Cera Sanitaryware - Beat on all counts - ICICI Securities

Besides registering lower than expected decline in Q1 revenues (down 47% YoY to Rs1.43bn vs our estimate of Rs1.2bn), Cera Sanitaryware (CRS) also reported a beat in its operational performance with EBITDA margin coming in at 4.7% (I-Sec: -0.6%). The beat was largely led by stricter cost control measures including rental renegotiation, trimming down on sales, marketing and publicity costs besides decline in natural gas prices. With CRS witnessing a faster recovery in volumes across its bathroom solutions segment in Jul'20 (a mere 5% decline in revenues), we now build-in 11% revenue decline for FY21E. We expect EBITDA margin to rebound to 15% by FY22E on the back of cost-saving initiatives, likely price hike in Aug'20 and operating leverage. Upgrade to HOLD.

- Valuation and outlook. Factoring-in the better than expected Q1FY21 performance, we increase our revenue and earnings estimates by 17.5%/17.2% and 4.6%/10.2% for FY21E/FY22E respectively. We now expect CRS to report revenue and PAT CAGRs of 4.9% and 6.6% respectively, over FY20-FY22E. We upgrade our rating on the stock to HOLD (from Reduce) with a revised target price of Rs2,180 (earlier: Rs1,975), valuing it at 22x FY22E earnings.

- Revenues down 47% YoY due to sharp decline across segments. CRS reported 47% YoY decline in its standalone revenues to Rs1.43bn (I-Sec: Rs1.2bn). This was largely due to muted demand across product segments with the tile segment impacted most. Sanitaryware / faucet / tile / wellness segment sales decline for the quarter were at 47% / 39% / 53% / 58% YoY respectively. With faster recovery in volumes expected in categories like faucet and sanitaryware (driven by market share gains and new product launches), we expect CRS to report 4.9% revenue CAGR over FY20-FY22E.

- Standalone EBIDTA margin surprises positively at 4.7% despite sharp fall in revenues. EBIDTA margin came in at 4.7% (I-Sec: -0.6%) largely due to initiatives to save fixed costs in addition to lower natural gas prices. Gross margin however declined by 490bps/350bps YoY/QoQ, led by adverse product mix and higher share of revenues from outsourcing. Going forward, we expect EBITDA margin to rebound to 15% by FY22E on the back of the recent cost-saving initiatives, likely price hike in Aug'20 and operating leverage.

- Standalone PBT down 85% YoY to Rs44mn. CRS posted better than expected PBT of Rs44mn (I-Sec: Rs-70mn) driven by better than expected operational performance. Company reported standalone PAT at Rs29mn, down 85% YoY.

Shares of CERA SANITARYWARE LTD. was last trading in BSE at Rs.2272 as compared to the previous close of Rs. 2243.75. The total number of shares traded during the day was 290 in over 93 trades.

The stock hit an intraday high of Rs. 2299 and intraday low of 2259.5. The net turnover during the day was Rs. 659418.

Source : Equity Bulls

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