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Building Materials 27 April 2020

Contents
Perspective on the Domestic Tile Industry ....................................................................... 5

Production ......................................................................................................................... 5

Tile industry – Consumption .............................................................................................. 7

Tile industry in Morbi ......................................................................................................... 9

NGT bans use of coal gasifiers in Morbi........................................................................... 10

Emergence of the new ceramic cluster in Andhra Pradesh ............................................. 12

Tile exports of India ......................................................................................................... 13

Exports of top 5 countries ............................................................................................... 13

India’s exports country-wise ............................................................................................ 14

Demand drivers for the Indian tile industry .................................................................... 16

Key demand drivers for tiles consumption ...................................................................... 17

Residential launches and sales in Top 8 cities ................................................................. 19

Replacement demand ...................................................................................................... 21

Gulf Co-operation Council (GCC) contemplating imposition of anti-dumping duties on

Indian tile exports to gulf countries................................................................................ 23

Sanitaryware market in India ......................................................................................... 24

Company Section
Kajaria Ceramics ................................................................................................................... 26
Cera Sanitaryware Ltd .......................................................................................................... 47

Centrum Institutional Research 2

 Thematic

Institutional Research
India I Cement
27 April 2020
Building Materials NIFTY 50: 9154
Gaining Structural Strength BSE Sensex: 31327

The Indian Tiles and Ceramic industry has undergone a challenging phase recently (FY16-
19). Nonetheless, it was also the period during which the inorganic segment (~50% of the
overall industry) was forced shifted on a level playing platform with its organic
counterparts following the introduction of GST and measures like banning the use of coal
gasifiers. Further, the consolidation in the inorganic segment has also aided the organised
segment to gain structural strength. Notwithstanding the current short/medium term
challenges posed by the COVID 19 pandemic, we expect fundamentally strong companies
focused on earnings growth and balance sheet (cash) conservation to emerge even
stronger. Kajaria Ceramics (KJC) with 21% market share in the organised segment and 11%
in the overall market is poised well to take advantage of the changed environment. KJC’s
focus on product quality, wide product range with even wider distribution network
coupled with strong brand recall aides its sustained performance even in challenging
conditions; Initiate coverage with a BUY rating and target price of Rs508/sh. CERA
Sanitaryware (CRS) is expected to improve its EBIT margin to ~15% from 13.9% and ROCE
is estimated at ~19% in the most challenging period (from FY18-22) post GST introduction,
demonetisation impact and the current COVID 19 pandemic. CRS continues to outsource
manufacturing, hence its capex requirement will be limited leading to asset light model;
Initiate coverage with a Buy rating and target price of Rs3,073, up 47% from the CMP.
Demand drivers in place, COVID 19 pandemic to impact in medium term
PMAY-U is expected to build 10mn urban houses with an aim to provide ‘Housing for all’ by
2022. This is one of the key drivers for tile demand, especially for ceramic tiles. PMAY has
seen 6% higher budgetary allocation at Rs275bn in FY21BE as compared to Rs258bn in
FY20BE. Further, the rising rural income that has started gaining pace since the mid 2000-
2010 has changed the aspirations of the Indian rural and semi-urban population. This is
gradually shifting the sanitaryware demand profile from necessity to style statement, which
will help the organised segment companies with strong brand recall like Kajaria Ceramics
and CERA Sanitaryware, the leaders in the tile and sanitaryware segment, respectively. The
replacement demand which is ~ 20% of the total demand bucket is also likely to gain
prominence after the current COVID 19 crisis recedes.
Level playing field for organic and inorganic industry; win-win for both segments
After the disruptive measures taken to create a common platform for the organised and
unorganised manufacturers, companies from both segments opted for mutually beneficial
methods like joint venture models. Effectively the capacity utilisation of the unorganised
manufacturers has improved however logistic, branding and receivable worries are shifted
to the organised and branded companies. It is positive for the organised manufacturers also,
as capital deployment in JVs is lower than greenfield capacity expansion and gestation
period is minimal aiding quicker volume/revenue growth and improvement in reach, driving
logistic savings. Kajaria has opted this model (investment in JVs), while Cera has a prudent
balance of outsourcing and JV manufacturing (54% of total revenues).
Kajaria Ceramics – Conservatism to pay as business cycle revives
KJC’s prudent capital allocation, strong focus on balance sheet strengthening and sharp eye
on EBITDA margins will assist in maintaining its leadership position and gear up for strong
leaps as business cycle reverses. With healthy return ratios and margins, KJC will be the best
bet in the industry. We value KJC at an average of 15-year long business cycle and past five
years (to capture the recent earnings trend). At the target multiple of 24.3x FY22 earnings of
Rs21/share, we arrive at target price of Rs508 translating into 45% upside from CMP.
Milind Raginwar
Cera – From a challenger to a leader!
Cement Team

Analyst
CRS is expected to increase its revenue/PAT at 7% CAGR, over FY18-22E amid series of +91 22 4215 9201
[Link]@[Link]
challenges including GST, demonetisation, overall lull in the economy and the current
COVID-19 crisis. In the same period, EBIT margin is likely to improve to ~15% from 13.9%
and ROCE is expected at ~19%. Like combating the difficult phase of GST and
demonetisation, we expect CRS to overcome even the current challenging situation post
COVID-19. As the company continues to outsource manufacturing, its capex requirement Sahil Sanghvi
Associate
remains limited. We initiate coverage on the stock with a Buy rating and target price of
+91 22 4215 9203
Rs3,073, up 47% from CMP. [Link]@[Link]

