We reiterate our Buy score on Cera Sanitaryware (CRS) led by continued wholesome demand surroundings aided by pick-up within the residential housing market and likewise from residence enchancment market. Our interplay with sellers and administration signifies continued demand tailwind even in Q1 within the core segments of sanitaryware and faucetware. Margins also needs to stay agency going forward as the corporate has taken value improve of ~3% in sanitaryware and ~5% in faucetware throughout mid-May, 2022 which ought to negate uncooked materials value pressures.
Management has guided to double the income over the following ~3.5 years with margin enchancment of a minimum of 50bps-75bps y-o-y in FY23. We count on CRS to witness income/PAT CAGR of 17%/27%, respectively, over FY22-24 led by faucetware and sanitaryware segments with steady excessive return ratios. Maintain Buy with an unchanged Mar’23 goal value of Rs 5,592 set at 32x PER FY24E (according to 1-yr ahead five-year common PER).
Revenue CAGR of 17% throughout FY22-24E: CRS is anticipated to witness income CAGR of 17% throughout FY22-24E aided by development in sanitaryware and faucetware segments. Both these segments are witnessing sturdy demand as a result of pick-up within the residential housing market and elevated demand from residence enchancment market. CRS derives ~55% of income from tier-3 and under markets, which proceed to witness wholesome demand. The sanitaryware phase is anticipated to witness income CAGR of 15% over FY22-24E with incremental volumes being catered to from outsourcing till the brand new owned-manufacturing facility commences manufacturing. The greenfield sanitaryware facility is anticipated to fee manufacturing in 24-30 months at a capex of Rs 1.28 bn.
In faucetware phase, income CAGR of twenty-two% throughout FY22-24E is anticipated, aided by graduation of enhanced capability of 1.2mn pcs in Q1FY24. Total capex deliberate for brownfield enlargement of faucetware facility is Rs 690 mn. Both these capex initiatives can be funded from inner accruals.
Margins to stay steady: CRS has taken value improve of three% in sanitaryware phase and 5% in faucetware phase in mid-May,2022. This value improve, coupled with earlier value will increase in FY22, will allow the corporate to take care of margins at ~15.5% going forward (common margin over FY12-FY22 had been ~15%). We have modelled EBIDTA/PAT CAGR of 17%/27% throughout FY22-24E.
Valuations: CRS has a robust net-cash stability sheet with wholesome development prospects led by uptick in housing market and elevated demand from residence enchancment market. We proceed to love the corporate for its complete product portfolio, extensive distribution attain and powerful model presence. Maintain Buy with an unchanged Mar’23 goal value of Rs 5,592. Key dangers to our name: 1) Slowdown in demand from housing, 2) continued greater enter costs, which can dent demand/profitability.
Source: www.financialexpress.com”