ICICI Securities Reiterates Buy On This Multibagger Small-Cap Stock, Sees Robust Gains

ICICI Securities reiterates BUY rating on Cera Sanitaryware Limited (CRS) with a target price of Rs 6,280 apiece. The "buy" call is driven by the sustained healthy demand environment aided by a pick-up in the residential housing market as well as in the home improvement market. The brokerage claims a potential upside of 18% from its current level if the stock is purchased at the current level. CRS is a small cap Building materials sector having a market capitalisation of Rs 6,955.35 crore.

Stock Outlook & Returns

The share of the CRS on NSE last traded at Rs 5,347.85 per share, gaining 0.73% as compared to its previous close. The stock's 52-week low is Rs 3,515, recorded on 10 May 2022. The 52-week high is Rs 6,076.60 apiece, recorded on 24 November 2022.

In the last 1 week, it has given 1.3% negative returns. In the past 1 and 3 months, it has given 1.87% and 8.8%, respectively. In a year it has given 9.41% positive returns. It has given 109.71% multibagger returns in 3 years. In the past 5 years, it has given 46.81% positive returns on investments.

Revenue CAGR of 16.6% during FY22-FY25E

The Brokerage said, "We expect CRS to witness a revenue CAGR of 16.6% during FY22-FY25E aided by growth in its core segments of sanitaryware and faucetware. Both these businesses are witnessing healthy demand due to pick-up in the residential housing market as well as in the home improvement market (barring the NCR region, which has seen construction activity ban since Nov'22 to combat pollution). As per industry participants, the potential Q3 demand in NCR will spill over to Q4 due to the current construction ban.

We believe CRS has <10% of its revenues coming from NCR, hence the near-term impact of the ban will be limited. Company derives ~55% of its revenue from tier-3 and below markets (population <1mn), which continues to witness healthy demand. The sanitaryware segment is likely to witness revenue CAGR of 15.2% over FY22-FY25E with incremental volumes being catered to from outsourcing until the new in-house facility commences production.

The greenfield sanitaryware facility is expected to go on-stream in 24-30 months post finalisation of land purchase, at a capex of ~Rs1.3bn. In the faucetware segment, we expect revenue CAGR of 21.6% during FY22-FY25E, aided by commencement of enhanced manufacturing capacity of 1.2mn pieces (current capacity: 3.6mn) in Q2FY24.

Total capex planned for the brownfield expansion of faucetware facility is ~Rs700mn. Capex for both the projects will be funded from internal accruals."

Margins to remain at ~16%

CRS's margins should remain stable at ~16% over FY22- FY25E as there are no incremental inflationary cost pressures. Company however launched an aggressive brand campaign in H2FY23 (starring Kiara Advani and Vijay Deverakonda) and if the total cost is accounted for in H2 itself, then, there may be a nearterm downside risk to margins.

We have modelled margins of 15.95% in H2FY23E (vs 16.1% reported in H1FY23) and EBIDTA/PAT CAGRs of 17.4%/24.4% for FY22-FY25E. Management has guided for margin improvement of at least 50bps-75bps in FY23.

Valuations, view & key risks

ICICI Securities said, "We continue to like CRS for its comprehensive product portfolio, wide distribution reach, strong brand presence and robust balance sheet. Maintain BUY with an unchanged Sep'23E target price of Rs 6,280."

Key risks: 1) Slowdown in demand from housing, and 2) higher input prices, which may dent demand/profitability.

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 making any investment decision.