Please see Appendix for analyst certifications and all other important disclosures.
Building Materials 27 April 2020

Fig 1: Comparative Valuation Table

Market cap. Up/ EBITDA margin (%) EV/EBITDA (x) P/E (x) RoE (%)
CMP*
Company Rating TP (Rs) Down
Rs bn US$mn (Rs) FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
(%)
Kajaria Ceramics Buy 56 795 350 508 45.1 15.2 15.0 16.5 11.8 12.1 9.3 21.0 21.9 16.7 15.3 13.2 15.4

CERA sanitaryware Buy 27 363 2092 3,073 46.9 13.7 14.3 15.0 15.6 17.3 12.9 24.6 28.1 20.4 14.1 11.3 14.0
Source: Centrum Research estimates, *as on 24 April 2020, TP – Target Price

Centrum Institutional Research 4

Building Materials 27 April 2020

Perspective on the Domestic Tile

Industry
Production
India is the second largest manufacturer of tiles in the world with an annual production of
1,145 million sq. metre (msm) in CY18. India contributed 8.7% of the total world tile
production in CY18, a distant second to China, which had 43% share. However, China’s tile
output declined 11.2% to 5,683msm in CY18, which was its first severe contraction in
terms of both production and consumption. Several factors like the overall slowdown in
China’s economic growth and increase in costs (impacted by the new environment
regulations) coupled with severe competition has led to the slump in production resulting
in shutdown of 137 ceramics manufacturing companies in China. This presents an
opportunity for the Indian tile manufacturers in the export markets and will aid in
consolidating the second position in the global markets.
Fig 2: India has maintained the second largest tile producer position since 2016

Global tile production (msm)

7000

6000

5000

4000

3000

2000
955 1080 1145
691 750 825 850
1000 550 617

0
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18

China Brazil India Spain Vietnam

Source: World Ceramic Review, Centrum Research

India overtook Brazil (currently the third largest manufacturer of tiles with 6% share) to
grab the second position in the world for tile production. Led by the political crisis and
economic recession in Brazil, it lost the no.2 spot to India in CY16, as the country’s
production of tiles decline by ~12%. Brazil’s output has been flat for the last three years
(793msm in CY18) and has witnessed no recovery from the slowdown in CY16.

Change in market share of leading tile producing countries

Fig 3: Share of global tile manufacturers in CY10 Fig 4: Share of global tile manufacturers in CY18

Share of global tile manufacturers in CY10 Share of global tile manufacturers in CY18

Italy Others Italy Others

4% 31% 3% 30%

Vietnam Spain
4% 4%

Spain Vietnam
4% 5%
Brazil
India
6%
6% China China
Brazil 43% India 43%
8% 9%

Source: World Ceramic Review, Centrum Research Source: World Ceramic Review, Centrum Research

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Building Materials 27 April 2020

India’s tile production registered a CAGR of 9.6% over CY10-18, while the production for
Brazil and China contracted in the same period. India’s GDP grew at a CAGR of 6.6% over
CY10-CY18. The strong growth in India’s tile production was owing to the rapid expansion
by tile manufacturers in Morbi, Gujarat. However industrial/mandatory norms were not
followed diligently in the manufacturing process by this segment facilitating expansion (of
the unorganised market) with huge price differential benefits, however, compromise on
the quality, style and design remained.
Fig 5: India’s GDP growth vs. tile production growth

25.0% 22.6%

20.0%

15.0% 12.8% 12.2%

10.0% 7.9% 8.5% 9.0% 5.5% 8.0% 8.2%

7.7% 6.4% 7.4% 7.2%
5.2% 5.4% 5.3%
5.0% 3.1% 2.9%
1.5% 0.9%
0.0%
-1.3%
-5.0% -3.2%
CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18
India Tile consumption growth India GDP growth

Source: World Ceramic Review, Bloomberg, Centrum Research

The disconnect between India’s GDP growth and the tile industry growth was stark in the
recent past (CY17/CY18) due to the slew of measures like introduction of the Goods &
Services tax (GST), demonetisation impact, challenges faced by the MSME sector and
overall overhang of the weak state of the economy. However, the industry growth is
largely correlated to the real estate sector. The brief revival of the real estate during FY09-
11 has seen strong growth of the tiles sector, but post that period, the lull in real estate
segment has directly impacted the ceramic and tile industry.

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Building Materials 27 April 2020

Tile industry – Consumption

Although India’s tile production showcased a strong growth (~10% CAGR over CY10-18), its
overall consumption growth was subdued at 3.8% over the same period. The growth was
at 6% over FY10-16 while it dipped to -2% in FY16-18 period. The lower growth was in a
challenging period which was impacted by demonetisation, the introduction of GST and an
overall slump in the real estate segment.
The Indian economy suffered with liquidity crunch (partly due to the demonetisation
announced in November 2016). Additionally, implementation of GST further impacted the
liquidity of the MSME sector, which forms the distribution channel for tile supply in India.
This, along with muted demand from real estate, resulted in distributors putting off their
purchasing decisions, thereby leading to decline in consumption. Notably, India’s tile
consumption declined 3.2% to 760msm in CY17, which was the first decline in the decade;
it further declined to 750msm in CY18.
China tops the list of tile consumption countries at 4,840msm with 48% share of the world
consumption, while India stands second on the list with 5.9% share, followed by Brazil.
Despite India being second on the list of largest tile consumption countries, per capita
consumption of tiles remains the lowest among peers.
Fig 6: Consumption of tiles by top 5 countries

