In the last 3-4 years the stock of Cera Sanitaryware has appreciated considerably from 150 odd levels to current levels of 1,250. That’s a great return by any standards and we are lucky to have identified the stock in Jan 2011 at around 160-170 levels and recommended it to our members.
Now, the question is, can the stock still deliver good returns from current levels?
Well, it may not deliver 650% returns in the next 3 years like it did in the last 3 years; however we believe it still has very good potential to deliver ~20%-30% annualized return over the next few years and is therefore still a good buy in our opinion.
Disclaimer: Our Alpha and Alpha + members have been investing in Cera Sanitaryware since the lows of 160-170 and are still holding the stock. This report is being shared only for the purpose of information; do not construe the same as investment advice. In case you invest in Cera Sanitaryware, please carry out your own due diligence.
The recent results of the quarter ending Jun’14 are a good indication of the growth potential and the pricing power of Cera and the key highlights of the same are as below:
- Sales have grown by 28.24% on YoY basis to Rs 162.33 crores.
- With the price hike of 4-12% (across product categories) towards the end of Dec’13 quarter, gross margins have expanded to 58.15% and the growth in gross profits is higher at 32% to Rs 94.41 crores. With the reclamation of gross margins, it’s good to note that Cera has exerted pricing power.
- On account of higher employee related expenses and other expenses, there’s 86 bps reduction in EBITDA margins to 14.87% and therefore growth in EBITDA is 21.24% to Rs 24.14 crores.
- With lower growth in depreciation cost and interest charges being maintained at same level as last year the Profit before tax is up by 21.75% to Rs 20.78 crores.
Overall, good set of results in terms of sales growth, reclamation of gross margins and profitability.
In the last con-call management talked about targeting 32-35% CAGR in sales for the next 2-3 years; to us at least 25% CAGR seems achievable and as mentioned above we are still recommending members to buy the stock.
The detailed report on the company can be accessed below: