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Buy This Multibagger Small Cap Building Material Stock, Share Price Can Jump, Gained 11.7% In A Week
Bonanza Research, a leading brokerage firm, in its recently published a report on Cera Sanitaryware Lid. (Cera) has given a buy rating. The brokerage recommended investors 'buy' the stock of the company for a target price of Rs 6,564 apiece. According to the brokerage's estimated target price, investors buying the stock of the company at the current market price are likely to gain 18% in 12 months. Cera is a small-cap building material Sector company engaged in the Ceramic, Tiles & Sanitaryware industry. It has a market capitalization of Rs 7,247.78 crore.
Stock Outlook
07 September, on NSE, the stock of the company closed at Rs 5,572.70 apiece after gaining 4.19%. The 52-week low is Rs 3,515 as on 10 May 2022 apiece and the 52 week high is Rs 6,450 apiece as on 19 October 2021, respectively.
Returns on Investment
Cera's stock in the past 1 week has given 11.7%. Whereas, in the past 1 and 3 months, it gave positive returns of 17.95% and 36.79%, respectively. Over the past 1 year, the stock gave a positive return of 29.45%. Whereas, in the past 3 years, the stock gave multibagger returns of 128.45%. Over the past 5 years, it gave a 90.27% positive return.
Brighter demand outlook along with record Utilization: An upcycle of home improvement
Cera Sanitaryware Ltd. (Cera) with a track record of 2 decades, strong brand, and large retail network has a sizable market share of 17% in the 80% organised Sanitaryware (SW) & 7% in the 65% organised Faucetsware (FW) market. "We like Cera on the back of 1) Superior margins (15% EBITDA margins against 8% of its peer HHIL) backed by its strong focus on SW and FW business (89% of revenue) 2) Strong distribution network (15,644 dealers & retailers, 157 Cera style galleries) and after sales service with providing 10 year warranty compared to 5 years by its peers on some SKU. 3) Large CAPEX (₹ 197 Cr) post record utilization (100-120%) indicates strong demand ahead. 4) robust rebound in residential market (sales units crossed 6 year high in H2CY22) along with focus on home improvement," the brokerage has said.
Cera has posted Revenue/EBITDA/PAT growth of 7%/6%/9% CAGR respectively from CY17- 22. Over CY22-25E, we expect the company to deliver Revenue/EBITDA/PAT CAGR of 21%/21%/24% respectively along with EBITDA margin/PAT margin/ROE/ROCE of 16%10%/17%/22% in FY23E.
Strong foothold in Sanitaryware and Faucetware business
With over 17%/7% market share in organised SW and FW market, followed by 32% for Parryware (as of 2020) in overall bathware, Cera has been focused on launching innovative products, creating a niche position particularly in premium SKUs (10%/18% of SW/FW revenue) like touch free faucets, Wall mounted sensor taps, etc. which is well placed to capture home upgradation trend.
Diversified distribution network to capture Tier 3 market
Cera, having strong distribution network especially in Tier 3 (56% of revenue) market which will support the rural demand, has also introduced dealer-owned showroom concept, which is called 157 CERA Style Galleries, along with 8 "Cera Style Studious", 15,644 trade partners and 342 technicians (for aftersales service).
CAPEX will double the topline in next 3.5 years
Post record utilization (100-120%), Cera is looking to expand its SW capacity from 25 Lakh ppa (pieces per annum) to 37 Lakh ppa (for ₹ 128 Cr, by H2 FY25) and FW capacity from 30 Lakh ppa to 48 Lakh ppa (for ₹ 69 Cr, by Q1FY24). The management has guided for doubling its revenue in 3.5 years with increase in EBITDA margins by 50-75 bps YoY.
Strong rebound in residential Real Estate, rising home improvement trend along with government thrust to affordable housing
Residential sales units (B2B, where Cera generates 30% of revenue) crossed 6 year high in H2CY22 (1,58,705 units), simultaneously a 23% decline in the unsold inventory (6,96,011 units) from its peak levels (9,00,181 units) of CY16 was seen along with Government focus towards affordable housing, PMAY-G, PMAY-U etc, add up to the demand.
Initiate Coverage with Buy - Target Price of ₹ 6,564
Due to strong demand, record utilization we expect the company to post Strong Revenue/EBITDA/PAT CAGR of 21%/21%/24% during FY22-25E with slight jump in margins by 50 bps YoY. - As per DCF we value the stock at ₹ 6,564/share, a decent upside of 19%.
Disclaimer
The stock has been picked from the brokerage report of Bonanza Research. 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 making any investment decision.