Global tile consumption(msm)

6000

5000

4000

3000

2000

625 681 718 756 763 785 760 750

1000 557

0
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18

China Brazil India Indonesia Vietnam

Source: World Ceramic Review, Centrum Research

Change in market share of leading tile consuming countries

Fig 7: Share of global tile consumers in CY10 Fig 8: Share of global tile consumers in CY18

Share of global tile consumers in CY10 Share of global tile consumers in CY18
USA USA
2% Others 2%
Vietnam Vietnam Others
42%
3% 4% 41%
Indonesia Indonesia
3% 4%
India India
6% 6%
Brazil Brazil
7% 5% China
China
38%
37%

Source: World Ceramic Review, Centrum Research Source: World Ceramic Review, Centrum Research

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Building Materials 27 April 2020

The implementation of GST however, also had its benefits for the organised players. The
informal market became more compliant after the GST implementation, thereby
minimizing the gap of tax and duty paid by unorganised players and by branded players.
This made branded tiles more affordable for the buyers. After the introduction of the GST
in July 2017, the rates were reduced to 18% from 28% in November 2017. Gas prices
increased significantly in FY17-18, which the tile sector was unable to bear due to the
already muted demand for tiles. This burdened the margins of the unorganised players
and small manufacturers.
Fig 9: Major players in the Indian tile industry
Indian tile industry - Share of Major players in FY19
Total tile consumption in India 750msm
Organised market 50%
Share by volume in total market
Kajaria Ceramics 11%
Somany Ceramics 7%
Prism Johnson 5%
Share by value in total market
Total market of tiles in India Rs300bn
Kajaria Ceramics 9%
Somany Ceramics 6%
Prism Johnson 6%
Source: Company Annual Reports, Centrum Research

Indian tile industry had a total consumption of 750msm in FY19 (organised + unorganised).
Kajaria Ceramics is the largest tile producer in India with an overall market share of 11%
followed by Prism Johnson and Somany Ceramics among the organised players. Kajaria
Ceramics has a share of 21% among the organised players. Varmora, Oreva, Argil Tiles,
Excel Ceramics, Face Ceramics, Simpolo and Eros Sanitarywares are some of the largest
ceramic manufacturers in Morbi, which houses the biggest unorganised market for tiles in
India.
We have covered in detail Kajaria Ceramics in the company section.

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Building Materials 27 April 2020

Tile industry in Morbi

Morbi (also known as Morvi) is a district located in the Saurashtra region in Gujarat. Morbi
was first established as a hub for manufacturing of clay roof top tiles. Morbi is now house
to 610 ceramic units (investment in the range of Rs150mn to Rs1.5bn for each unit) and
manufactures ~ 90% of the total ceramic output of India, which includes tiles and sanitary
ware products. It provides direct employment to 0.35 mn individuals in factories and
another 10,100 in auxiliary and related business & professions. The complete Morbi
cluster had a turnover of ~ Rs450bn in FY20. In addition to wall tiles, floor tiles and
vitrified tiles, Morbi also manufactures industrial ceramics and technical ceramic products.
Abundant raw material availability, undisrupted electricity supply from the state power
grid, industrial gas pipeline and vicinity to ports like Mundra and Kandla are key drivers
behind Morbi’s phenomenal growth over the last two decades. The availability of
dedicated gas lines from Gujarat State Petroleum Corporation (GSPC) has largely sufficed
the energy requirements of the Morbi manufacturers. Several manufacturers in Morbi
resorted to coal for their fuel requirements, but after the National Green Tribunal (NGT)
ordered shutdown of all ceramic units using coal gasifiers for their fuel requirements in
March 2019, most of the units have shifted to natural gas.
Morbi sources 50-60% of its raw materials like China clay and feldspar from Rajasthan and
the rest from Gujarat. In FY18, Gujarat had the highest production of China clay i.e. 5.4mn
tonnes and had a resource base of 195mn tonnes (as of April 2015). Reserves of other raw
materials like Ball clay (0.82mn tonnes as of April 2015) and Feldspar are nominal in
Gujarat, and hence, sourced from Rajasthan. Further, 57% of the India’s total ball clay
resources (~77mn tonnes as of April 2015) are in Rajasthan, which was also the largest
producer of ball clay (3.7mn tonnes) in FY18. Rajasthan accounts for 90% of the total
resources (as of April 2015) of Feldspar in India, and is also the largest producing state
with output of 3.2mn tonnes in FY18.
Varmora, Oreva, Argil Tiles, Excel Ceramics, Face Ceramics, Simpolo and Eros
Sanitarywares are some of the largest ceramic manufacturers in Morbi.
The unorganised tile manufacturers hold 50% of the capacity and supply significant
quantity to the organised market in India. With the government focused on formalising
the tile industry with preference to the organised sector over the unorganised segment
(largely manufacturers in Morbi), the focus of Morbi companies has shifted to exports
(total exports jumped from 13% in CY14 to 24% in CY19), largely to the middle east
companies. Morbi manufacturers currently (CY18) export 35-40% of the total tile sales in
value to countries like Europe, Middle East, African Countries, Sri Lanka, Bangladesh and
Latin American markets along with other ceramic products.
As mentioned, the shift to the exports have been prominent in the recent past post the
government’s focus on the organised sector with the introduction of GST and creating
level playing field by shifting the tile and ceramics manufacturing on gas based fuel from
earlier coal based fuel. This has taken away the relative advantage of the Morbi
unorganised sector in pricing in the domestic markets. Hence, in the past couple of years,
the focus of the Morbi ceramic manufacturers is on exports. Further, Morbi can cater only
to the western and southern regions of the country, while North, East and Central cannot
be catered aggressively due to the logistic cost.
Additionally, the change in preference and style shift is more towards the branded
building material including tiles and ceramics. This is surprisingly equally prominent in the
semi-urban/rural areas as in the urban/city centric regions, which has further aided the
shift towards the organised segment.
Despite all the disadvantages mentioned, the Morbi cluster remains one of the most
prominent in tile manufacturing in the country, largely due to the cost advantage, unity
among the unorganised and small companies and introduction & use of technology.

