PL Stock Report: Cera Sanitaryware (CRS IN) - Q2FY24 Result Update – Margin improved, guidance upward revised - ACCUMULATE

Cera Sanitaryware (CRS IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs8,132 | TP: Rs8,926

Q2FY24 Result Update – Margin improved, guidance upward revised

Cera Sanitaryware (CRS) upward revised its revenue growth guidance between 19-21% from 17-19% and expects 16%+ margins in the near term, given strong demand outlook from replacement (accounts 65% its revenue) and expansion in geographical penetration. CRS’s Q2FY24 Revenue/PAT was 3.1%/3.0% above our estimates with healthy performance from faucetware segment & margin expansion of 60bps YoY. The company delivered revenue CAGR of 9.1% over 4years in Q2FY24 and strong growth guidance for H2FY24 considering seasonally better quarters. EBITDA margin improved to 16.5% and is expected to be at current level in near terms.

We believe demand scenario to remain healthy and capacity expansion in faucetware division will add to growth in coming quarters. Hence, we expect positive momentum to continue. Management guided revenue of ~Rs29bn by Sept-25 with ~16%+ sustainability in EBITDA margin. We estimate Revenue/EBITDA/PAT CAGR of 17.5%/18.2%/18.5% over FY23-26E. We upward revise our FY26E earnings estimate by 1.5% and maintain FY24/FY25E earnings. Maintain ‘Accumulate’ rating with revised TP of Rs8,926 (earlier Rs 8,857) valuing at 35x Sep’25 EPS.

Revenues grew by 11.9%, PAT up by 13.1%: Revenue grew 11.9% YoY to Rs4.6bn (PLe:Rs4.5bn). Sanitaryware/Faucetware segment grew 4.3%/15.7% YoY and contributes 51%/36% of quarterly revenue. EBITDA grew by 15.8% YoY to Rs765mn (PLe: Rs729mn) and EBITDA margin expanded by 60bps YoY to 16.5%. (PLe:16.1%). The margin improvement was also on account of improvement in productivity and through effective cost optimization measures. PBT grew by 15.7% YoY to Rs787mn (PLe:Rs745mn). PAT grew by 13.1% YoY to Rs574mn (PLe:Rs558mn). Sanitaryware/Faucetware capacity utilization increased to 91%/122%. Cash balance stood at Rs7.5bn vs Rs7.55bn QoQ.

Con call highlights: 1) CRS has upward revised its rev. growth to 19-21% from 17-19% and margin (16%+) guidance for near terms & rev. growth of 18% and margin of 16.5% in FY24, 2) Gross margin expected to be in range 53-55% in near term, 3) Revenue growth driven by premium products, contributed 43% rev. in Q2FY24, 4) CRS planned capex of Rs350mn over sanitaryware greenfield expansion, out of which Rs 70mn was spent in Q2FY24, 5) CRS has completed brownfield faucetware expansion, taken capacity from 3lacs pieces to 4lacs pieces per month, 6) China imports reduced from Rs 180mn or 4.3% of sales to Rs110mn or 2.4% of sales, 7) CRS has not taken price hike from last 18months, 8) It has taken three rounds of price hike of in 2021 and 2022, 9) Bladed gas price for CRS was Rs 33/SCM in Q2FY24, as it has received 70%/30% gas from GAIL/Sabarmati gas, 10) Gas price from GAIL reduced to Rs29/SCM in Sep-23 from Rs 36/SCM in Mar-23 and Rs 45/SCM in Sep-23 from Rs 58/SCM in Mar-23 from Sabarmati gas, 11) Advertisement spent was at Rs 115mn in Q2FY24, expected to be Rs 650mn in FY24. 12) Retailer loyalty program accounts ~38% revenue. 13) Over the past three years, CRS introduced over 1000 new products, which contributed 29% of revenue in Q2FY24.