Buy Cera Sanitaryware shares for target price Rs 2,488, says Reliance Securities

The share price of Cera Sanitaryware corrected over 25 per cent in the past 10 trading sessions till April 28. However, Reliance Securities is looking bullish on the company with upside of 18 per cent.

In the last quarter of 2014-15, the company reported net profit of Rs 22.12 crore, up 14.37 per cent, against Rs 19.34 crore in the corresponding quarter a year ago.

It registered revenue growth of 14.78 per cent year-on-year to Rs 250.44 crore.

According to the brokerage house, the average revenue growth in sanitaryware business got hit in Jan-Feb 2015 due to lower orders. The average volume growth reduced from 12-15 per cent to 5-7 per cent during the same period, which led to poor show in the last quarter of 2014-15.

However, management has informed that Cera has bounced back to higher levels of growth of around 24 per cent in April and has guided for overall growth of 24 per cent in the ongoing financial year backed by its reworked marketing strategy.

The brokerage house expects margins are likely to expand in 2015-16E and 2016-17E driven by reduction in gas prices by 10 per cent and management has increased focus on premium category of products by launching superior designs and quality, especially in faucets and tiles, which are comparatively lower margin segments than sanitaryware.

Outlook and Valuation

Reliance Securities in a research report, says, "We expect revenue to grow at CAGR of 24.5 per cent from Rs 663. 7 crore in 2013-14 to Rs 1,280.3 crore in 2016-17E, while earnings are expected to grow at CAGR of 32.2 per cent from Rs 51.9 crore to Rs 119.8 crore over the same period. We also see high growth in sanitaryware industry driven by huge housing and sanitation demand in the country, which has got the required thrust due to government initiative of Swacch Bharat Abhiyaan. Additionally, expectation of expansion in margins makes a case for upward re-rating of the stock. Thus, we believe the share price of the company can touch Rs 2,488 in the next few quarters."

In the past one year, the share price of the company jumped 142 per cent to Rs 2,113.20 on April 28 against Rs 872.85 on the same day a year ago.