Buy This Mid Cap Sanitaryware Stock For Gains Up To 40%, Growth Led By Healthy Demand

ICICI Securities in its report published on June 17, 2022, has suggested investors buy the stocks of Cera Sanitaryware Ltd for a target price of Rs 5,592/share. The brokerage has said the company estimated growth is led by a continued healthy demand environment aided by the pick-up in the residential housing market and also from the home improvement market.

Stock Overview

Monday, 20 June, the shares of the Cera Sanitaryware closed at Rs 4,040.20/share, while the previous close was 4,089.25/share. The shares today fell nearly 0.18% from the previous close, it was opened at Rs 4,090.

The 52-week High is Rs 6,450/share recorded on 19th October 2021 and the 52-week low is 3,515/share recorded on 10 May 2022.PE ratio is 35.20. EPS-TTM Is Rs 116.18. PR ratio is 5.16.

Looking at returns on investment, in the last 1 year, it declines by nearly 6.32%. In 3 months it gave negative returns of 13.27%. The stock has performed good, in terms of returns on long-term investments. In3 years it gave 38.8% positive returns and 35.74% in 5 years.

Potential Gains - Considering the estimated target price of Rs 5,592/per share and the CMP of the stock, the stock could witness a potential jump of nearly 40%.

Revenue CAGR of 17% during FY22-24E

Cera Sanitaryware is expected to witness revenue CAGR of 17% during FY22-24E aided by growth in sanitaryware and faucetware segments. Both these segments are witnessing strong demand due to pick-up in the residential housing market and increased demand from home improvement market. Cera Sanitaryware derives ~55% of revenue from tier-3 and below markets, which continue to witness healthy demand. The sanitaryware segment is expected to witness revenue CAGR of 15% over FY22-24E with incremental volumes being catered to from outsourcing until the new owned-manufacturing facility commences production. The greenfield sanitaryware facility is expected to commission production in 24-30 months at a capex of Rs1.28bn. In faucetware segment, revenue CAGR of 22% during FY22-24E is expected, aided by commencement of enhanced capacity of 1.2mn pcs (current capacity of 3mn pcs) in Q1FY24. Total capex planned for brownfield expansion of faucetware facility is Rs690mn. Both these capex will be funded from internal accruals.

Margins to remain stable at ~15-16%

Cera Sanitaryware has taken price increase of 3% in sanitaryware segment and 5% in faucetware segment in mid-May,2022. This price increase, coupled with earlier price increases in FY22 will enable the company to maintain margins at ~15.5% going ahead (average margin over FY12-FY22 had been ~15%). We have modelled EBIDTA/PAT CAGR of 17%/27% during FY22-24E. The management has guided for margin improvement of at least 50bps-75bps in FY23.

ICICI Securities Comments on valuation and key risks

Cera Sanitaryware has a strong net-cash balance sheet with healthy growth prospects led by an uptick in the housing market and increased demand from the home improvement market. We continue to like the company for its comprehensive product portfolio, wide distribution reach and strong brand presence. Maintain BUY with an unchanged Mar'23 target price of Rs5,592.
According to the brokerage, key risks to their buy call are a Slowdown in demand from housing and continued higher input prices, which may dent demand/profitability.

Company Overview- Cera Sanitaryware Ltd

Cera Sanitaryware incorporated in 1998 is a pioneer in the sanitaryware segment in India. Cera Sanitaryware Ltd markets manufacture, and distributes sanitary products. The company products include wash basins, flushing systems, urinals, bath accessories, single lever, quarter turn, green products, half turn faucet ranges, health faucets, overhead showers, bathroom allied products and bathroom accessories, wall and floor tiles, mirrors, kitchen sinks, and others. The company sells its products through Cera Bath Studios, which provides consumers, architects and interior designers a full view of the range of wash basins, shower panels, shower cubicles, bathtubs, shower temples, and whirlpools, cp fittings etc. Cera Bath Studios has a pan- India presence, are located at Ahmedabad, Bangalore, Chandigarh, Kolkata, Cochin, Hyderabad, and Mumbai. Cera Sanitaryware has a sales network of 400 distributors and 4000 retailers. Manufacturing UnitCera Sanitaryware manufacturing facilities are located at Kadi, Gujarat.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.