Cera Sanitaryware Stock Research Report

Muted quarter, H2FY25 to be better; upgrade to BUY on reasonable valuations…..

Cera Sanitaryware (CRS) reported Q2FY25 consol. revenue growth of 6.4% YoY with faucetware growing ~20% YoY and sanitaryware/tiles declining ~6%/11% YoY. OPM fell 188bps YoY (+15bps QoQ) due to higher operating expenses (+135bps YoY), resulting in EBIDTA/PBT decline of 5.7%/2.8% YoY. Management stated that demand was subdued in Q2FY25 and shall revive in H2FY25 – some green shoots are already visible.Thus, it guides for high single-digit FY25 revenue growth (despite H1FY25 being flat) with OPM of ~16–17% (aided by operating leverage and price hikes taken of 6% in Sep’24 in the faucetware segment). We cut our PAT estimates by 5%-7% for FY25–27E and upgrade the stock to BUY (from Hold) due to reasonable valuations post a ~32% fall in stock price over the past three months. Our rolled over Sep’25E TP stands at INR 8,416 (earlier INR 8,637), set at unchanged 35x Sep’26E P/E.

Revenue growth of 6.4% YoY driven by faucetware segment

CRS’ consol. revenue grew 6.4% YoY (5-year CAGR of 8.4%) with faucetware growing ~20% YoY (5-year CAGR of 7.2%), whereas sanitaryware/tile segment revenue declined ~6%/11% YoY. Management stated that demand was subdued in Q2 further impacted by heavy monsoons.
It notes some green shoots and is hopeful of a recovery in H2FY25; thus, guides for high singledigit revenue growth in FY25 (vs. flat in H1FY25), partly aided by its focus on project sales. Management maintains its guidance of INR 29bn revenue by FY27, as it believes many real estate projects that were launched earlier shall see completion over the next two years, and thus, will likely generate demand for its products. Land for its new sanitaryware plant has been acquired, but work on it will start post FY25, as market conditions remain tepid. In Q2FY25, NWC stood at 72 (+12 days YoY), primarily due to higher inventory days (+7 days YoY). CRS has INR 6.59bn cash on books, as of Q2FY25.

OPM declines 188bps YoY on higher operating expenses

CRS’ Q2FY25 consol. OPM contracted 188bps YoY (+15bps QoQ) to 14.6% due to higher operating expenses (+135bps YoY), leading to EBITDA/PBT decline of 5.7%/2.8% YoY. CRS has taken price hikes of 6% in faucets and 1% in sanitaryware in Sep’24 (to negate RM pressure). This, along with an improved product mix and operating leverage, may support margins. Management guides for 16-17% OPM in H2FY25. We model OPM of 15.4-16.4% for FY25–27E (vs. FY12–24 average EBIDTA margin of ~15.2%).

Valuation and view

CRS’ Q2FY25 operating margin have been lower than estimates. It has a strong net cash balance sheet with healthy growth prospects led by an uptick in housing market and increased demand from home improvement market. We continue to like the company for its comprehensive product portfolio, wide distribution reach and strong brand presence.

Upgrade the stock to BUY (from Hold) due to reasonable valuations (30.4x PER FY26E) post the ~32% correction in stock price with a Sep’25 target price of INR 8,416, set at unchanged 35xPER Sept’26E (in-line with 10-year average 1-yearr forward P/E)