India Research 7 September 2022

Cera Sanitaryware Limited

Initiating Coverage Bloomberg Code: CRS.IN | Reuters Code: CERA.NS

Brighter demand outlook along with record Utilization: An

upcycle of home improvement Sanitary ware
Cera Sanitaryware Ltd. (Cera) with a track record of 2 decades, strong brand, and large Current Price: 5,329
retail network has a sizable market share of 17% in the 80% organised Sanitaryware (SW) Target Price: 6,564
& 7% in the 65% organised Faucetsware (FW) market. We like Cera on the back of 1) Expected Upside (%) 19%
Superior margins (15% EBITDA margins against 8% of its peer HHIL) backed by its strong
focus on SW and FW business (89% of revenue) 2) Strong distribution network (15,644
dealers & retailers, 157 Cera style galleries) and after sales service with providing 10 year
Stock Details
warranty compared to 5 years by its peers on some SKU. 3) Large CAPEX (₹ 197 Cr) post
record utilization (100-120%) indicates strong demand ahead. 4) robust rebound in Bloomberg Code CRS.IN
residential market (sales units crossed 6 year high in H2CY22) along with focus on home Reuters Code CERA.NS
improvement. Shares o/s (Mn) 13
Cera has posted Revenue/EBITDA/PAT growth of 7%/6%/9% CAGR respectively from CY17- M Cap (Rs. In Mn) 63,910
22. Over CY22-25E, we expect the company to deliver Revenue/EBITDA/PAT CAGR of 52 week H/L (Rs.) 6,302/3,839
21%/21%/24% respectively along with EBITDA margin/PAT margin/ROE/ROCE of
16%10%/17%/22% in FY23E.
Investment Rationale Shareholding Pattern (%)
 Strong foothold in Sanitaryware and Faucetware business – With over 17%/7% Promoter Group 54.48
market share in organised SW and FW market, followed by 32% for Parryware (as of FII 18.34
2020) in overall bathware, Cera has been focused on launching innovative products, DII 10.60
creating a niche position particularly in premium SKUs (10%/18% of SW/FW revenue) Others 16.59
like touch free faucets, Wall mounted sensor taps, etc. which is well placed to capture
home upgradation trend.
 Diversified distribution network to capture Tier 3 market – Cera, having strong
distribution network especially in Tier 3 (56% of revenue) market which will support Stock Performance Chart
the rural demand, has also introduced dealer-owned showroom concept, which is 250
called 157 CERA Style Galleries, along with 8 “Cera Style Studious”, 15,644 trade
200
partners and 342 technicians (for aftersales service).
150
 CAPEX will double the topline in next 3.5 years – Post record utilization (100-120%),
Cera is looking to expand its SW capacity from 25 Lakh ppa (pieces per annum) to 37 100
Lakh ppa (for ₹ 128 Cr, by H2 FY25) and FW capacity from 30 Lakh ppa to 48 Lakh ppa 50
(for ₹ 69 Cr, by Q1FY24). The management has guided for doubling its revenue in 3.5
0
years with increase in EBITDA margins by 50-75 bps YoY.
04-2019
07-2019
10-2019
01-2020
04-2020
07-2020
10-2020
01-2021
04-2021
07-2021
10-2021
01-2022
04-2022
07-2022
 Strong rebound in residential Real Estate, rising home improvement trend along
with government thrust to affordable housing – Residential sales units (B2B, where
Cera generates 30% of revenue) crossed 6 year high in H2CY22 (1,58,705 units), Cera Nifty Mid cap 100

simultaneously a 23% decline in the unsold inventory (6,96,011 units) from its peak
levels (9,00,181 units) of CY16 was seen along with Government focus towards
affordable housing, PMAY-G, PMAY-U etc, add up to the demand.
Initiate Coverage with Buy - TP of ₹ 6,564 Stock Performance
Return (%) 1 Month 6 Month 1 Year
 Due to strong demand, record utilization we expect the company to post Strong
Revenue/EBITDA/PAT CAGR of 21%/21%/24% during FY22-25E with slight jump in Absolute 13% 25% 24%
margins by 50 bps YoY. - As per DCF we value the stock at ₹ 6,564/share, a decent Relative 8% 12% 18%
upside of 19%.
Key Financials
FY20A FY21A FY22A FY23E FY24E FY25E
Revenue (In Lakh) 1,22,369 1,22,433 1,44,583 1,81,001 2,19,674 2,58,352
EBITDA (In Lakh) 18,370 18,322 25,238 28,500 36,392 45,072
Analyst
EBITDA M (%) 15% 15% 17% 16% 17% 17%
PAT (In lakh) 11,060 9,995 15,295 17,854 23,015 29,226
Rajesh Sinha
[email protected]
ROE (%) 14% 11% 15% 15% 17% 18%
Tel: 91 22 6836 3711
P/E (x) 117 78 39 33 26 20

