Previously I have written on CERA here & here
Let’s try and summarize key messages from 2015 annual report
The headlines
- Sales up by 23%
- Net profits up by 30%
- 3,51,000 equity shares issued on preferential basis
- Company also entered into competitive tiles market with exclusive tie up with manufacturers of tiles
- Company has set up Wind Turbines of 11.825 MW and 1.00 MW Solar Plant which will generate about 90 % of the requirements and it will offset against monthly consumption of energy bill
Management focus
The growth of your Company, much above the market growth, is largely on account of its continued efforts in leveraging the high brand value and product optimization besides deeper penetration in tier 2 markets. These efforts are further fortified by strong and structured marketing efforts, good product quality and after-sales service, and backed by a very loyal distribution network across India.
Increasing distribution strength – This is helps company to push new products (like tiles) through existing channels
Improving Product quality – Especially as many products sold are not made in house
Marketing
Your Company’s two-pronged aggressive marketing push of mass media advertising over television and print and partnering with industry organisations like CREDAI (Confederation of Real Estate Developers Associations of India), IIA (Indian Institute of Architects), IIID (Institute of Indian Interior Designers) and IPA (Indian Plumbing Association) has helped increase the value and equity of brand CERA
Ad spent increased in proportion to sales
Penetration through
CERA Studio – In big cities
CERA Style Galleries – Tier 1 and 2 towns
CERA Style centre – Rural upcoming centres
After-sales service through CERA care
Business units update
Sanitaryware Unit
Company has expanded its annual production capacity to 3 million pieces for meeting the increased demand of its products. Further, by adding balancing equipment, the company aims to achieve production of 3.2 million pieces per annum
Faucetsware Unit
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The new ranges and designs of Faucets have been well accepted by the market. The company attained its full capacity in the year. Owing to this success, the company has further expanded its capacity to 2.34 million pieces per annum
Bathware Unit
No sales break / capacity information in Annual report
Tiles Unit
Entered tiles market production outsourced
I would have been delighted to get some numbers on how each unit is performing
Promoters have been buying – Albeit in small quantity
The company is in Expansion mode
(See the increase in Gross block)
However it is partially funded through borrowings as both long and short term borrowings have increased, though debt equity ratio is still healthy but this is definitely a watch item for me
Equity was not diluted by preferential shares were issued
Company working capital requirements increased by about 60% largely due to increase in Trade receivables and short term loan and advances – Not a problem now but should be monitored closely
(Below figures in INR crores if not %)
I would suggest to draw up cash conversion cycle – for last three years it was improving, a reversal is not a healthy sign but could be because company is trying to push new product lines (Faucet and Tiles) thereby allowing lenient terms
Cash from operations were impacted as well
Good sign was increase in deposit from dealers
Overall company is expansion mode by entering in relatively low margin business, I will keep a eye on working capital situation
Awesome analysis. Cera’s asset turnover ratio is quite low. Can it improve in future ? Production capacity is almost full. So to keep its growth , capacity expansion by capex is almost certain. Tiles operation is quite good. Using the brand to boost sales. How many new Cera studio, style galleries, style center has opened or the number of dealers? On macro basis,how much the real estate down turn will impact cera. As only/mostly new houses need faucet/sanity ware/bathtub/tiles compare to oil paintings companies. And these brands are costly compare to local brands and only middle class( >50k income/ family) could afford it. So will it be helpful for “housing mission by GOI” means– those living between (10k-50k) will buy costly Cera over local brand or not. Like– those companies, who built luxury apartments, are struggling but not Poddar and Ashiana Housing. And please clarify the sales volumes of faucet and sanity-ware. Thank you and pardon me for my poor writing style.
Debasish – Thanks for your kind words, Let me try to give an answer for your questions
With outsourcing asset turnover would likely to improve
Tiles would be a low margin mass reach game
Information on outlets is their in AR
If economy picks up i will benefit CERA and if no then not
Middle class is 100+ million households so market size is not an issue for next few years
Sales volumes is missing from AR – I would have loved to know it 🙂
Thanks
Based in new act, volume growth will not be there from 14-15 onwards for any company. this is regreting news for fundamental analysis, only thing is we need to ring the bell for CS to get this 🙂
Good and very crisp summary of the working results. Follow ups would serve better.
Thanks Kamal – Next update would be next year as it is annual review