Cera: Can it beat Jaquar?

No. 1 in Sanitary ware and No. 2 in Faucets

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• About
• Journey since Inception
• Shareholding Pattern
• Executive Management
• Products Segments
• Brands of Cera
• Revenue Segmentation
• Manufacturing Facilities
• Production Capacity
• Cost Structure
• Group Structure
• Competitor
• Financials
• Management Discussion & Concall
• Strengths & Weaknesses

(A) About

Cera Sanitaryware formerly known as Madhusudan Oils and Fats is a company operating in the sanitaryware, faucet and tiles industry. Cera also deals in wellness products like bathtubs, mirrors, steam cubicles, shower partitions, shower panels and kitchen products.

Company incorporated in the year July 17, 1998 in Gujarat. Mr. Vikram Somany is the Chairman of the company.

(B) Journey

(C) Shareholding Pattern

(D) Executive Management of Cera

(i) Mr. Vikram Somany- CMD (Age: 73 years):

Mr. Vikram is also founder of the company. His education includes B.Sc. and he is also Fellow of the Chartered Management Institute (UK). Mr. Vikram Somany’s only son Mr. Vidush Somany died in 2012.

His remuneration for FY22 amounted to Rs. 7.35 crore which is 4.80% of Net profit for the year & 0.50% of Net Sales.

(ii) Mrs. Deepshikha Khaitan - Vice Chairperson (Age 48 years):

She is the daughter of Vikram Somany. From April 1, 2020 onwards she will be the joint managing director of the company. She is married to Mr. Abhishek Khaitan, MD of Radico Khaitan. Moreover her educational qualification is B.Sc. Hons. (Economics) and LLB. She is associated with Cera for more than 10 years.

His remuneration for FY22 amounted to Rs. 2.82 crore which is 1.84% of Net profit for the year & 0.19% of Net Sales.

(iii) Mr. Anupam Gupta - Executive Director (Age 54 years):

Mr. Anupam Gupta holds a B.E degree in Electrical from AMU and also a MBA. He role is to Look after all manufacturing and commercial aspects of sanitary ware and also help in supporting and advising the board on various growth plans. Meanwhile, he has been appointed as executive director from 15/10/21.

His remuneration for FY22 amounted to Rs. 1.40 crore which is 0.91% of Net profit for the year & 0.09% of Net Sales.

(iv) Mr. Ayush Bagla - Executive Director:

Mr. Ayush holds B.A (Business) from Franklin & Marshall College, USA. His role in the company is to manage Investor Relations & Strategic Planning initiatives.

His remuneration for FY22 amounted to Rs. 2.18 crore which is 1.42% of Net profit for the year & 0.15% of Net Sales.

(E) Products Segment

CERA is the leading provider of complete home solution products - Sanitaryware, Tiles, Faucets, Kitchen Sinks, Mirrors, Shower Panels, Shower Enclosures, etc.

(F) Brands of Cera

Company has mainly four brands – ISVEA, Senator, Jeet and Cera.

• Through Isvea - an Italian luxury designer brand; Senator - a premium range of sanitaryware, faucet, wellness and mirrors.
• ISVEA brand products are totally made in Italy and products price range is INR 40000 to INR 3 lakhs per piece.
• Senator is a premium brand of the company.
• Senator products price range from INR 17000-40000 per piece.
• Jeet brand is neither advertised nor displayed at showrooms because it is exclusively for the Government tenders.
• Cera is the mass brand as the mass market is 90-95% of the total market.
• Cera brand includes products whose price is between INR 800-17,000 per piece.

(G) Revenue Segmentation

(i) Revenue on the basis of Sales Channel

Cera supplies products directly to the builders as well as through dealers to the retail customers. Moreover Cera’s institutional clients include Sobha, Shapoorji Pallonji, Tata Housing, DLF, Lodha, Godrej Properties, Taj Hotels, Marriott, Meriden, L&T construction, Penta homes, Oberoi Hotels, NBCC, Airport Authority of India, RBI, SBI & LIC.

(ii) City wise Revenue mix

(H) Manufacturing Facility

Cera’s manufacturing plant is located at Kadi, Gujarat. In fact, this plant is the largest sanitaryware plant at a single location in India.

It currently has 153 CERA Style Galleries across India and 15,566 Trading Partners in which it has 4,260 Dealers and 11,306 Retailers.

(I) Production Capacity

In FY20 Company has its Sanitaryware capacity of 36 lakh p.a. and Faucets capacity of 18.5 lakh p.a.

It is increasing its capacity of Faucets by 1,50,000 p.m. i.e. 48 lakh p.a by FY23 and Sanitaryware by 1,00,000 p.m. i.e. 48 lakh p.a. by FY24.

Cera outsources 54% of Faucets products, 59% sanitary ware, and entire Tiles & Wellness is outsourced of which bulk are lower price-point SKUs. Meanwhile, technologically sensitive high value products company manufacture inhouse.

(J) Cost Structure

Employee cost as a % of net sales increase as company give out bonuses to the employees those who complete targets.

Gas which company gets from Sabarmati which was at Rs70.82 per cubic meter in Dec21 which increased to Rs75.1 per cubic meter in Mar-22, supplying 56% needs of gas to the plant and cost of corrugated boxes grew by 15%.