Source: Company, Bonanza Research

For private circulation only. For important information about Bonanza’s rating system and other discloser refer to the end of this material.
Cera Sanitaryware Limited

Content
How it all started (History of Somany family)………………………………………………..…………..………………………….....3

Cera Sanitaryware Overview…………………………………………………………………………………………………………………....6

Investment Rationale-

Strong foothold in Sanitaryware and Faucetsware market.……………………………………………………………………….8

Diversified distribution reach to capture tier 3 market…....................................……………..………………………..10

CAPEX will double the topline in next 3.5 years………………………………………………………………………..………………12

Strong rebound in residential real estate, rising home improvement trend along with government
Thrust to affordable housing …………………………………………….………………………………………….………………………….13

Robust Financials…………………………………………………………………………………………………………..............................16

Key Risk…………………………………………………………………………….…..…………………………………..................................17

Valuation…………………………………………………….……………………..…………………………..………………………………………..17

Financial Summary…………………………………………………………………………………………………………………..18

Institutional Research 7 September 2022

Cera Sanitaryware Limited

How it all started (History of Somany family)

 Somany brothers incorporated their own venturs. R. K. Somany started Hindustan
Sanitaryware Industries Limited (HSIL) (renamed after demerger “AGI Greenpac Ltd”) in
1960, under the name of Hindustan Twyfords Ltd, which used to manufactures bathroom
durables.

 In Kolkata, Vikram Somany started Cera Sanitarwyare Limited (CSL). While, H.L. Somany
in 1969 forayed into embellishing floor tiles and started Somany Pilkington's (now
“Somany Ceramics”).

Somany Brothers

R K Somany Vikram Somany H L Somany

He started AGI Greenpac Ltd He started Somany ceramics in

He started Cera
(formerly known as HSIL) in 1960, a 1969. Passed away in Nov 2016.
sanitaryware Ltd.
glass packaging company. His son His son Shreekant Somany and
Servings as Chairman &
Sandeep Somany currently serving as grandson Abhishek Somany are
Joint MD.
joint MD serving on board.

R K Somany, HSIL
 Through technological collaboration with Twyfords, UK, Dr. R K Somany
founded Hindusthan Twyfords Limited and put up the first bathroom durables
manufacturing plant in Bahadurgarh, Haryana. They were first in India to use pressure
die cast machines.

 In 1969 - the company was renamed to Hindustan Sanitaryware and Industries

Limited (HSIL).

 1981 - HSIL diversified into the manufacturing of glass containers through the acquisition
of Associated Glass Industries Limited (AGI) in 1981.

 2011 - PET bottles business was added through the acquisition of Garden Polymers
Private Limited (GPPL) in 2011.

 Packaging Products Division further expanded its business and launched counterfeit-
resistant caps and closures under the brand 'AGI Clozure'.

 Demerger - During FY18 the Marketing and Distribution business of Consumer Products
Division and Retail Division demerged into a separate entity called “Somany Home
Innovation Limited” (SHIL) which was renamed as “Hindware Home Innovations Ltd.”,
and the Marketing and Distribution business of Building Products Division into a separate
entity, Brilloca Limited (Brilloca), which is a subsidiary of Hindware Home Innovations Ltd.
Institutional Research 7 September 2022
Cera Sanitaryware Limited

HSIL Demerger story Promoter: R K

Somany

Hindustan Twyfords Ltd. (1960)

Changed its name in 1969 HSIL renamed to

AGI Greenpac Ltd
in May 2022

Hindustan Sanitaryware & Industries ltd (HSIL)

Four business divisions

Glass Packaging products Consumer Retail Building products (Bathware

division (Appliances) (Furniture) and pipes & fittings)

The Marketing and Distribution

Packaging business is running by business of Building Products
AGI Greenpack (formerly known The Marketing and Distribution business
Division demerged into a
as HSIL). It is the only division left of Consumer Products Division and
separate entity, Brilloca Limited
after demerger. Retail Division demerged into a separate
(Brilloca) a subsidiary of SHIL on
entity, Somany Home Innovation
1st April 2018.
Limited (SHIL) on 1ST April 2018

Changed its name from SHIL Changed its name from Brilloca
to Hindware Home to Hindware Limited which is a
Innovation Ltd. (Listed subsidiary of Hindware home
entity) innovations.

Vikram Somany, Cera Sanitaryware

 Mr. Vikram Somany’s father was the pioneer who along with his brothers bought the
vitreous China Sanitaryware products in the country. In 1960, the Somany family set up
their first manufacturing unit in Bahadurgarh, Haryana under technical collaboration with
Twyfords of UK. Vikram Somany was expected to carry on the legacy of his family.

 However, the family-run Sanitaryware business was passed on to his cousins after their
father’s death and Vikram Somany headed Madhusudhan Industries in the 1980s after
completing his studies. The company was into the production of vegetable oils, de-oiled
cakes (for fertilizers and animal husbandry), and ceramic division with capacity of 0.3mn
pieces per annum. The vegetable oil segment was quite in demand in India owing to its
agricultural economy.