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Building Materials 27 April 2020

NGT bans use of coal gasifiers in Morbi

In March 2019, National Green Tribunal (NGT) ordered the shutdown of all ceramic units
in Morbi that are fuelled by coal-based gasifiers. The order stated that only those units
which are fuelled by non-coal gasifiers or PNG or other technology (as mentioned in the
report filed by NGT) would be allowed to operate in Morbi. Notably, 550 of the 800
ceramics manufacturing units in Morbi were operating on coal based gasifiers at the time
when this NGT order was released. The most affected by this order were the wall tile and
soluble salt tile manufacturers, as they soured their entire energy requirements through
coal gasifiers. Nonetheless, most of the organised market used natural gas as a fuel for
their plants.
Why were coal gasifiers banned?
Coal gasifiers produced highly carcinogenic waste that could lead to lung cancer. Morbi’s
daily coal tar generation was estimated at ~800 tonnes/day. Further, coal tar and
condensate wastewater (output from the ceramic manufacturing process) led to severe
air and water pollution, as the waste was drained into the natural water bodies or into the
atmosphere through steam. The NGT also tested a modified technology to reuse the
waste, but the same was not feasible over a longer period of time. This led to a ban on
coal gasifiers and also a penalty of Rs4,000mn, which was imposed on Morbi
manufacturers using coal gasifiers. The Gujarat Pollution Control Board (GPCB) has been
strictly instructed to initiate immediate steps for prosecution of industrial units which
have not complied with the NGT orders and recover compensation for damage caused to
the environment and public health. This penalty amount would be assessed by a
Committee with representatives of Central Pollution Control Board (CPCB), GPCB, and the
National Environmental Engineering Research Institute (NEERI) within one month.
Fig 10: Sharp increase in sales volumes of key gas provider (Gujarat Gas - mmscmd)

8.0 7.3
7.2

6.0
4.8 4.6 4.7 4.6
4.4 4.5 4.4
4.0
4.0

2.0

-
Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

Source: Company Annual Reports, Presentations, Company Research

Impact of the ban

A month after NGT’s order, several ceramic units have shifted to natural gas for their fuel
requirements, which was reflected in gas consumption by Morbi units that nearly doubled
from 2mmscmd to almost 4mmscmd. This was also visible in PNG offtake for Gujarat Gas,
which grew to 7.2mmscmd in June-19 quarter as compared to 4.4mmscmd in March-19
quarter (refer exhibit 10 below). Coal consumption dropped by 900 tonnes/day with
freshwater savings of 2.250 million litres. This affected the total dispatches from Morbi,
which in terms of freight outwards dropped to 3,500-3,800 trucks from 5,500 trucks
before the announced ban. Shift to natural gas has led to an increase in the cost structure
of the ceramic manufacturers as coal is ~25% cheaper than natural gas. Morbi’s
manufacturers have already started exploring alternate ways to control this surge in cost.
They have planned to build a dedicated coastal LNG terminal at Jodia near Navlakhi port
(45kms from Morbi) to supply 2.5MMTPA of natural gas to Morbi at a capital cost of

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Building Materials 27 April 2020

Rs30bn. This project is currently in the pre-feasibility phase. In the past, some of the
Morbi players had switched to LPG and propane gas, which is usually cheaper than natural
gas. Around 60 to 70 ceramic units in Morbi have installed the infrastructure for using
propane gas at a capital cost of Rs8-15mn. Propane gas is usually cheaper than PNG by
Rs6/SCM, but the cost rises in winter due to higher demand for propane gas. The gas
consumption for manufacturing vitrified tiles (12,000-15,000 SCM per day) is higher than
the gas consumed for same quantity of wall and floor tiles (5,000-7,000 SCM per day).
Hence, propane gas is predominantly used by ceramic units which manufacture vitrified
tiles.

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Building Materials 27 April 2020

Emergence of the new ceramic cluster in Andhra Pradesh

A new ceramic cluster has emerged in the south eastern coast in Andhra Pradesh. Given
the limited access to Morbi manufacturers due to the logistic difficulties (cost + delicate
nature of the industry) from southern coast, emergence of a new ceramic cluster has been
witnessed in states like AP and Telangana owing to higher affordability and abundant
availability of the key raw material.
Key benefits of setting up ceramic cluster in AP:
 A new ceramic cluster in south India will be best placed to cater to the real estate
demand of the rapidly growing twin states of Andhra Pradesh and Telangana. With
the formation of new capital in Andhra Pradesh, a ceramic cluster in south is well
placed to cater to the demand for new real estate for government institutions.
 Ceramic tiles are heavy and fragile, and hence, require high handling efficiency.
Manufacturers have to bear high transportation and handling cost as most of the tile
units are concentrated in Morbi, Gujarat.
 After the western region, the southern region is the second highest consumer of
vitrified tiles due to a high emphasis on health and hygiene.
 South also accounts for 44% of the PMAY-Urban projects under the central
government’s ‘Housing for all’ scheme, which will act as a major demand driver for
ceramic, vitrified tiles and sanitaryware products.
 Imports from China through ports of Vizag, Chennai and Vishakhapatnam are
expensive after the levy of anti-dumping duty on ceramic tiles as compared to the
domestically sourced tiles.
 Clay, which is the primary raw material, is available in abundance in the Godavari
district. Andhra Pradesh has 42% of India’s total ball clay resources (57mn tonnes)
and was also the second largest producer of ball clay (0.17 mn tonnes) in FY18.