(K) Group Structure

(L) Market Share of Cera Sanitary ware

Cera commands a strong 15% market share of organized markets.

As One of the leaders of India's sanitary ware industry "CERA" is positioned as the second largest player with around 25% market share in the organized domestic sanitary ware industry.

(M) Other Competitors

• Other key players in sanitary ware segment include Parryware & HSIL (Hindware).
• Moreover in faucet segment, key player is Jaquar which has around 50% market share of the organized market.
• In tiles segment, the major players include Kajaria ceramics, Somany Ceramics, Asian Granito, Nitco & also Orient Bell.
• All above given players are listed players except Parryware & Jaquar.

(N) Financials

(i) Financial Trend

Its net sales grew by 18% from Rs 1,224.33 Cr in FY21 to Rs 1,445.83 Cr in FY22 and have grown at a CAGR of 11.48% over a decay.

Moreover, its profit after tax grew at a CAGR of 12.71% in the past decay. company has reduced its debt/equity from 0.34 to 0.10 in last 10 years.

(ii) Terms of Trade

The Terms of trade have increased in the last 10 years but company aims to reduce it by giving offers to its distributors and offering them discounts if they pay early.

(iii) Du Pont Analysis

Company has reduced its debt in the last ten years. As a result, its Assets to Equity got improved from 2.12 in FY13 to 1.55 in FY22. Meanwhile company is also improving its PATM% as company is able to pass on all the price increases to its customer.

(O) Management Discussion & Concall Highlights

Outlook:

• Company has implemented high pressure casting, for high end wall hung WCs, which could produce 30 pieces from one module in a day.
• Further, company expects higher growth in the coming times in its faucets business. With this view company has also launched 47 new products this year.
• It has also launched exclusive/non-exclusive brand store with a view to deliver customer experience.
• Healthy demand is picking up towards home upgradation and home improvement persists. Accelerating real-estate demand due to factors like low mortgage rates, traction in residential unit sales, strong salary and hiring growth.

Concall

• The average SKUs per month for faucet ware plant was 1.8 lakh in Sep, 21 which is increased to 2.5 lakh in mar, 22 and will be at 2.75 lakh during the end of FY23.
• Company has taken the price hike of combine of around 21% in sanitary ware and around 26% in faucets from Feb,21 till March,22.
• 70% of the company power requirement are meet from wind & solar sources.
• Company has disinvested completely from its subsidiary Anjali Tiles.
• Management is expecting a growth of 18-20% in next 3 years.
• During the last 3 years new product development program contribute close to 23% of revenue.

Capex

• Company has set a capex of Rs 128 Cr for setting up a greenfield plant for sanitary ware which is going to have a capacity of 1,00,000 p.m. It will start delivering products in 24 to 30 months.
• It is also setting a brownfield faucet facility having a capacity of 1,25,000 p.m. at a cost of Rs 69 Cr.

(P) Strengths & Weaknesses

Strengths

(i) Established market position in the sanitary ware segment and diversified revenue profile

The company has a track record of nearly three decades, strong brand image and also has a large retail network in the sanitary ware industry. It is also one of the leading players in sanitary ware.

Over the past six years, the company has been leveraging its strong market position in the domestic sanitary ware industry by venturing into related business segments, such as faucets, tiles and wellness and allied products, thus becoming a complete bathroom solutions provider. Successful diversification into related businesses has helped lower dependence on the sanitary ware business, besides improving the efficiency of the distribution network.

(ii) Healthy financial risk profile

Networth was moderate at Rs 1029 crore and gearing low at 0.03 time, as on March 31, 2022. Expected cash accrual of more than Rs 200 crore over the medium term will comfortably fund capex of about Rs 120 crore in fiscal 2023 and incremental working capital requirement in line with revenue growth. Hence, reliance on debt is expected to be low, resulting in continuing strong debt metrics.

Weaknesses

(i) Exposure to intense competition

Cera operates in the highly fragmented mass and mid-market sanitary ware segments. Further, the lack of a well-entrenched premium brand may impact the company’s positioning among brand-conscious customers with higher paying capacity. Though Cera is taking steps to enhance its retail reach and product offerings, intense competition will continue to pose challenges over the medium term, aided by the entry of international players and rapid expansion of domestic players.

(ii) Susceptibility to risks inherent in the real estate sector

The growth prospects of the sanitary ware, faucets and tiles segments are linked to the macroeconomic scenario and the real estate industry in particular, exposing the company to inherent demand cyclicality. Around 30% of revenue comes from project sales, while the remaining comes from retail.

(Q) Industry Attributes

• Sanitary ware industry values around INR 8480 crore which is 70-80% organized.
• Faucet ware industry market size is INR 7500-8000 crore which is 60% organized.
• Indian tiles industry is INR 28,000 crore and there is overcapacity situation in India.
• Tiles are also exported to China & other countries.

(R) Key Raw Materials

• Raw materials used by the company are sand, sandstone, clays, chemicals, brass and natural gas.
• Meanwhile, company's natural gas is sourced from GAIL and Sabarmati Gas.
• Brass is a key component for the manufacturing of faucetware.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications. 

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