Institutional Research 7 September 2022

Cera Sanitaryware Limited

 However, the business was dependent on several external factors like crop production,
product demand, and pricing among others and there was always stiff competition. So,
Vikram Somany was on the lookout for a more profitable venture and the opportunity
arrived during the year 1980 in the form of a license to build a Sanitaryware
manufacturing unit.

 His new company was named Cera Sanitaryware and was incorporated in 1998. The
pivotal moment in his business career came in 2001 when he decided to exit the
vegetable oils industry and focus solely on his burgeoning Sanitaryware company.

 His son, Vidush Somany, who also entered the company in the year 2004, died in 2012
in an unfortunate accident.

Heera Lal Somany, Somany Ceramics

 H L Somany started his journey at Kolkata stock exchange in 1936 (when he was 16 years
old) by trading in Jute and Hessian, soon he ventured into glass bottle manufacturing.
Gradually he scaled up operations with an automatic plant in the 50s. That was a
transformational journey to Hindustan National Glass & Industries Ltd (HNG). But HL
Somany had plans to enter into tiles and bathware segment.

 In 1969 he incorporated a company called Somany Pilkington's, which later became

Somany Ceramics. He passed away in 2016, and his Son Srikanth Somany and his grandson
- Abhishek Somany have now taken over.

Institutional Research 7 September 2022

Cera Sanitaryware Limited

Cera Sanitaryware Overview

 Cera, a Gujarat-based company, is engaged in the business of manufacturing selling, and
trading building products. The company's main product lines are Sanitaryware (capacity
of 25 Lakh ppa) and Faucetsware (30 Lakh ppa) contributing 89% of total revenue. Its
manufacturing unit is located in Kadi (Gujarat) with a strong distribution network of 15,644
dealers & retailers and 157 Cera-style galleries.

 The Company is focused on B2C which contributes 68% of the revenue rather than B2B
(Project Biz.). Cera works on Outsourcing model (60% in Sanitaryware & 54% in Faucets)
for its mass products while owning a manufacturing model for a premium or specialized
products.

Exhibit 1: Major pie of revenue comes from Bathware Exhibit 2: Focused towards B2C includes home improvement

Segment wise revenue (FY22) B2B vs B2C (Q1FY23)

2%

12%
32%

53%
34% 68%

Sanitaryware Faucetsware Tiles Wellness B2C B2B

Source: Company, Bonanza Research

 It has an extensive product portfolio that includes high-end showers, steam cubicles, and
whirlpools, besides Sanitaryware and Faucets, which have made CERA the primary choice
of customers looking for stylish products in a contemporary lifestyle. The CERA plant was
the first to use Natural Gas - the purest fuel that gives extra sheen on its products.

 During FY18 the company launched two brands to cater to all price segments - JEET for
mass segment and SENATOR by CERA for premium segment.

Exhibit 3: Category wise brands

Source: Company, Bonanza Research

Institutional Research 7 September 2022

Cera Sanitaryware Limited

 During FY16, the company launched ‘CERA Style Studios on Wheels’, a novel concept to
take CERA products to the doorsteps of key decision makers like architects, developers,
etc. The company also strengthened CERA Care - its after-sales division with the induction
of technicians (342) for taking care of its services in all key cities of the country and they
are the only Company that has not outsourced this activity to third-party contractor.

Entry into tiles

 Cera Sanitaryware has entered into a Joint Venture with Anjani Tiles Limited in Andhra
Pradesh with 51% Equity and 54% Preference Shareholding in aggregate amounting to ₹
29 Cr for producing Vitrified Floor Tiles of 10,000 Sq. Mtr. per day. Anjani Tiles Limited
became a subsidiary of Cera Sanitaryware w.e.f. 23rd November 2015, which is sold to
Anjani Vishnu Holdings Ltd. on 26th August 2021 with an impairment loss of ₹ 5.7 Cr.

 Apart from the existing JV with Anjani Tiles, Cera also entered into a JV with Milo Tiles LLP
in Morbi, thus helping it in reaching out to the West, North and East markets with 26%
equity amounting to ₹. 806 lakhs for producing high-end Glazed Vitrified Floor Tiles of
7,000 sq. mtr. per day.

 Cera is focused on the asset-light model for its tiles business which expects huge demand
going ahead but the major pie of the revenue still belongs to SW and FW only.

Exhibit 4: Key clients in B2B segment

Source: IP, Bonanza Research

Institutional Research 7 September 2022

Cera Sanitaryware Limited

Investment Rationale:
1) Strong foothold in Sanitaryware and Faucetsware

 The Sanitaryware industry is skewed towards organized players with the Top-3 players
i.e. CERA, Hindware Home Innovation Ltd (Former HSIL) and Parryware, who have been
commanding >60% market share in the organized Sanitaryware industry. Cera and 17% market share in
organised Sanitaryware
Hindware are neck to neck in market share while Parryware is way ahead.
and 7% in Faucetware
market
 The price difference between the organized and unorganized in low-end products that
are going to have a life of 20 years is ₹ 500 to ₹ 1,000 and there is also associated quality
controls, after sales service, warranty issues that only organized players can afford.