The Andhra Pradesh government has established a dedicated ceramic cluster at

Thatiparthi in Thottambedu mandal of Chittoor district in June 2017 with provisions for
uninterrupted supply of power, fuel & water and has already allotted land for setting up
ceramic units in the cluster. Kajaria Ceramic’s wholly owned subsidiary, Floera Ceramics,
was one of the first few manufacturers to install a ceramic unit in Andhra Pradesh, for a
capital cost of Rs283mn to produce 35,000 sq. meter of vitrified floor tiles a day and
create 1,000 direct and 10,000 indirect jobs. This unit has started production in March
2019. After commissioning of the second and third phases, the unit will churn out 90,000
sq. meter of tiles a day.
Fig 11: Recent projects in the AP cluster
Company Name Segment Status Installed Capacity
Lixil India Sanitarywares Sanitaryware Completed 1 million units
Aparna Enterprises Limited Ceramic tile Completed 5.47 MSM
Cera Sanitaryware Limited* Ceramic tile Completed 3.65 MSM
Sudha Somany Ceramics Private Limited^ Glazed Vitrified Tile Completed 3.50 MSM
Kajaria Floera Ceramics Limited Glazed Vitrified Tile Completed 5.00 MSM
Asian Granito Limited Glazed Vitrified Tile Announced 3.65 MSM
* in JV with Anjani Tiles Limited; ^ Subsidiary of Somany Ceramics Limited

Source: Company Annual Reports, Presentations, Centrum Research

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Tile exports of India

Tile exports from India have seen a healthy growth with its market share increasing to 10%
in CY18 from a meagre 1% in CY2010. India was the 4th largest exporter in CY18 only
behind China, Spain and Italy, which together contributed 68% to the total tile exports in
the world. China’s total tile exports declined 6% in CY18 to 854msm, which was
predominantly due to 5% fall in exports to Asia, which absorbed 60% of China’s total
exports.
India’s tile exports have grown at a CAGR of 46% over CY10-18, however, over a small
base of 13msm in CY10. Indian exports grew by 20% YoY in CY18 to 274msm (10% of the
world exports). The exports in value terms was €859million in CY18, which converts into
selling price of €3.1/[Link], the lowest figure among all exporting countries.

Exports of top 5 countries

Fig 12: Global tile exports (msm)

1400

1200

1000

800

600

400 274
186 228
200 92 134
30 33 51
0
CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18
China Spain Italy Iran India

Source: World Ceramic Review, Centrum Research

Change in market share of leading tile exporting countries

Fig 13: Share of global tile exports in CY11 Fig 14: Share of global tile exports in CY18

Share of global tile exports in CY11 Share of global tile exports in CY18
Brazil Brazil
Others Others
3% 4%
26% 23%
India India
1% 10%
Iran
3% Iran
5%
Italy
China China
13%
43% Italy 31%
Spain 12%
11% Spain
15%

Source: World Ceramic Review, Centrum Research Source: World Ceramic Review, Centrum Research

The healthy growth in exports has helped to compensate the decline in domestic
consumption to the tile manufacturers. Further, the cost differential between the
organised and the unorganised markets have gradually narrowed, forcing the unorganised
players (largely in Morbi) to look for other markets. Exports largely to the middle-east
have aided Morbi manufacturers.
This was possible due to the continuous investments in technology made in the last five
years by the Morbi ceramic units with the aim of modernising factories, increasing

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Building Materials 27 April 2020

production capacity and improving product quality, while maintaining the lowest
production costs as compared to any other exporting country.
Saudi Arabia continued to be India’s largest export market with 20.5% share at 56msm
followed by UAE (17.7msm), Iraq (17.6msm) and Oman (16.7msm). Moreover, Asian
continent remained the top destination for Indian exports with a share of 68%. Notably,
China’s exports declined from 1,148msm in CY14 to 854msm in CY18, and India took
advantage of this opportunity and replaced China’s exports to Saudi Arabia in 2016. China
dropped to 5th position in 2016 in the list of exporters to Saudi Arabia from being the top
exporting country to Saudi Arabia in 2015. India was the major beneficiary of this event
replacing China as the largest exporter to Saudi Arabia.

