Cera is implementing strategic initiatives (stock keeping unit launch, store expansion, brand visibility etc.) to tap into the expanding luxury segment through Senator and Luxe brands.
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Systematix Report
Cera Sanitaryware Ltd. reported another soft quarter in Q3 FY25 (revenue up 3% YoY, Ebitda flat, PAT down 10% YoY). Retail demand remained subdued; B2B segment (35% mix) gained momentum during Q3. Ebitda margin (13.6%, down 103 bps QoQ) got impacted due to higher discounts amid tepid demand despite lower A&P spend (140mn versus Rs 220 million in Q3 FY24). Net Working Capital cycle got elongated to 76 days (from 60 in Q3 FY24) on higher inventory and debtor days.
Management expects continued tepid retail demand to gradually revive; Ebitda margin of 16%+ is likely in the next two quarters. Cera is implementing strategic initiatives (stock keeping unit launch, store expansion, brand visibility etc.) to tap into the expanding luxury segment through Senator and Luxe brands.
After another soft quarter, we cut our earnings estimates by 5-9% on lower revenue and margins expectations. We now expect a low 9%/7%/7% CAGR in revenue/ Ebitda/PAT over FY24-27E (FY19-24: 7%/9%/16%) while maintaining strong operating cash flows (Rs 2 billion plus annually), free cash flows (Rs 1.2 billion+ annually) and high ~48% RoIC. On low growth, we maintain Hold rating with Rs 6,749 target price (30x FY27 P/E, earlier Rs 7,593). Prolonged demand slowdown and intensifying competition pose key risks to high valuation.
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