Angel Broking - Initiating Coverage - Cera Sanitaryware
RAJESH DESAI
Dear All,
Forwarding you the Initiating Coverage on Cera Sanitaryware with a Buy recommendation and a Target Price of `289 (12 months).
Cera Sanitaryware - Initiating Coverage
Organic growth and changing lifestyle to be the key drivers
Cera Sanitaryware Ltd. (CSL) is the third largest sanitary ware company in the organized sector with about 22% market share in India. The company is engaged into manufacturing sanitary ware and faucet ware (commenced since September 2010) products. The company also markets wellness products, which are majorly outsourced. Owing to the changing lifestyle of people, increasing awareness for improving sanitation coverage, expenditure on sanitary ware has been consistently increasing as a percentage of total construction expenditure, thereby providing significant traction for the sanitary ware sector. CSL is trading at an attractive PE of 7.6x and EV/Sales of 0.9x on FY2013E. We recommend Buy on CSL with a target price of `289, based on target PE of 10x and implied EV/Sales of 1.1x for FY2013E.
Investment rationale
Increased contribution of sanitary ware towards domestic expenditure
On the back of increasing awareness towards improving sanitation coverage, changing lifestyle of people towards nuclear families, the number of households is increasing, thereby creating robust demand for sanitary ware products. Simultaneously, increased disposable income has led to a shift from the unbranded to branded products. This trend is likely to drive strong growth for the sanitary ware industry going forward.
Capacity expansion and better utilisation to drive revenue growth
CSL is extending its installed sanitary ware capacity from 24,000MT to 32,400MT, which is expected to be operational by 1QFY2013. Also, CSL has entered into new avenues like production of faucet ware since September 2010 with initial capacity of 2,500mn pieces per annum, which was previously outsourced. Considering these factors, we expect CSL’s top line to post a 26% CAGR over FY2011-13E.
Benefit from unmatched distribution network and high brand visibility
CSL has a very strong distribution network with 500 dealers and connection with nearly 5,000 retailers to distribute its products. Owing to continuous marketing activities, which are creating a high brand visibility, CSL’s advertisement cost has witnessed a 30% CAGR over FY2007-11 and is consistently moving northwards.
Outlook and valuation
CSL’s top line is expected to grow to `385cr in FY2013E. The company’s revenue and profit are expected to post a CAGR of 26% and 16%, respectively, over FY2011-13E. The stock is currently trading at PE of 8.9x and 7.6x for FY2012E and FY2013E, which makes it attractive. We recommend Buy on CSL with a target price of `289, offering an upside of 31% from current levels.
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With best regards,
Fundamental Advisory Desk
Angel Broking
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Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
CA. Rajesh Desai