by Suhani Adilabadkar
A pioneer in the Indian sanitaryware industry, Cera Sanitaryware’s journey spans across 40 years. Over those four decades, Cera evolved itself into a home solutions provider with sanitaryware, faucets, tiles, wellness, mirrors, kitchen sinks, with the objective of ‘everything under one roof’.
The company offers products across segments starting with Isvea, its partnership with the Italian brand for exclusive luxury, Senator for premium buyers, Cera for mid and upper segment and Jeet for affordable housing segment. The company has 139 Cera style galleries, and a sales and trade network of over 14,595, consisting of 3,289 dealers and 11,306 retailers. Based on the geographical revenue breakup, north contributes 25%, east 9%, west 22% and south the highest at 44%.
Quick Takes
Cera Sanitaryware has been growing at a CAGR of 17% and 15% over the past five years for PAT and sales respectively.
The company has also forayed into the modular kitchen business, sourced from Italy.
Cera sanitaryware has 139 CERA style galleries and sales and trade network of over 14,000.
The company stands debt free with cash and cash equivalents of Rs. 199 crore as on September 30, 2019.
A muted September Quarter FY20
Cera Sanitaryware reported mixed numbers impacted by a general industry slowdown and floods in August, 2019. Revenue for the quarter saw a 1.1% decline at Rs. 327 crore compared to Rs. 331 crore in the same period the previous year. The topline for Cera saw 48.6% contributed by sanitary ware, 24.4% by faucet-ware while tiles accounted for about 22.8% and 4.17% was wellness business.
Operating profit stood at Rs. 42 crore in Q2FY20 against Rs. 46 crore in the corresponding September quarter in FY19, a decline of 9% YoY. Operating margin also shrunk, and came out at 12.7% in Q2FY20 compared to 13.8% in the same period the previous year. PAT stood at Rs. 30 crore compared to Rs. 28 crore in the corresponding period. During the September quarter, Cera added 91 SKUs to product lines, and two company-owned large format stores in Morbi, Gujarat of about 12,000 sq ft and another in Bangalore of 8,000 sq ft. The company stands debt free with cash and cash equivalents of Rs. 199 crore as on September 30, 2019.
This performer has been under pressure
Cera Sanitaryware has been growing at a CAGR of 17% and 15% over the past five years for PAT and sales respectively. The stock has been a multibagger, rising from 170 levels in 2011 to around Rs. 3700 by 2018, multiplying investor wealth roughly 22 times. However the company has in recent months been facing high competitive intensity, rising raw material costs, overall credit squeeze, GST, demonetization and currently operating amidst general slowdown of the economy. Consequently, Cera Sanitaryware stock has suffered, correcting about 25% from 2018 highs.
Operating alongside peers such as Kohler India, Roca Parryware, Jaquar, Toto and domestic competitors such as Hindware and Somany Ceramics in the organized segment, Cera has maintained its market leadership of about 21-22% in sanitaryware which contributes 50% of its topline on standalone basis. SKUs in sanitaryware are around 360, faucet ware has 882 and for tiles the number stands at 3000.
In Q2FY20, sanitaryware, the major revenue contributor reported a decline of about 9.3% while faucet ware and tiles business grew upwards by 5.47% and 4.64% respectively. Growth has been particularly slowing down in the sanitaryware segment in the past few quarters, impacted by slowdown and strict credit terms implemented by the company.
As per the management, though large projects can be easily acquired, the company is extremely cautious in present conditions about defaults and thus, does not provide extended credit to dealers that would increase its receivable days and risk delinquency. In addition to this caution, as 72% of its customer profile is retail, delay in decisions with respect to home upgrades and improvements have augmented the softer note in the operating revenue movement.
Cera, operating over the past four decades, appears agile enough to manoeuvre present industry and economic headwinds. Amidst slowing Indian real estate, affordable housing is the new growth mantra. In the current scenario 70% of the industry’s WIP is in mid-income and affordable housing and Cera itself has been traditionally focused on low- and mid-income housing for the past several years. In this respect, Mr. Ayush Bagla, Executive Director, Cera Sanitaryware said, “Normally, we talk about affordable housing below Rs. 50 lakhs in metros and below Rs. 35 lakhs in non-metros. Our sales from Tier-3 towns with populations of 10 lakhs and below is 55% of our total sales, so a bulk of our sales are aligned in the same ratio as to the current WIP of the industry. In Tier-3 towns and below, the impact of slowdown and reduced velocity of sales is least pronounced”.
As part of company specific growth plans, Cera is focussing on faucet ware, one of its new businesses, launched in 2010, which has now become a Rs. 340 crore business increasing 25% YoY spurred by a robust comprehensive portfolio with more than 800 SKUs and fully automated manufacturing plants, enhancing quality and customer delight. Next in line, the tiles business which has been suffering from low margins over the past 3-4 years is expected to improve in H2FY20 as the production glut reduces and inventory overhang is completely absorbed, leading to higher pricing power for Cera.
The company has also forayed into the modular kitchen business sourced from Italy, mainly focusing on the lower base of the consumer pyramid. For scaling up this business, management expects meaningful revenues to flow in a year and accordingly a decision will be taken with respect to further expansion. Capex will also flow to the tune of Rs. 56 crore for the year with Rs. 20 crore for sanitaryware automation, Rs. 9 crore for faucet ware automation, customer touch point has Rs. 6 crore, completion of the staff colony at the plant is Rs. 17 crore and Rs. 4 crore for logistics and IT.
Commenting on the return of positive sentiment to the industry, Mr. Ayush Bagla reaffirmed, “In Q1, we found that consumers had been postponing their decisions because of floods and elections etc. We also had after Q1 a superb July, but in August again given the floods in Kerala and NCR etc...we did not have such a great August; so we believe that given these one-off impacts Q1 and Q2 have been flat, but without that we feel that the markets will come back, credit flow will improve and consumer sentiment and even within the retailer and dealer dynamics cash flow will improve. So given these factors it is a matter of time when the tide turns”. And the creation of a Rs. 25,000 cr fund for the real estate sector has according to management, already started the process.