India’s exports country-wise

Fig 15: India's exports country-wise

South America
Others
4%
1%
Europe Saudi Arabia
7% 21%

Africa
UAE
14%
7%

Mexico Iraq
6% 6%

Other Asian Oman

countries 6%
28%
Source: World Ceramic Review, Centrum Research

Further, the robust growth in India’s exports has also been driven by the ability to win
market shares, which were previously held by China. This includes countries and regions
like the EU, Brazil, Taiwan, Chile, Vietnam, South Korea, etc., which have introduced
antidumping duties on Chinese ceramic tiles.
Tile imports to India and anti-dumping duties imposed on China
USA, Iraq and Saudi Arabia are the leading importer of tiles in the world with a combined
market share of 16.2% of the total world imports. India’s total imports fell from 30msm to
11msm in CY16 after the imposing of anti-dumping duties on imports from China. In
October 2015, the Indian Directorate General of Anti-dumping & Allied Duties, Ministry of
Commerce and Industry initiated an anti-dumping investigation on imports of
glazed/unglazed porcelain/vitrified tiles in polished or unpolished finish with less than 3%
water absorption (subject goods) from China. This investigation was initiated after Gujarat
Granito Manufacturers Association and the Sabarkantha District Ceramic Association
lodged an application on behalf of domestic producers of the subject goods.
In March 2016, Indian Directorate General of anti-dumping & allied duties, Ministry of
Commerce, released its preliminary findings and recommended the imposition of a
provisional anti-dumping duty on imports of the subject goods originating in or exported
from China. The Ministry of Finance imposed the provisional duties in March 2016
amounting to US$1.37/sq. meter on imports originating in or exported from China for a
period of 6 months.
Further, in June 2017, definitive duties in the range of US$ 0.28-1.87/ sq. meter were
imposed on soluble salt charge, porcelain and vitrified tiles for a period of 5 years from the
imposition of provisional duties i.e. March 29, 2016. As a result of these anti-dumping
duties, imports of ceramic tiles in India reduced sharply by 64% to 11msm in CY16.

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Building Materials 27 April 2020

Fig 16: Imports of tiles in India fell 64% in CY16 on imposition

Fig 17: Top 5 tile importing countries
of anti-dumping duties on Chinese imports

35
30 250 Global tile imports(msm)
30 28
200
25 22
150
20 17
msm

14 14 13 100
15
11
10 8 6.9 50
4.6
5 0
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18
0
CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 USA Saudi Arabia

Source: World Ceramic Review, Centrum Research Source: World Ceramic Review, Centrum Research

Change in market share of leading tile importing countries

Fig 18: Share of global tile imports in CY10 Fig 19: Share of global tile imports in CY18

Share of global tile imports in CY10 Share of global tile imports in CY18
USA USA
6% 8%
Saudi Arabia Saudi Arabia
6% 4%
Iraq Others Iraq
Others
3% 73% 4%
75%
France
France
5%
4%
Germany
4% Germany
Philippines Philippines 4%
1% 3%

Source: World Ceramic Review, Centrum Research Source: World Ceramic Review, Centrum Research

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Building Materials 27 April 2020

Demand drivers for the Indian tile industry

According to India’s census data of 2011, the commonly used material for flooring in
houses is mud (47%), followed by cement (31%) and tiles (11%). The usage of mud has
reduced substantially from 67% in 1991 to 47% in 2011 due to urbanisation. It is expected
that the use of cement and tiles have increased substantially in the current decade 2011-
2020, however we await official data. The preference has now shifted to either cement or
tiles as the flooring material. In 2011, 26% of the urban houses used tiles for their flooring,
while only 4% rural houses used tiles. With increasing affordability in the rural segment,
the shift to tiling is expected to be quite significant. With only 4% usage of tiles in rural
areas (Census 2011, GoI) there is a huge opportunity to tap this section of the population
in the country. In the upcoming years, we expect improved affordability among rural and
urban individuals to drive demand for usage of tiles. Preference for durability, style and
increasing spending capacity has lifted the tile consumption higher in urban India.
Fig 20: Flooring material used in houses (share in %) and scope of demand for tiles

80
67
70
57
60
47
50

40
31
27
30
21
20
11
6 8 7 8
10 4 3 4
0
0
Mud Stone Cement Tiles/Mosaic Others

1991 2001 2011

Source: India Census, Centrum Research

Fig 21: Flooring material used by Rural India - % Fig 22: Flooring material used by Urban India - %

Flooring material used by rural India - % Flooring material used by urban India - %
80 72 60
63 48 46
50
60
40
40 30 26
21
24 18
18 20 12 12
20 9
5 6 4 3 3 10 4 4
2
0 0
Mud Stone Cement Tiles/Mosaic Others Mud Stone Cement Tiles/Mosaic Others
2001 2011 2001 2011

Source: India Census, Centrum Research Source: India Census, Centrum Research

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Building Materials 27 April 2020

Key demand drivers for tiles consumption

Demand from Pradhan Mantri Awas Yojna – Urban (PMAY- U)
PMAY-U is expected to build 10mn urban houses with an aim to provide ‘Housing for all’
by 2022. This scheme has started execution from FY15 and will continue till FY22 with
budgetary allocation from the Central government along with assistance from the state
government/Union territories. PMAY-U is one of the major drivers for tile demand,
especially the flooring, which uses ceramic tiles. PMAY has seen 6% higher budgetary
allocation at Rs275bn in FY21BE as compared to Rs258bn in FY20BE, which ensures higher
house completion in FY21 as compared to FY20. However with the current COVID 19 crisis
situation this is expected to receive some set back in the short term.
The progress of PMAY-U as of February 2020 shows that 3.2mn houses have been
completed since its inception in FY15, 6.2mn houses are grounded and 10.3mn houses are
already sanctioned. Despite the higher sanctioning, the rate of completion has slowed
down in the last year. While 3.9mn houses were sanctioned in FY19 compared to 2.5mn
houses in FY18, the completion slowed down to 0.7mn houses in FY19 from 0.8mn houses
in FY18.
Fig 23: Completion of houses slows down in FY19

PMAY-Urban progress (lakh units)

50

39
40

30 25
23
18
20 17

10 10 8
10 7 7 8 7 7 6
4

0
FY16 FY17 FY18 FY19 Apr'19-Dec'19
Houses sanctioned Houses grounded Houses completed

Source: Ministry of Housing and Urban Affairs, Centrum Research

From the 10.3mn houses already sanctioned, south India accounts for 38% (3.7mn
houses), followed by Central India (24% - 2.3mn houses). Further, Andhra Pradesh (2mn
houses) and Uttar Pradesh (1.555mn houses) are the leading states that have the most
houses sanctioned in south and Central India respectively. This will drive the demand
more in southern region followed by East/Central India albeit after the current COVID 19
crisis situation recedes.

