Dear Readers,

Please find below the transcript of the interview of Mr. Vidush Somany, Executive Director, Cera Sanitaryware Ltd, though there isn’t much which our Alpha and Alpha Plus members don’t know about the company.

However there are a few important take-aways like:

  • Brand building and setting up of distributions network across Pan India are major costs and the entry barriers to the segment.
  • The existing faucet ware plant which is currently set up for 2,500 pieces per day is scalable up to 10,000 pieces per day.
  • Though China may come across as a threat to the industry, however CERA itself is outsourcing premium sanitary ware from China. The company ensures that products are manufactured under quality standards set by them.
  • The company is well-funded to take on any expansion plan in line with their requirements. Also the leverage is very low. They would in the most definite case not resort to equity-dilution.

Are aesthetics gaining more importance?

Yes we agree. Aesthetics are gaining more importance. Designs & looks with added comforts in functionality with `Value for Money’, ‘Responsible attitudes towards end users and dealers’ are some of the differentiations customer appreciate. This is more for home though commercial complex do not lag far behind if cost is not a major constraint.

Do you see Indian customers willing to pay a price for this?

Price is  one of the major consideration in Indian context and plays an important role in any decision. The trend is definitely changing towards better looking and quality products.

You are expanding and entering the CP fittings (faucet ware) range. Tell us more about this market.

We have been servicing the market with quality outsourced product for last few years under our brand name “CERA”. We, thus have test marketed business. The market is fairly large and can be estimated around Rs. 35bn (Rs 3500 crore).

We have now entered the faucet ware market with our own manufacturing facilities at Kadi in North Gujarat. Our current capacity and market share is only a fraction of this large sized market. This leaves a good scope for expanding the capacity with credible brand like `CERA’

Which are some of the geographies you need to tap now?

We have a national presence. We are planning to have strong foothold in North-east and Central India. Besides, we are eyeing an increase in our share in southern states like Andhra, Tamil Nadu and Karnataka.

What is the market size for your range of products in India?

The size of market for Sanitaryware is estimated close to Rs. 15-18bn. This is divided more or less equally between organized and unorganized sectors. We are the third largest in the organized sector and have consistent market share of over 21% for quite a few years.

The same is increasing for us as witnessed by our Balance Sheet and revenue figures with rising CAGR during last five financial years.

What are the further triggers for growth in India?

In our industry people both for residential and commercial properties are now exposed to western / developed countries and are demanding a certain quality but at reasonable price points.

The growth in real estate industry and the changing profile of the Indian consumer makes this a very exciting time for the sanitaryware and faucetware industry.

What is your current market share in each segment? What efforts are you making to improve the same?

We command over 21% market share in our core business of sanitaryware. We have just begun in the faucetware business. We aim to increase our market share by offering better products but at reasonable price.

Our efforts comprise better cost management, better and newer designs with consistent quality standards.

You had the advantage of direct connection of natural gas from GAIL. Comment on your power requirements and how is it being catered to?

Yes we do have advantage of getting the Gas from directly from GAIL. Almost entire energy for running the Kilns is met with gas from GAIL currently. The situation may not be same for expansion and will have to look at alternatives. We have been able to tie up successfully. We are in the process of working exact % of how much we will have to depend on alternatives.

What are some of the important tie-ups you have at present?

We have a good tie up with Chinese suppliers. This is for premium sanitaryware. We are at fairly advance negotiations for sourcing premium faucetware. All these products are manufactured under strict quality standard set by CERA and carries CERA brand name.

How are the Cera Bath Studios doing?

Very well. ‘Cera’ is pioneer and response is extremely good.

Earlier, you were active in products like twinflush model. Any similar offerings now?

Snow White is another dazzler from Cera, it stands out amongst the products in its category with unique whiteness This product has won both the consumers and the critics.

What are your Capex plans and how would they be funded?

The three-year capex plan starting from FY 2010-11 is close to Rs 1bn (Rs 100 crores). This is for expanding sanitaryware capacity to 2.7 million pcs. p.a. as well as putting up a state of art faucetware plant of 2500 pcs per day scalable to 10000 pcs. per day.

The entire capex is being funded largely with internal accruals and balance would be with support from our bankers.

Give us some details about your plants and their capacities.

The entire manufacturing facilities are located at Kadi District, Mehsana, North Gujarat. It is around 50 km from Ahmedabad on Ahmedabad – Mehsana highway.

  • In Sanitary ware we do 2mn pieces a year. However, this depends on product mix. This is being Increased to 2.7mn pieces per year.
  • In Faucet ware, currently, 2500 pieces per day. It is scalable to 10,000 pieces per day

Comment on your margins? Do you see any improvement? What would lead to an improvement?

Our margins have remained comparable with industry standards or are even better. Management always strives to achieve higher. Better cost management and better price realization are basics for improving margins. Management continues to make serious endeavors in both these directions.

What are the entry barriers? What about competition and the unorganized market?

  • Brand building and setting up of distributions network across Pan India are major costs.
  • The industry has high capex, stringent process parameters and one needs to invest in the right technology.

CERA uses technology from Germany, Italy, UK and Australia, adapted to suit Indian conditions. To what extent has it helped boost your offerings?

These technologies are proven across the Globe. This are easily adaptable to suit Indian conditions. Our offerings comprises of own manufactured goods using Indian raw materials with European technology and outsourced premium sanitaryware from China using superior china clay as raw material having price advantages to end users.

This combination, to a very large extent, has helped us to boost our Brand Image and recall of all our products.

What is the demand in the replacement market?

The potential is huge with good margins. However, currently this is not a focused area as we need different strategies to cater to this segment.

Brief us on your international presence and exports?

Sanitaryware is a bulky product. Cost of freight becomes major barrier.

Besides this, in developed countries, some of the international brands like Kohler, American Standards, TOTO, Duravits etc have better acceptability. Our exports largely is in Gulf and in African countries. Total exports do not exceed 5 % of our sales

Any inorganic growth plans?

We are always open for inorganic growth.

What is your staff strength? Do you hire from B-Schools?

Our Managerial and supervisory staff is ~425. We have workers including contract labor which is around 1400.

  • Our experience has not been very good with B-School managers.
  • In sanitary ware industry, to our knowledge, there are not very many successful B-School managers. May be our industry is not able to match the aspirations of B – School qualified aspirants. However, we are always open to right candidates.
  • We generally look to candidates who are slightly down to earth and are willing to learn rather than carry the `I know everything’ attitude.

What is your message to shareholders?

At macro level the sanitation condition in India is pathetic. Our line of business offers ample scope to grow. We respect their holding and investments by our shareholders.

We are working hard to create and sustain value for stakeholders. We believe, the investing community has appreciated our efforts with true reflection in Share Price.

– Katalyst Wealth [info@katalystwealth.com]