 Cera has 17% market share in the 80% organised (total market size ₹ 5,500 Cr)
Sanitaryware industry and 7% market share in the 65% organised (₹ 11,000 Cr)
Faucetsware industry due to its strong product portfolio and branding. The company has
strong pricing power which reflects in the price hike it took in FY22 (21% in Sanitaryware
& 26% in Faucetsware) along with superior margins of 15% compared to HHIL (8%).

 There has been a sharp increase in demand for premium touch-free Faucetware products
post COVID. Cera’s Faucetware revenue grew by 16% CAGR from FY19 to FY22. Unlike
tiles and Sanitaryware, replacement cycle for faucet is faster which drives the industry
growth. We feel that there is a huge opportunity for FW market and Cera is well placed
to gain further market share in the coming years.

 In addition to unique and differentiated products, CERA offers 21 different coloured

commodes vs. different players, who offer up to 5-6 colour option basically white. In
addition to this, it is more focused on branding and it is one of the first companies to have
a celebrity brand ambassador (Sonam Kapoor). Cera is also the only company to provide
10 year warranty compared to its peers which provide 5 years on major products.

 Its in-house facilities are best used for complex products i.e. Wall-Hung Water Closets
(WCs), Table Top Basins and One piece floor-standing WCs. Additionally, its own
capacities are focused towards higher margin products, while it relies on domestic
outsourcing strategy for lower technology products which do not require sophisticated
robotics and can be produced competitively.

Exhibit 5: Mass products are outsourced while premium products manufacture

Production (FY22)
120%
100%
100%
80%
60%
54%
60% 46%
40%
40%
20%
0%
0%
Sanitaryware Faucetsware Tiles

Outsource Own manufacturing

Source: Company, Bonanza Research

Institutional Research 7 September 2022

Cera Sanitaryware Limited

Exhibit 6: Capacity summary

Unit Location Summary SKU

Sanitaryware Kadi, Gujarat 25 Lakh pieces per annum 515
Faucets Kadi, Gujarat 30Lakh pieces per annum 978
Source: Company, Bonanza Research

 The company has developed strong in-house manufacturing capabilities over last couple
of years, while the low dependence on Chinese imports (less than 5%) has offered an
edge to CERA over others players, who are dependent on Chinese imports (10-30%)
especially for several complex products.

Exhibit 7: Premium category has huge potential to grow Exhibit 8: Only 20% of the cost is fixed

Category wise revenue Cost breakup

100%

80% 30% 20%

52%
18%
60%

40%
43%
20% 47%
10%
80%
0%
Entry Mid Premium

Sanitaryware Faucetsware Fixed cost Variable cost

Source: Company, Bonanza Research

Institutional Research 7 September 2022

Cera Sanitaryware Limited

2) Expanding distribution reach to capture tier 3 market

 Cera has a strong distribution network especially in Tier 3 (56% of revenue) market including
dealer-owned showrooms, which are called CERA Style Galleries (157), along with 8 “Cera style
studios” and 15,644 trade partners. CERA has maintained its sound after-sales service by
establishing a strong servicing team (342 technicians), spare parts team and 24x7 call
centres.

Exhibit 9: Cera is focused towards tier 3 for mass consumption and tier 1 for premium products consumption

Tier wise revenue (FY21) Tier wise revenue (Q1FY23)

27% 30%

54% 56%
14% 14%

Tier 1 Tier 2 Tier 3 Tier 1 Tier 2 Tier 3

Source: Company, Bonanza Research

Exhibit 10: Cera’s manufacturing and distribution regions

Source: Company, Bonanza Research

Institutional Research 7 September 2022

Cera Sanitaryware Limited

8 Cera Style Studio

 Cera has launched company display centers, called Cera Style Studios in Ahmedabad,
Chennai, Kolkata, Morbi, Chandigarh, Hyderabad, and Cochin, which further enhances
the customer experience where they can touch and feel the products.

 The average size of these company-owned showrooms is approx. 7,000 sq. ft. With more
than 14,000 sq. ft. display, Hyderabad CSS is the largest company showroom in this
industry.

157 Cera Style Galleries

 These are dealer-owned Galleries like display centres. The minimum size of these
showrooms averages to 1,000 sq. ft. Saraswathi Enterprises - Kerala is the largest
showroom amongst CSGs with an area of 7,700 sq. ft.

398 Cera Style Centres (CSS)

 These are retailer-owned centres, the company has planned to open 600 new CSS by
FY24 end.

Institutional Research 7 September 2022

Cera Sanitaryware Limited

3) Capacity expansion to double the topline in next 3.5 years

Faucetware Expansion

 With just some de-bottlenecking and improvement in plants, the average production at
the Faucetware plant was 21 Lakh ppa up to September 2021, which increased to 30 Lakh
ppa in March 2022. Strong demand in Faucetsware reflects in the record utilization levels
(117%/103% in Q4FY22/Q1FY23).

