PL Stock Report: Cera Sanitaryware (CRS IN) - Q1FY24 Result Update - Margin improved, soft revenue growth - HOLD

Cera Sanitaryware (CRS IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs7,917 | TP: Rs8,224

Q1FY24 Result Update - Margin improved, soft revenue growth

We upward revise our FY24/FY25E earnings estimate by 4.1%/5.4% and maintain ‘Hold’ rating, as we value the stock at 35x FY25 EPS to arrive at revised TP of Rs8,224 (earlier Rs 7,805). Cera Sanitaryware (CRS) maintained its healthy revenue growth guidance of 17-19% and expects 16%+ margins in the near term, given strong demand outlook from replacement (accounts 65% its revenue) and expansion in geographical penetration. CRS’s Q1FY24 revenue was marginally below our estimates while higher other income has driven profitability, above our estimates. The company delivered revenue CAGR of 12.5% over 4years in Q1FY24 and continued with its healthy growth trajectory. EBITDA margin sustained at higher level of 16.4% on sequential basis, which is a positive indicator. We believe, demand scenario continues to remain healthy and recent capacity expansion in faucetware division will add to growth in coming quarters. Hence, we expect positive momentum to continue. Management guided revenue of ~Rs29bn by Sept-25 with ~16%+ sustainability in EBITDA margin. We estimate Revenue/EBITDA/PAT CAGR of 17.3%/18.3%/18.9% over FY23-25E. Maintain ‘HOLD’.

Revenues grew by 8.0%, PAT up by 42.2%: Revenue grew 8.0% YoY to Rs4.3bn (PLe:Rs4.5bn). Sanitaryware/Faucetware segment grew 7%/8% YoY and contributes 53%/35% of quarterly revenue. EBITDA grew by 12.0% YoY to Rs704mn (PLe: Rs729mn) and EBITDA margin expanded by 60bps YoY to 16.4%. (PLe:16.1%), mainly with GM improvement alongside correction in brass prices and product mix. The margin improvement was also on account of improvement in productivity and through effective cost optimization measures. PBT grew by 41.8% YoY to Rs760mn (PLe:Rs708mn). PAT grew by 42.2% YoY to Rs567mn (PLe:Rs530mn). Sanitaryware/Faucetware capacity utilization increased to 100%/106% and in-house manufacturing contributed 41%/50% in Q1FY24. Cash balance stood at Rs7.55bn vs Rs6.9bn QoQ.

Con call highlights: 1) CRS has maintained its rev. growth (17-19%) and margin (16%+) guidance for FY24, 2) Replacement demand accounts for 65% of CRS business which will continue to this level, 3) Revenue growth driven by premium products, contributed 45%rev., 4) CRS did capex of Rs580mn over faucetware brownfield expansion, which will increase in-house capacity by 4lacs pieces per month, commission in Aug-23 & full contribution by Mar-24, 5) CRS planned maintenance capex of Rs 350mn and greenfield expansion capex of Rs 250mn (land acquisition in Gujarat) in FY24, 6) Total planned capex for sanitaryware greenfield is Rs 1.3bn which will give asset turn of 2.5x, with annual capacity of 12lacs pieces, 7) CRS has not taken price hike from last 15months, while competition taken in Oct-Nov-22, 8) It has taken price hike of 3%/5% in Sanitaryware/faucetware in May-22, 9) Bladed gas price for CRS was Rs 34/SCM in Q1FY24, as it has received 77%/23% gas from GAIL/Sabarmati gas, 10) Gas price from GAIL reduced to Rs29/SCM in Jun-23 from Rs 36/SCM in Mar-23 and Rs 46/SCM in Jun-23 from Rs 58/SCM in Mar-23 from Sabarmati gas, 11) Advertisement spent was at Rs570mn in FY23 and Rs 112mn in Q1FY24, expected to be Rs 650mn in FY24. 12) Retailer loyalty program accounts ~30% revenue.

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