Cera Sanitaryware Expects Growth To Continue

We had recently recommended Cera Sanitaryware to our readers in our magazine ‘Dalal Street Investment Journal’. Meanwhile, there was also some interaction with the company’s management through a questionnaire sent to them. The management’s responses to our queries indicate that investment made in Cera Sanitaryware will earn good returns in the future. 

The company has been showing a CAGR of 25 per cent historically. In the first half of this fiscal the company has achieved nearly 50 per cent growth rate in its revenues. According to the management, the sustainability of this growth rate will depend on the market dynamics and since the company has been working hard to achieve more, we expect good results to continue even in the future, though not at a high growth rate. 

The year so far has seen the company witnessing volume as well as value-based growth and is expecting stabilisation of its faucet division to achieve economies of scale. For investors this means that the company will see even better results in the coming two quarters of the current fiscal. We also expect margin improvement. 

In the first two quarters the company has seen its short-term borrowing going up to Rs 60.52 crore as against Rs 27.24 crore a year earlier. The management has said that the working capital requirement has gone up due to the high growth that it has been witnessing after capacity additions. This has called for a higher requirement of short-term loans. Also, some part of its total debt has been financed through an ECB loan while most of the debt is in rupee terms from the Indian banks. 

Cera Sanitaryware is also increasing its total capacity from 2 MPA to 2.7 MPA, the execution for which is on course. Some of the major equipment such as the kiln has already been commissioned and trial runs have also been undertaken. Commercial production is expected to be in the last quarter of the current fiscal. The company is presently in a consolidation mode with no further expansion plan. If at all there is any further expansion, this will be financed through internal accruals and long-term debt from their bankers. 

The management has also said that the outlook for the sector remains positive. The reversal of interest rates will also bear a positive impact on its topline as well as net profit. The growth is also likely to be sustained due to increasing awareness of the need for good sanitation, shift to branded products, market penetration and awareness in Tier II and III towns, life style improvement, etc. We therefore hold our view to buy the stock at its CMP which offers about 30 per cent returns in one year.