posted a handsome growth of 53% in the revenues to Rs 117 crore. The net profit also grew by 37% to Rs 11 crore. With this growth the company is well on course to achieve revenue target of Rs 500 crore in this fiscal. For the Half year ended September 2012, company posted 47% growth in the top line to Rs 213 crore and 39% jump in the bottom line to Rs 20 crore.

Overall the business looks in good shape after posting better than expected result in the first half of this fiscal. The top line growth indicates that the business, despite the slowdown in the real estate market is growing handsomely. Besides the company has wide variety of the premium brands which are fuelling its growth.

The Sanitaryware market is favoring organized players as the small players are taking hit on the margins. Cera’s margins in the quarter have shown expansion of 58 basis points indicating it is enjoying profitability at that level, besides it also has pricing power and the company earlier had said that it will increase prices of certain range of products. For the half year, margins were compressed by 40 basis points but that is in line with the expectations.

In the September quarter results its interest payments have doubled and the interest cover ratio has reduced to 12x from 15x in the similar quarter last fiscal, but the same still remains at the comfortable level. The effective tax rate for the quarter was at 33%, in line with that in the corresponding quarter last fiscal.

Currently total debt of the company is Rs 76 crore which is one concern at the moment. The company during earlier analyst meet had said that it will keep the debt near to Rs 30 crore hence one has to watch if it goes for the debt reduction in remaining half of the year.

The company is also set to increase its production capacity from 2.7 million pieces to 3 million pieces which will help it post fantastic results in the last quarter. The next level growth of the company will be coming from this capacity expansion due in the last quarter of the fiscal.

We had earlier covered its June quarter result and full analysis on our website with a ‘buy’ call on it. The target price in both the instances has been achieved by the stock. We raise the target to Rs 436 for the year which will give 17% price appreciation at CMP. We advice to buy the stock.