Target: ₹5,171

CMP: ₹4,013.35

Cost improvements and price hikes in a high-cost context boosted Cera’s operating performance. While its B/S continues to be net cash, its coming sanitaryware and faucet expansions would help it cater to mounting demand. We upgrade our rating to a Buy.

Sanitaryware and faucets, operating at 112 per cent and 117 per cent capacity, their revenue grew 13 per cent and 11 per cent y-o-y respectively whereas tile revenue fell 42 per cent y-o-y (Anjani divestment) leading to 1.7 per cent y-o-y revenue growth to ₹440 crore.

The retail share in overall revenue was guided to remain at 68-72 per cent and the outsourcing share at about 54 per cent. Aided by demand uptick and capacity expansion, revenue was guided at 2x and PAT 2.5x every 3.5 years. We expect revenue to clock a 16 per cent CAGR over FY22-24.

To address mounting demand and already operating at high capacity, Cera is expanding its faucet and sanitaryware capacities. It is to set up greenfield sanitaryware capacity of 100,000 SKUs p.m. and brownfield faucet capacity of 125,000 SKUs p.m. besides a de-bottlenecking exercise of 25,000 SKUs p.m. Asset turnover for the new faucet capacity will be 1.5x-2x, sanitaryware 1.75x.