Fig 25: State-wise split of sanctioned houses (lakh units) under

Fig 24: Regional mix of sanctioned houses
PMAY

Uttar others, 6.4 West

West Andhra
Pradesh, Bengal, 4.1
18% Central Pradesh,
15.5
24% Telangana, 20.0
2.2 Bihar, 3.0
Tamil Nadu, Chhattisgarh
7.4 , 2.6
East
North Rajasthan, Goa, 0.0
14%
6% 2.0 Gujarat, 6.3
Punjab, 0.8
Haryana, 2.7
Odisha, 1.4
Jharkhand,
Maharashtr Kerala, 2.0
South Madhya Karnataka,
a, 11.6 1.3
38% Pradesh, 7.7 6.3

Source: Ministry of Housing and Urban Affairs, Centrum Research Source: India Census, Centrum Research

Centrum Institutional Research 17

Building Materials 27 April 2020

Progress of PMAY-Urban housing scheme (February, 2020)

Financial Progress (Rs in Crore) Physical Progress (Nos.)
Project Houses
Sl. Central Central
Name of the State/ UT Proposal Investment Houses grounded* Houses
No. Assistance Assistance
Considered in Projects Sanctioned for Completed*
Sanctioned Released
construction
1 Andhra Pradesh 932 102,335.08 30,264.27 7,422.70 2,007,430 756,386 325,287
2 Bihar 447 16,457.47 4,867.30 1,611.76 3,13,39 153,513 67,641
3 Chhattisgarh 1,469 10,644.56 3,842.43 1,581.51 255,011 194,978 83,161
4 Goa 10 170.13 19.19 18.65 855 797 796
5 Gujarat 1,195 56,357.73 11,305.42 7,139.28 644,446 550,901 375,120
6 Haryana 538 26,130.37 4,270.16 800.06 267,727 45,880 21,352
7 Himachal Pradesh 131 531.85 176.25 82.65 9,986 7,636 3,609
8 Jharkhand 389 12,382.67 2,994.52 1,643.86 198,751 136,496 76,933
9 Karnataka 2,573 39,254.98 10,337.42 3,349.44 652,455 367,757 165,425
States

10 Kerala 454 5,137.85 2,046.83 1,126.04 129,555 101,520 71,839

11 Madhya Pradesh 1,464 39,528.67 12,229.29 6,404.37 784,976 606,767 316,120
12 Maharashtra 1,014 105,633.79 18,312.17 5,666.23 1,177,084 482,063 285,330
13 Odisha 616 5,713.33 2,410.02 1,008.04 154,073 101,382 67,577
14 Punjab 885 4,064.75 1,407.53 446.95 90,631 47,090 22,604
15 Rajasthan 396 12,440.16 3,332.18 1,263.60 200,530 110,804 77,133
16 Tamil Nadu 3,269 39,457.28 11,852.14 4,799.22 768,938 590,448 290,352
17 Telangana 245 19,560.80 3,467.15 1,826.20 216,860 185,108 99,480
18 Uttar Pradesh 3,940 67,649.47 24,168.14 8,900.58 1,574,070 986,886 433,082
19 Uttarakhand 191 2,671.46 722.53 352.67 39,880 19,894 13,321
20 West Bengal 418 19,446.63 6,355.86 3,365.19 411,344 327,707 189,047
Sub- total (States) :- 20,576 585,569.02 154,380.79 58,809.00 9,897,641 5,774,013 2,985,209
21 Arunachal Pradesh 48 413.85 162.82 109.23 7,230 7,021 1,829
22 Assam 326 3,530.11 1,767.34 511.27 117,493 53,362 17,801
North East States

23 Manipur 27 1,095.42 642.75 237.04 42,825 29,924 3,841

24 Meghalaya 36 182.48 70.76 6.86 4,692 1,592 1,014
25 Mizoram 32 656.70 465.20 116.91 30,357 11,007 3,078
26 Nagaland 64 935.11 505.95 166.36 32,001 20,811 4,119
27 Sikkim 11 15.80 8.19 3.32 537 509 244
28 Tripura 64 2,440.08 1,288.21 693.60 82,088 52,859 41,185
Sub- total (N.E. States) :- 608 9,269.55 4,911.22 1,844.59 317,223 177,085 73,111
29 A&N Island (UT) 3 54.13 9.18 0.45 612 36 20
30 Chandigarh (UT) - 103.69 9.62 9.62 436 5,396 5,396
Union Territories

31 D&N Haveli (UT) 3 292.28 80.21 63.65 4,333 4,200 2,225

32 Daman & Diu (UT) 6 71.34 22.78 17.39 1,236 882 761
33 Delhi (NCR) - 3,367.98 391.99 391.99 17,303 57,883 41,283
34 J&K (UT) 332 2,964.40 825.43 185.62 54,615 27,132 6,569
35 Ladakh (UT) 8 84.85 36.67 17.28 1,777 855 370
36 Lakshadweep (UT) - - - - - - -
37 Puducherry (UT) 30 620.53 204.07 80.72 13,419 9,823 3,003
Sub- total (UT) :- 382 7,559.19 1,579.96 766.70 93,731 106,207 59,627
Grand Total ^ :- 21,566 6.16 Lakh Cr. 1.63 Lakh Cr. 64,000 Cr. 1.03 Cr. 61.55 Lakh 32.16 Lakh
* Included incomplete houses of earlier NURM. ^ including 97,719 beneficiaries for which subsidy of Rs2,289cr has been released to CNAs recently. Source: Ministry of Housing
and Urban Affairs, Centrum Research