 Cera has announced FW CAPEX which will enhance capacity from 30 Lakh ppa to 48 Lakh
ppa. The expansion would include construction of new grinding, polishing and casting
departments as well as warehousing. There will be an increased share of large sized SKU’s
and complicated SKU’s. The expansion will cost ₹ 69 Cr., while the revenue will start to
contribute from Q1FY24. Announced a CAPEX of ₹
197 Cr announced to
increase SW capacity by
Sanitaryware Expansion 48% while FW capacity
by 40%
 The company has announced a CAPEX for its SW facility which has capacity of 25 Lakh ppa
after reaching its record utilization (112%/110% in Q4FY22/Q1FY23).

 The existing location does not have adequate surplus land for a meaningful expansion, so
a new greenfield plant within a radius of 100 kms from the current manufacturing plant
is being planned.

 The size of the plant will mostly likely be 12 Lakh ppa which will enhance the total
Sanitaryware capacity to 37 Lakh ppa and it will deliver products in next 24 to 30 months
at a cost of ₹ 128 Cr. During FY23, out of the total plant cost of ₹ 128 Cr., a budget of Rs.
25 crore has been estimated for purchase of land. It will start contributing to the top line
from H2FY25.

 No debt raising or equity dilution is planned or required for the entire capacity expansion.
The management is quite bullish on the demand outlook for next couple of years and
expect the company to double its top line in next 3.5 years.

Exhibit 11: Capacity Expansion plan

Current capacity Expanded capacity % Increase Revenue contribution

Sanitaryware (Lakh ppa) 25 37 48% H2FY25
Faucetsware (Lakh ppa) 30 48 60% Q1FY24
Total 55 85 55%
Source: Company, Bonanza Research

Institutional Research 7 September 2022

Cera Sanitaryware Limited

4) Strong rebound in residential Real Estate, rising home improvement trend

along with government thrust for affordable housing aids demand

 India’s housing market is experiencing a strong rebound as it emerges from the depths of
the pandemic’s impact. The building materials segment has displayed sheer resilience due
to COVID, but it slowly bounced back in 2021. This resurgence was further aided by the
policy reforms like GST, RERA, REIT which were introduced to provide impetus to the
sector.
Residential sales units
crossed 6 year high in
 Even home improvement has become a major theme post pandemic as people want to H1CY22 (1,58,705) while
live in, of course, larger spaces and higher specs especially in their bathrooms. unsold inventory improved

 According to Knight Frank, H1 CY22 saw residential sales volume of 1,58,705 units which
crossed 6-year high of 1,40,000 units (approx.) in H1 CY15, despite home loan interest
rates rising due to the 140 bps repo rate hike. 79% of the sales in Q1CY22 was seen in
the under-construction category which will improve demand for building materials.

 The development activity has risen in tandem with the improved demand despite the
increasing costs of input material and labour across markets. After 2012, companies are
now witnessing a scenario where it's difficult to meet the demand.

 Rural demand is picking up - Good consecutive monsoons, increased MSPs and

government’s increased rural spending (social and infrastructure) are also yielding in
better rural/agriculture-based income. This in turn is a booster for construction and home
renovation activities.

Exhibit 12: Residential sales crossing 6 years high

Residential sales and launches

1,80,000
1,60,000
1,40,000
1,20,000
1,00,000
80,000
60,000
40,000
20,000
0
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022

Launches (Unit) Sales (Unit)

Source: Company, Bonanza Research

 Given the strong absorption and demand momentum, monetisation of unsold inventory
has also shown signs of significant recovery with the levels being lowest in the last 6 years.
As of Q1CY22, unsold inventory (6,96,011 units) witnessed an improvement of ~23% from
its peak levels (9,00,181 units) in CY16 which indicates a rapid growth indication for
building materials going ahead.

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Cera Sanitaryware Limited

Exhibit 13: Sharp decline in unsold inventory

Unsold inventory (in units)

10,00,000
8,83,794 9,00,181 8,92,054 8,56,381
9,00,000 8,33,131
7,94,298
8,00,000 7,37,459
6,96,011
7,00,000
6,00,000
5,00,000
4,00,000
3,00,000
2,00,000
1,00,000
0
CY15 CY16 CY17 CY18 CY19 CY20 CY21 Q1 CY22

Source: Company, Bonanza Research

Strong hiring growth leads to rapid spending on Home Upgradation

 The IT sector which is the best geared for a remote working environment is looking to
increase physical occupancy in existing offices and is taking up new office spaces to
accommodate its substantially increased workforce in 2022.

 The hiring trends in this sector have also witnessed a significant jump and according to
various reports. The intent to hire in the information technology sector sees a high rise
to 95% in Q1CY22 from 89% in Q4CY21. The top 5 IT companies were reported to have
hired more than 2,50,000 new employees during the last 2 years.

