Cera Sanitaryware Q4FY13 Result At Par With Estimates

Cera Sanitawyare, which has been recommended by us a number of times on the web, has come up with a good set of Q4FY13 numbers. The company has reported 57% growth in revenues to Rs 165 crore which is in line with our expectations. Its net profit stands at Rs 13.93 crore, showing a growth of 50%. However, considering revenue growth, there was a scope for showing improvement on the profitability front. Nevertheless, Cera's management has met the FY13 revenue target of Rs 500 crore and definitely deserves applause for the same.

Cera Sanitaryware, during the quarter, has seen a drop in its EBITDA margins. This is due to the 32% rise in stock in trade and 22% rise in the expenses in the category termed as other expenses. The raw material expenses rose by 6.7% while Power and Fuel expenses grew by 4%, indicating that most input prices remained under control. The major reason for the EBITDA margins to have declined is the rise in inventories and the stock trade which was at Rs 14.60 crore. These were at Rs -12.58 crore a year ago. For the second time in the last eight quarters, the company has reported an increase in inventories.

In the balance sheet, trade receivables have increased while inventories as per cent of sales have reduced. The key question is whether the company is anticipating a slowdown as it has kept lower inventories. We would, however, rule out that possibility as the 57% growth in the topline itself speaks of a high growth potential.

The balance sheet shows an improvement in the key ratios such as debt to equity which has come down by 0.3x. The liquidity ratio has come down a bit in the quarter on a YoY basis. The interest cover ratio, on the other hand, remained at 10x, which is a comfortable level. Its net-worth too has increased from Rs 139 crore in March 2012 to Rs 179 crore in March 2013.

Investors can enter the stock at the CMP which is available at a price to earnings multiple of 12.2x its FY13 EPS Rs 36.51. Overall, the growth numbers are quite satisfactory and we thus raise our 2-year target price on the stock to Rs 616.