Centrum Broking

Cera Sanitaryware (Buy)

Target: ₹2,892

CMP: ₹2,506.75

Cera Sanitaryware (CRS) performance was impacted in Q1-FY21 as revenues fell by 46 per cent to ₹146 crore (ahead of our estimates of ₹81.40 crore) by pandemic/countrywide lockdown. The gross margin fell to approximately 48 per cent (higher entry level product sales) from 57 per cent in Q1-FY20. However we expect the trend is likely to reverse.

EBITDA margin were hit due to the limited production that distorted the cost structure (20 per cent fixed cost). Variable cost was well controlled as advertising/promotional expenses were curtailed sharply.

CRS will continue its conservative guard in the current challenging business environment to focus on improving balance sheet over sales aggression. CRS continues its focus on gaining structural strength (cash ₹260 crore, capex ₹21 crore and receivable down to 51 days vs 56 days). We expect variable cost savings/relative soft raw material prices/balance sheet focus will help CRS in the medium term.

Focus on automation, in-house manufacturing and introduction of higher number of SKUs will help boost earnings post the current slowdown.

We will closely monitor the business conditions, cost levers and working capital stress.

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