Markets

Cera Sanitaryware soars on Govt’s sanitation push

Rutam Vora Ahmedabad | Updated on August 20, 2014

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Centre’s vision of creating 100 new cities is a major positive for the firm





Buoyed by robust investor sentiment on promising businesses, Ahmedabad-based bathroom solutions provider, Cera Sanitaryware, has witnessed an uninterrupted journey on the bourses. The company shares surged nearly four times in a year to hit a 52-week high of ₹1,750 on Wednesday.

Signals for growth

While investors are gung-ho about the counter, the company has set its eyes on the Centre, which has sent strong signals for a push in the housing and sanitation segments.

Cera, which has an integrated business portfolio of bathroom solutions, has by far outperformed the industry growth with a five-year CAGR of 36 per cent. The industry, which is estimated to be worth ₹1,500 crore, has been growing at around 15 per cent.

After touching a 52-week low of ₹449.70 on August 28, 2013, Cera’s scrip has been on an uptrend with sharp gains witnessed after April this year.

After hitting the new high, Cera’s shares pared some gains before closing at ₹1,656.25 on the BSE on Wednesday.

Govt’s vision

“The management does not count on share price movements. It is focused on performance. The new Government’s vision of creating 100 new cities and emphasis on sanitation has increased confidence. Even as we are not present in the low-end sanitaryware products, the Centre’s initiative will bring awareness and thereby improve the standard of living,” said Bharat Modi, strategic advisor to Cera.

The company’s product positioning, its distribution channel and product pricing are among the key factors for its sustained growth, Modi maintained.

Present in the branded bathroom products, Cera gets about 70 per cent of its overall revenues from sanitaryware business and allied products, while newly introduced segments of faucets and tiles businesses contribute 16 per cent and 10 per cent respectively.

Cera’s tiles business is outsourced. However, these two segments have been growing at a faster pace, while the sanitaryware business has reported steady growth.

Distribution network

In the last two years, Cera has strengthened its distribution network multiple times from 500 distributors and 5,000 retailers to 1,400 distributors and 14,000 retailers.

For the company, it is the change in the mindset towards sanitaryware and bathroom products that has seen a spurt in spending on these products. Considering the pace of growth in the business, the company has also chalked out a capex plan of ₹150-175 crore spread on the next three years for capacity expansion from 2.7 million units at present to three million by end-2015 and 3.3 million by 2016.

“We are also considering setting up a greenfield facility or may explore options such as brownfield unit through acquisition or joint venture. Our current premises have limitations to make expansion after 3.3 million,” said Modi.

The company also has an advantage of having long-term contracted gas supply, which protects it from fuel cost fluctuations and supports EBITDA margins.

Gets Crisil’s 4/5 rating

As a testimony to Cera’s strong business model and future growth prospects, leading ratings agency, Crisil recently assigned 4/5 rating indicating superior fundamentals of the company and valuation grade of 3/5.

Equity analysts at Anand Rathi Research said that the company’s robust growth could continue in fiscal 2015-16, backed by higher sales of sanitaryware, faucets and wellness-products besides its recent foray into tiles.

“With sanitaryware and faucet units operating at over 90 per cent utilisation, Cera’s augmented capacities will start getting reflected in revenues from fiscal 2016.”

Published on August 20, 2014

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