Cera Sanitaryware expects Q3FY27 margin recovery as price hikes support growth

Investment View and Valuation

In its August 8, 2026 Q1FY27 result update, PL Research maintained its BUY rating on Cera Sanitaryware. PL Research’s positive view is based on continued double-digit revenue growth, management’s maintained FY27 growth guidance, anticipated margin recovery from Q3FY27 and the benefit of implemented price increases.

PL Research reduced its target price to Rs 7,221 from Rs 7,430, valuing Cera Sanitaryware at 30 times March 2028 estimated earnings. The brokerage reduced its FY27E and FY28E EPS estimates by 5.3 per cent and 2.8 per cent, respectively, following the weaker margin outcome.

Q1FY27 Financial Performance

Cera Sanitaryware reported Q1FY27 net sales of Rs 4,860 million, up 19.5 per cent year on year and 2.2 per cent above PL Research’s estimate of Rs 4,753 million. Segmental revenue growth remained strong across businesses.

Segmental revenue increased by 12.3 per cent in sanitaryware, 22.5 per cent in faucetware, 31.4 per cent in tiles and 138.9 per cent in wellness. However, gross margin declined by 550 basis points year on year to 45.8 per cent amid elevated input costs.

FY27 Guidance and Margin Recovery

Management retained its FY27 revenue-growth guidance of 18 to 20 per cent but lowered its EBITDA-margin guidance to 13.5 to 14 per cent from 14 to 15 per cent.

Management attributed the Q1FY27 margin pressure to a one-time Rs 63 million wage settlement relating to September 2025 to March 2026, Rs 37 million of lower fixed-cost absorption during single-kiln operations and a Rs 40 million impact from old-price project orders. Management expects these factors to normalise and margins to recover from Q3FY27.

Cera Sanitaryware also reclassified turnover discounts from expenses to a reduction in revenue. This lowered reported Q1FY27 revenue by about 2.5 per cent without changing absolute EBITDA, profitability or cash flows.

Price Increases and Input Costs

Management said cumulative price increases of about 12 per cent in sanitaryware and 16 per cent in faucets had been well absorbed. The benefit of the May price increase was delayed because pre-hike dealer orders were dispatched at old prices. Management expects the benefit from July in retail and from Q3FY27 in projects.

Sanitaryware growth was led by about 10 per cent volume growth, while faucetware growth was supported by about 18 per cent volume growth. A key input-cost risk remains brass, whose price rose to Rs 900 per kg in July from Rs 665 per kg in December. Management indicated that further price hikes may be needed if brass approaches Rs 950 to Rs 1,000 per kg.

Gas cost was 3.3 per cent of sales, while the gas price was Rs 48.43 per SCM versus Rs 33.17 in Q1FY26.

Capacity Utilisation and Capital Expenditure

Sanitaryware utilisation was 61 per cent in Q1FY27 because of a temporary kiln disruption, but subsequently improved to about 80 per cent with both kilns operational. Faucet utilisation was 96 per cent. The faucetware brownfield expansion is expected to begin operations in Q4FY27, while outsourcing provides interim flexibility.

Cera Sanitaryware plans FY27 capital expenditure of Rs 403 million for the faucet expansion, manufacturing efficiencies, digital initiatives and operational infrastructure. The company will reconsider a deferred Rs 1,300 to Rs 1,500 million sanitaryware greenfield project by FY27-end, subject to demand. The project is estimated to have an 18-month completion period.

PL Research Financial Forecasts

PL Research estimates FY26 to FY28E revenue, EBITDA and PAT compound annual growth rates of 15.2 per cent, 18.9 per cent and 22.4 per cent, respectively.

Key Risks

• Sustained input-cost inflation.
• Insufficient pass-through of price increases.
• Delayed improvement in kiln utilisation.
• Weaker-than-expected demand.