Cera sanitaryware limited – The future leader of sanitaryware Industry

We have seen many companies in the recent becoming a midcap from small cap initially and ending up as a large cap eventually.  Cera is about to get into this list in another 2-3 years down the line. And this seems the right time to add this to your core portfolio if you still haven’t. 

Buisness
Cera Sanitaryware Ltd. (CSL) is in the business of selling sanitary ware, faucets and other products like shower cubicles and bath-tubs. It has entered the high-end tiles segment recently.The company has also ventured into bathroom products, extending its range to shower panels, shower cubicles, shower temples, bath tubs, whirlpools, bath fittings, glass bowls, PVC seat covers and PVC cisterns. Cera has also launched its Cera Bath Studios and Galleries in various parts of the country to cater to the premium sanitaryware segment. 

  
The company’s marketing activities take place through regional offices at Bangalore,
Mumbai, Pune, Chandigarh, Chennai, Cochin, Delhi, Hyderabad, and Kolkata; it has a marketing network of more than 500
dealers and 5,000 retailers spread across the country.

They have been concentrating more and more on the so called middle-class of indian population. We all know even if a recession hits, this set will not take a major hit and thereby shielding cera’s business to a certain extent.

Cera is the third largest sanitary ware company in India and has a 20%+ market share and growing very rapidly.
It has different product range like sanitary ware, wellness and faucets (future growth driver) mainly.

Below are some of the products from Cera   

Welness: 

Faucets is an upcoming and the business is expected to break-even during the current quarter.

  
Cera also sells Tiles for bathrooms mainly via outsourcing.

Now the important Question - Why invest in CERA ?

Brand
At present there are only three major players i.e. HSIL, Parryware Roca and Cera. Cera’s achievement of 20% + market share is commendable in the light of the fact that Cera started almost 20 years later than HSIL and 30 years later than Parryware.
With rising disposable income within the middle class, people being more brand specific- I think the cera will capture more and more share from the unorganized sector as well as organized sector.
With spending on Brand building like advertisements and signing brand ambassadors- It will only strengthen from here.

Strong Distribution network
Cera sells it’s products through a marketing network of more than 500 dealers and 5000 retailers spread across the country. This is growing at a steady pace and we can expect in the future probably cera will even move to places where they are currently present.

Capex plans
Cera Sanitaryware plans to invest Rs 140 crores in its manufacturing facility in Gujarat to enhance capacity. And the good part is this is with minimal or no debt.

New product launches
The company has diversified into faucetware by setting up a Greenfield project at Kadi, Gujarat with an installed capacity of 2,500 pieces per day in September '10. The company is planning to increase its manufacturing capacity from the current 2,500 pieces per day to 5,000 pieces per day with an investment of Rs 40 crores, which is scalable to 10,000 pieces per day.

FII holding on the rise+ Consistent Promoter purchase from open market
The rise in FII holding to around 11% is expected to increase in the coming quarter.  Moreover the promoters are buying in every quarter for some time now. This shows their confidence in the business. There cannot be more appropriate persons to decide how the business might shape in the future. It is evident from the the open market purchase we have been witnessing that surely the promoters have a vision of becoming No.1.

Consistant Dividends
Cera has been a consistent dividend payer in the past and the dividend poayout are only increasing showing the promoters are shareholders friendly.
We can also expect a bonus in the near future!!

Excellent cash flows
Their cash flows have more or less been in line with their earnings, reflecting non-aggressive accounting practices.

Threats

In any business there would be risk factors and I have tried to mention some of the main threats below.

• Profitability in the faucet ware business.
• Company’s  long-term succession plan are key monitorables.
• Raw material cost on the rise
• Inflationary Rise becoming a burden for middle class people to spend more
• Competition from other foreign and local players
• Increase of sales in faucets and tiles can impact the margins to a certain extent.

Conclusion

Despite market fluctuation CERA has already given tremendous returns. But it does not mean it has become costlier as the future growth looks excellent for CERA.
P/E is on the rise and more you delay, I am sure you will end up more for owning this excellent stock.
FII are accumulating this gem and the price can easily rise as the free float is less. And the increasing coverage by the fund managers there are every chances that price will keep on increasing.
With every possibility of having joint ventures in the future for the current outsourcing products, it is only getting better.
I always say this to investors/readers – “If you haven’t boarded a train at the departure station, at least board it in the intermediate stops”!!!
I feel there is still value here as still the destination is very far. Accumulate on every dips.
CMP @ 530.
Happy investing!! 