 With people shifting to Work-from-Home/Hybrid working, and thus spending more time
within the vicinity of their homes, there was an increase in the demand for building
materials/home improvement this year and this optimism will grow in the near future.
Low cost/affordable housing program to further accelerate construction activities

 Pradhan Mantri Awas Yojana Gramin (PMAYG) scheme was seeking to build 2.95 Cr pucca
houses in rural India, out of which 1.96 Cr have been completed and the remaining 75
Lakh is targeted to complete by Q3FY24. PMAY-U would also add 1 Cr, which has now
been extended up to 2024.

 The biggest booster to housing demand has been the increased importance of owning a
property which has been further backed by the consumers’ confidence in the overall
economic scenario and impending income stability.

PMAY-G update (May 2022)

3,00,00,000
2,57,59,444
2,39,24,609
2,50,00,000

2,00,00,000 1,81,26,139

1,50,00,000

1,00,00,000

50,00,000

0
MORD Target Complete Sanctioned

Source: Company, Bonanza Research

Institutional Research 7 September 2022

Cera Sanitaryware Limited

 An increase of 150 bps in the home loan rate will result in an 11.73% increase in the EMI
load for the homebuyer and an effective 3.38% decrease in affordability, as per the Knight
Frank Affordability Index

 The interest rate hikes, while steep, are not a surprise and have been factored into the
market sentiment which continues to hold strong. We do not expect much decline in
demand due to this rise in EMI cost.

 Good consecutive monsoons, increased MSPs and government’s increased rural spending
are also yielding in better rural/agriculture-based income.

 Affordability has improved over the years across all markets with income growing and
housing prices correcting. The Knight Frank Affordability Index, that tracks the EMI
(Equated Monthly Instalment) to income ratio for households, improved further in 2021
across all cities. In fact, affordability has improved dramatically since 2010 as the
combined impact of slowing price growth and falling interest rates was much greater in
this period.

Exhibit 14: Improving affordability

Affordability index (EMI/Household Income)

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

2010 2020 2021

Source: Company, Bonanza Research

Institutional Research 7 September 2022

 Cera Sanitaryware Limited

Robust Financials
Exhibit 15: Revenue to show outstanding growth

Revenue (In Lakh)

3,00,000
2,58,352
2,50,000
2,19,674

2,00,000 1,81,001

1,44,583
1,50,000 1,35,155
1,18,534 1,22,369 1,22,433
1,00,853
1,00,000

50,000

0
FY17A FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E

Source: Company, Bonanza Research

Exhibit 16: Strong EBITDA and PAT growth

EBITDA & EBITDA M PAT & PAT M

19% 11%
50,000 20% 35,000 12%
17% 17% 11% 10%
45,000 16% 17% 18% 10% 10%
16% 16% 30,000
15% 15% 9% 9% 10%
40,000 16% 9%
8%
35,000 14% 25,000
8%
30,000 12% 20,000
25,000 10% 6%
45,072 15,000
20,000 8% 29,226
36,392 4%
15,000 6% 23,015
28,500 10,000
25,238 17,854
15,295
10,000 19,016 19,183 21,681 18,370 18,322 4%
2%
5,000 9,987 10,606 11,515 11,060 9,995
5,000 2%
0 0% 0 0%
FY17A FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E FY17A FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E

Ebitda (In Lakh) EBITDA M (%) PAT (In lakh) PAT M

Source: Company, Bonanza Research

Exhibit 17: Improving return ratios

ROE & ROCE

30% 27%
23% 24% 24%
25% 22%
21% 21%
20% 17%
15%
15% 19%
17% 18%
16% 17%
14% 15% 15%
10%
11%
5%

0%
FY17A FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E

ROE (%) ROCE (%)

Source: Company, Bonanza Research

Institutional Research 7 September 2022

Cera Sanitaryware Limited

Key Risk
 Susceptibility of the company to volatility in the raw material prices – The volatility in
fuel prices (primarily natural gas) and other key raw materials (various types of clay, brass
and chrome plating) can impact the procurement cost for the company. It is to be noted
that the prices of brass have doubled over the past 1 year.
 Linkages to cyclical real estate sector and presence in a competitive industry - On the
back of Covid pandemic, there was significant decline in its scale of operations in Q1FY21
and during the second wave of Covid pandemic, its scale of operations was again
impacted in Q1FY22 on the back of slowdown in the real estate sector. The demand for
ceramics has risen in the recent past owing to the initiatives under the Swachh Bharat
Abhiyan (SBA) and the Pradhan Mantri Awas Yojana (PMAY) along with higher
replacement demand.

