The stock of Cera Sanitaryware has been under strong pressure this year so far even as the company's leadership position in the sanitaryware and faucetware segments.
Till March 6 close, the stock is down 18 percent on BSE year to date (YTD) against a 6 percent fall in benchmark Sensex.
Brokerage firm Centrum Broking initiated coverage on the stock with a 'buy' rating, fixing the target price for the stock at ₹6,371. The stock closed at ₹4060.75 on BSE on May 6. The stock had hit its 52-week high of ₹6,430.45 on BSE on October 19, 2021.
"Cera Sanitaryware has come a long way from a single product company to a multi-product company with market leadership in sanitaryware and one of the key players in faucetware. In the sanitaryware segment, Cera holds 17 percent of the organized market share while 4 percent in faucetware. Sharp focus on capital employed, working capital and high product quality coupled with technology-based innovation are the key drivers for Cera’s success," Centrum pointed out.
The brokerage firm believes Cera's diversified into faucetware post establishing its leadership in sanitaryware in 2011.
In 2013, it further diversified its revenue stream by venturing out in tiles through JVs.
"Cera also markets sinks (trading) and customised shower partition/cubicle, bathtub/whirlpool and mirrors. Over FY14-21, the contribution from sanitaryware has gone down from 72 percent to 49 percent while at the same time contribution from faucetware and tiles have inched up from 16 percent to 28 percent and 8 percent to 21 percent, respectively," said Centrum.
Centrum pointed out that over FY11-21, Cera has grown its sales at CAGR of 18 percent while EBITDA and PAT at CAGR of 13 percent and 14 percent, respectively.
Despite scaling the business by 5 times over the last decade, Cera's balance sheet remains lean. D/E (debt-to-equity)stood at 0.1 times with cash and current investments of ₹440 crore. Cera remains a free cash flow throwing business with cumulative FCF (free cash flow) generation of ₹450 crore over FY17-21.
With an uptick in the real estate cycle, Centrum expects Cera's sales, EBITDA and PAT to grow at CAGR of 18 percent, 24 percent and 32 percent, respectively. Centrum expects EBITDA margins to improve to 15.1 percent by FY24E.
Disclaimer: The views and recommendations made above are of the broking company and not of MintGenie.