Cera Sanitaryware is strongly positioned in the mass market segment through the CERA brand. The company has been one of the key beneficiaries of the shift from the unorganised to the organised market in the mass market segment.
The company has a strong position in the sanitary ware market; its share has increased from 18% to 24% over the past few years. The segment recorded CAGR of 32% over FY09-13. We expect the growth momentum to continue, driven by growth in the industry and shift from the unorganised to the organised segment.
The company entered the faucet ware market by setting up a manufacturing facility in 2011. This is positive as it provides a significant growth opportunity. While the business is challenging and currently loss-making, the risk is limited as the company has invested 225 mn, only ~10% of net worth. We expect the business to grow at 29% CAGR and become profitable during FY13-15 on its plan to introduce new designs.
Revenues are expected to grow at a two-year CAGR of 25% to 7.6 bn in FY15 driven by growth across all product segments. EPS is expected to grow at a two-year CAGR of 25% to 53.3 in FY15.
Using the DCF Method, a fair value of 615 stock / share target price per share. Implied P/E multiples are 14.2x FY14E and 11.5x FY15E EPS.
