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Systematix Research Report
Cera Sanitaryware Ltd.'s inline Q2 results (revenue/Ebitda/profit after tax up 11%/13%/ 12% YoY) was led by faucetware (revenue up 16% YoY) and healthy Ebitda margin (16.5%, up 8 basis points QoQ) despite a 197 bps QoQ contraction in gross margin.
Cash surplus remained strong at Rs 7.5 billion. Despite demand moderation witnessed in tier-II and tier-III markets, management is confident to achieve 15%+ revenue compound annual growth rate over next few years. Cera' regular product launches (699 in FY23 versus usually less than 100 in a year) and premium focus will continue to drive market share gain-led growth.
From its planned ~Rs 2 billion capex, faucets capacity (Rs 0.7 billion capex) is expected to reach 4.8 million units per annum by March 2024 (likely addition from August 2023).
The sanitaryware plant in Gujarat at Rs 1.3 billion capex is likely to be operational in FY26. We maintain our estimates and expect strong 13%/15%/18% CAGR in revenue/Ebitda/PAT over FY23-25E (FY18-23: 9%/11%/15%), supported by continued market share gains and 70 bps Ebitda margin expansion (superior product mix, cost optimisation measures) to 16.9% in FY25E.
High return on invested capital (~50%), operating cash flow/Ebitda (~55%) and OCF/PAT (~90%) are other positives.
While we remain positive on Cera's prospect, at ~36 times FY25E price/earnings on current market price, we maintain 'Hold' rating with an unchanged target price of Rs 8,901.
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