Valuations & Outlook

 Due to strong demand and record utilization, we expect the company to post Strong
Revenue/EBITDA/PAT CAGR of 21%/21%/24% during FY22-25E with slight jump in margins
by 50 bps YoY. - As we look ahead, we continue to see an immense potential for their products,
healthy demand, coupled with strong positioning in the industry which will enable them to
gain traction and build momentum going forward.
 Additionally, balanced products portfolio at a varied price points, robust distribution
network and rising brand awareness in Tier-II and Tier-III cities bode well for sustained
earnings growth. As per DCF we came up with a target price of ₹ 6,564/share which
currently trades at a discount of 19%.

Institutional Research 7 September 2022

Cera Sanitaryware Limited

INCOME STATEMENT
Fiscal year 2017A 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E
in (Lakh except per share)
Net revenue 1,00,853 1,18,534 1,35,155 1,22,369 1,22,433 1,44,583 1,81,001 2,19,674 2,58,352
Other income 1,457 1,445 1,855.89 1,822.03 2,516.19 2,364.59 1,387 1,950 1,950
Total Revenue 1,02,310 1,19,979 1,37,011 1,24,191 1,24,949 1,46,948 1,82,388 2,21,624 2,60,302
Cost of goods sold -43,738 -51,563 -60616.61 -55025.59 -62679.95 -68358.42 -86,186 -1,00,523 -1,20,082
Employee benefits expense -12,480 -14,931 -16546.13 -17073.82 -15367.88 -19361.6 -22,369 -28,313 -31,639
Other expenses -27,076 -34,303 -38167.06 -33721.77 -28579.12 -33989.57 -45,334 -56,396 -63,509
EBITDA 19,016 19,183 21,681 18,370 18,322 25,238 28,500 36,392 45,072
Depreciation and amortization
expenses -2,215 -2,714 -2797.97 -3877.22 -3957.09 -3240.74 -3813 -4747 -4931
EBIT 16,801 16,469 18,883 14,493 14,365 21997 24687 31644 40141
Finance costs -985 -976 -854.21 -1005.04 -972.86 -528.15 -475 -448 -438
EBT & Exceptional items 15,816 15,492 18,029 13,487 13,392 21469 24212 31196 39703
Exceptional item 0 0 0 0 0 -574 0 0 0
EBT 15,816 15,492 18,029 13,487 13,392 20,895 24,212 31,196 39,703
Tax expense -5,802 -4,880 -6518.77 -2433.88 -3401.3 -5600.83 -6320 -8181 -10478
PAT 10,014 10,612 11,510 11,054 9,991 15,294 17,892 23,015 29,226
Minority interest -27 -7 4.55 6.49 4.76 0.76 -38 0
Net Profit 9,987 10,606 11,515 11,060 9,995 15295 17854 23015 29226
EPS 77 82 88 85 77 117.6 137.6 177.0 224.7

Balance Sheet
Fiscal year In Million 2017A 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E
ASSETS
Non – current assets
Net Block 34,358 35,907 38,446 41,974 40,093 32,067 37,614 48,167 46,236
CWIP 16 489 1901 53 133 68 68 68 68
Right of use asset 0 0 0 1760 1377.6 1582.8 1,378 1,138 1,043
Other intangible asset 134 71 88 120 76 46 46 46 46
Investment 7 0 2081 3880 4022 3498 3,498 3,498 3,498
Other financial asset 2140 1536 1160 1355 1412 1096 1,096 1,096 1,096
Other non – current assets 1787 2675 1344 748 655 531 531 531 531
Total non – current assets 38,441 40,713 45,072 49,889 47,769 38,890 44,232 54,545 52,519
Current assets
Inventory 14,946.08 19,350.66 21,577.55 24,298.01 19,966.11 29,374.86 34474 35183 42029
Financial assets:
Investment 9,075.32 10,859.40 15,704.97 18,948.65 43,404.61 52,715.60 52716 52716 52716
Trade receivables 22,078.37 26,800.48 29,835.44 22,284.80 20,946.70 16,476.76 21720 21967 25835
Cash and cash equivalents 3892 2364 1102 214 1041 1494 5924 17480 38229
Other current financial assets 1,022.35 1,315.19 1,836.26 2,272.96 2,657.71 477.27 477 477 477
Other current assets 5,004.62 3,203.43 3,953.17 4,027.22 1,980.00 3,011.61 3012 3012 3012
Total current assets 56,019 63,893 74,009 72,046 89,996 1,16,283 1,18,323 1,30,835 1,62,297
Total assets 94,460 1,04,606 1,19,081 1,21,935 1,37,765 1,55,173 1,62,555 1,85,380 2,14,816

