Crisil Research grades Cera Sanitaryware stock 4/5

| Updated on March 12, 2018 Published on August 13, 2013

Research House: CRISIL Research

Company: Cera Sanitaryware Ltd

Fair value: Rs 615

Current market price: Rs 511

Fundamental Grade: 4/5 (indicating “Superior fundamentals” relative to all listed securities)

Valuation Grade: 4/5

CRISIL Research has assigned a fundamental grade of ‘4/5’ to Cera Sanitaryware Ltd given the wide appeal of the CERA brand, its established position in the sanitaryware segment and a wide distribution network.

In the sanitaryware business, the company grew 32 per cent CAGR in the past four years and increased its market share to 24 per cent as it benefited from the growing brand awareness among customers. We expect the growth momentum to continue in the sanitaryware business.

Further, Cera’s presence in the wellness segment through outsourcing helps it to not only better monetise its brand but also expand its product portfolio. While the faucet ware business is challenging and currently a loss-making one, it is expected to turn profitable and grow at 29 per cent CAGR over the next two years. Profitability in the faucet ware business and the company’s long-term succession plan are key monitorables.

CRISIL Research expects revenues to grow at a two-year CAGR of 25% to Rs 7.6 billion in FY15 and EBITDA margin to remain stable at 16.2 per cent during FY13-15. Adjusted EPS is estimated to grow at a two-year CAGR of 25 per cent to Rs 53.3 in FY15. CRISIL Research has used the sum of the parts method to arrive at a one-year fair value of Rs 615 per share. The fair value implies P/E multiples of 14.1x FY14E and 11.5x FY15E EPS.

Supreme Industries Ltd

Fair value: Rs 370

Current market price: Rs 337

Fundamental Grade: 4/5 (indicating “superior fundamentals” relative to all listed securities)

Valuation Grade: 3/5

CRISIL Research reiterates the fundamental grade of 4/5 on Supreme Industries Ltd (Supreme), one of the leading plastic processors in India. Strong footing in the high-growth businesses – plastic pipes and cross laminated films (collectively 61 per cent of revenues) – is its main growth driver in a crowded plastic processing industry.

Other businesses are growing at steady rates, mostly in line with the end-user industries.

One of Supreme’s key strength is its highly experienced management team. They have successfully identified products which have high potential (such as cross laminated films), developed a strong dealer network across businesses and added and retained marquee clients.

However, competition in all product segments is strong and is a key monitorable.

Revenues are expected to grow at a two-year CAGR of 19 per cent to Rs 4,750 crore in FY15 driven by growth across all product segments. PAT is expected to grow at a 21.4 per cent CAGR to Rs 430 crore over the same period. RoE and RoCE are expected to remain 30 per cent+ over FY13-15. The discounted cash flow method is used to value Supreme and the fair value is maintained at Rs. 370.

Published on August 13, 2013
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