Highlights of the Concall

• Ahmedabad-based Bathroom products maker Cera Sanitaryware (Cera) has achieved 11% rise in top-line growth to stood at Rs 360.92 crore Q4FY18. It reported a dip of 6% in its profit after tax (PAT) to Rs Rs 30.60 crore in Q4FY18 from Rs 32.63 crore in Q4FY17. CERA's revenue from operation for the financial year 2017-18 was Rs 1192.67 crore up from Rs 1059.10 crore it recorded in the FY 2016-17.

• The sanitary-ware segment contributed 55% of Q4FY18 revenues, with sanitary-ware contributing 43.3% and allied products 11.4%. The Company enjoys a 22-23% share in India's organized sanitary-ware market vs. 18% five years ago. Capacity utilization in Q4FY18 was at 99%. Utilization is expected to remain at these levels with incremental demand being met by outsourcing.

• The Company faucet-ware business contributed 23% of Q4FY18 revenues. The Company enjoys a market share of 2-3% in the organized segment with capacity utilization at 65-70% in Q4FY18. Faucet-ware business dominated by unorganized market constituting 60-65%, however, post a favorable GST rate of 18% (28% tax earlier), a demand shift towards the organized channel should lead to better growth for organized players.

• The Company tiles business contributed 19% of Q4FY18 revenues. The Company enjoys capacity utilization at 80-90% in Q4FY18 vs. 60% in Q4FY17.

• In sanitary-ware, the ratio of own manufacturing to outsourcing is 50%:50% while for faucet-ware, this ratio stands at 48%:52%. Other expenditure jumped in 4QFY18 as the company has been increasing its A&P expenses and spending on creating more display centers and Cera Galaxy centers.

• The Company expects RERA is likely to reduce launches while existing demand is likely to be distributed across fewer developers; an improvement in launches across the industry might take another 12-18 months.

• The Company average price of gas was up from Rs 15 to Rs 18.5 per cubic meter. Company takes 54% gas from Sabarmati Gas Ltd. While remaining 46% from GAIL.

• The Company has total distribution network of ~15,000 dealers, and expects its network to grow at 10% in FY19

• The Company debtor days stood at 55-60 vs. 52 earlier. Working capital continues to see pressure due to GST-related impact and a slowdown in real estate activity.

• The company has launched a new brand, Jeet, for affordable housing. The Company plans Brand Jeet to cater institutional demand for the affordable housing (sub- 2.5mn/unit) segment. The Company will completely outsource these products, which will be Rs 350-500/unit cheaper than the company's entry-level product range. The brand is aimed at meeting sanitation requirements under all government schemes and will consist of basic sanitary-ware — EWCs, Orissa pans, wash basins in different sizes, and urinals. Pricing differential between the Jeet vs. Cera brand is around 50-60% and even higher in some cases.

• The company plans a rolling capex of Rs 180-200 crore over the next three years. The company plans to invest in assembly lines, display centers, technical upgrades of the faucet plant to make it more economical, and tile JV plant upgrades.

• The company expects growth at 17-18% CAGR over the next 2-3 years, which would be driven by a shift from the unorganized to the organized sector post GST, government thrust on affordable housing and E-way Bill implementation.

• The company expects marketing expenditure will remain within 3.5% of gross revenue.

• The company expects to maintain sustainable EBITDA margins of 16-17%, aided by higher automation and improved efficiency.