EQUITY AND LIABILITIES

Equity
Equity share capital 650.29 650.29 650.29 650.29 650.29 650.29 650 650 650
Other equity 51,565 59,912 69,441 76,424 86,523 1,00,865 1,16,755 1,37,239 1,63,250
Minority interest 388 674 1,033 768 1,172 1,423 281 281 281
Total equity 52,603 61,237 71,125 77,842 88,346 1,02,938 1,17,687 1,38,170 1,64,181
Liabilities
Non – current liabilities
Lease Liabilities 0 0 0 1,405.26 1,095.44 1,200.19 1,067 912 850
Borrowing 4,777.67 4,590.44 3,955.44 4,344.50 4,261.51 554.43 554 554 554
Other Non current financial liabiities 1,163.06 1,670.39 2,251.80 2,618.84 2,749.94 2,702.94 2,703 2,703 2,703
Provisions 670.23 685.83 666.51 1,064.79 1,025.31 899.39 899 899 899
Defered tax liabilities 4,091.48 3,905.05 4,359.98 2,994.98 3,025.24 3,541.57 3,542 3,542 3,542
Other Non-current Liabilities 0 17.03 15.54 14.06 12.57 11.08 11 11 11
Total non- current liabilities 10,702 10,869 11,249 12,442 12,170 8,910 8,777 8,621 8,560
Current liabilities
Financial liabilities
Institutional Research 7 September 2022
Cera Sanitaryware Limited

Borrowing 4,567.53 4,591.21 4,469.36 4,099.30 4,107.11 2,113.58 2,114 2,114 2,114
Trade payables 8,472.33 9,435.04 11,094 9,531 15535.89 13347.22 15,513 18,094 21,615
Lease Liabilities 0.00 0.00 0 562.28 538.79 652.86 580 496 462
Others current financial liabilities 14,604.60 15,184.04 16,929.24 15,432.43 13,839.55 13,902.38 13,902 13,902 13,902
Provisions 287.66 373.97 284.72 257.13 248.48 242.86 243 243 243
Current tax liabilities 1,269.62 949.91 1,372.42 35.23 439.45 684.66 685 685 685
Other current Liabilities 1,952.44 1,966.64 2,557.24 1,732.82 2,540.42 3,017.06 3,017 3,017 3,017
Total current liabilities 31,154 32,501 36,707 31,651 37,250 43,325 36,054 38,551 42,038
Total liabilities 41,857 43,370 47,956 44,093 49,420 52,235 44,831 47,172 50,597
Total equity and liabilities 94,460 1,04,606 1,19,081 1,21,935 1,37,765 1,55,173 1,62,518 1,85,342 2,14,778

Ratio Analysis
2017A 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E
Solvency Ratio
Debt to EBITDA 0.5 0.5 0.4 0.5 0.5 0.1 0.1 0.1 0.1
Debt/equity 0.18 0.15 0.12 0.11 0.10 0.03 0.02 0.02 0.02

Efficiency Ratio
ROE 19% 17% 16% 14% 11% 15% 15% 17% 18%
ROCE 27% 23% 24% 17% 15% 21% 21% 22% 24%
EPS 77.0 81.6 88.5 85.0 76.8 117.6 137.6 177.0 224.7
Receivable days 80 83 81 66 62 42 44 37 37
Inventory days 125 137 130 161 116 157 146 128 128
Payable days 71 67 67 63 90 71 66 66 66
Cash conversion cycle 134 153 144 164 88 127 124 99 99

Growth Ratio
Net sales growth N/A 18% 14% -9% 0% 18% 25% 21% 18%
EBITDA growth N/A 1% 13% -15% 0% 38% 13% 28% 24%
EBIT growth N/A -2% 15% -23% -1% 53% 12% 28% 27%
PAT growth N/A 6% 9% -4% -10% 53% 17% 29% 27%

Valuation Ratios
P/ E ratio 50 43 46 117 78 45 39 30x 24x
P/B Ratio 5 6 5 7 9 7 6 5x 4x
EV/EBITDA 18 18 18 32 34 5 4 3x 3x

Margins
EBITDA Margin 19% 16% 16.0% 15.0% 15.0% 17.5% 15.7% 16.6% 17.4%
EBIT Margin 17% 14% 14% 12% 12% 15% 14% 14% 16%
PAT Margin 10% 9% 9% 9% 8.2% 11% 10% 10.5% 11.3%

Institutional Research 7 September 2022

Cera Sanitaryware Limited

Institutional Dealing:-

Hareesh Bohra AVP Inst. Desk 022-3086 3786 [email protected]

Vishal Shridharani Dealer 022-3086 3758 [email protected]
Bhavin Bhavsar Dealer 022-3086 3786 [email protected]

RATINGS, VIEWS AND RELATED RATIONALES

Buy - More than 15% return for time period of 12 - 18 months

Sell - More than 10 downside for time period of 12 - 18 months

Hold - Between 5-15% return for time period of 12 - 18 months

Institutional Research 7 September 2022

Cera Sanitaryware Limited

Disclosure:
Bonanza Portfolio Ltd here by declares that views expressed in this report accurately reflect view point with subject to companies/securities.
Bonanza Portfolio Ltd is responsible for the preparation of this research report and has taken reasonable care to achieve and maintain
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subject company mentioned in the report as of the last day of the month preceding the publication of the research report; (c) do not have any
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any compensation from the subject company in the past twelve months; (b) have not managed or co-managed public offering of securities for
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Institutional Research 7 September 2022