The completion of all the grounded houses up to 2022 will require ~1,000msm of
additional tile supply. The rate of house completion has been slow (3.2mn houses in last 5
years) in the past and the budgetary allocation for FY21 shows a moderate rise as
compared to allocation in FY20BE. Therefore, we expect listless growth in incremental
demand for tiles from the house completions in FY21 under the PMAY-U scheme.
Fig 26: Demand for tiles on completion of all grounded houses
Incremental demand from PMAY
Houses grounded for construction (no) 61,55,000
Average size of house (sq ft) 323
Floor Tiles consumption multiple (x) 1.1
Estimated floor tiles consumption per house(mn sq ft) 355
Estimated wall tiles demand per house(mn sq ft) 178
Total tiles demand per house(mn sq ft) 533
Total tiles demand per house(mn sq. meter) 162
Total tiles demand for all grounded houses(mn sq. meter) 999
Source: Ministry of Housing and Urban Affairs, Centrum Research

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Building Materials 27 April 2020

Private housing demand

The demand for housing has been weak on the back of overall slowdown in the economy,
which had led to postponing of purchase decision by new home buyers. Although new
launches grew by 25% YoY in 2HCY19 at 112,150 units as compared to 89,720 units in
2HCY18, housing sales declined 1% YoY to 16,576 units in 2HCY19 vs. 117,754 in 2HCY18
due to tepid demand. Unsold inventory still remained high at 445,836 units as of
December 2019. We expect subdued demand for tiles until the housing segment recovers
from liquidity issues.
Fig 27: Slow revival in real estate segment

750978
200,000 800000

160,000 445836
600000

housing units
housing units

120,000
400000
80,000

200000
40,000

0 0
1H2014

2H2014

1H2015

2H2015

1H2016

2H2016

1H2017

2H2017

1H2018

2H2018

1H2019

2H2019
Launches Sales Unsold inventory - RHS

Source: Knight Frank, Centrum Research

Residential launches and sales in Top 8 cities

While all the major states saw robust growth in launches with Kolkata being the only
exception (50% decline in launches), sales growth was subdued with mid-single digit
growth in CY19. Mumbai, Pune and Kolkata witnessed a drop in sales as a result of overall
slowdown in the economy, the prolonged NBFC crisis and no relief in house prices.

Fig 28: New Launches only in select urban centres Fig 29: Slow rate of housing growth continues

100,000 176% 150% 200% 70000 15%

10%
80,000 150% 60000 5% 6% 10%
3% 4%
housing units
housing units

100% 50000 5%
60,000 45% 37% 23% -2%
40000
7% 11% 50% -5% 0%
40,000 30000
0% 20000 -5%
-53% -12%
20,000 -50% 10000 -10%
0 -100% 0 -15%
NCR

Ahmedabad

Mumbai

Pune

Bengaluru

Hyderabad

Chennai

Kolkata
Pune
NCR

Kolkata
Ahmedabad

Chennai
Hyderabad
Mumbai

Bengaluru

Launch Launch Growth YoY Sales Sales Growth YoY

Source: Knight Frank, Centrum Research Source: Knight Frank, Centrum Research

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Building Materials 27 April 2020

Fig 31: Fig 33: Age of unsold housing inventory remains high
Fig 30: Age of unsold inventory remains high at an average of
despite YoY reduction in inventory levels in most cities
~5years (as of Dec’19)
(except Mumbai and Pune)

160000 23.0 25.0 160000 43% 50%

120000 15.0 20.0 15%

14.1 13.9 120000 25%
12.3 13.2 13.0 12.7
15.0
80000 80000 -14% -15% 0%
10.0
-28%
40000 40000 -35% -15% -39% -25%
5.0
0 0.0 0 -50%
Pune
NCR

Chennai

Kolkata
Hyderabad
Ahmedabad

Mumbai

Bengaluru

Pune
NCR

Kolkata
Chennai
Hyderabad
Ahmedabad

Mumbai

Bengaluru
Unsold Inventoy (in units) Age of Unsold Inventory (in Qtrs.) Unsold Inventoy (in units) YoY change in unsold inventory(%)

Source: Knight Frank, Centrum Research Source: Knight Frank, Centrum Research

There was a decline in the unsold housing inventory for most of the metropolitan cities
like Ahmedabad, Bengaluru, Chennai, Kolkata and Hyderabad (39% decline YoY) in 2HCY19
as compared to 2HCY18. Mumbai and Pune were exceptions, reporting rise in unsold
inventory for the same period due to stagnancy in prices and poor demand. Average
prices have been stagnant across cities with Mumbai, Pune seeing minimal price fall of 2%
YoY and 3% YoY respectively in 2HCY19. The age of unsold inventory in India saw marginal
reduction in 2HCY19 at 15.9 quarters as compared to 16.4 quarters in 2HCY18. The
quarters to sell (QTS) all outstanding inventory, reduced to 8.9 quarters in 2HCY19 as
compared to 10.2 quarters in 2HCY18 as a result of higher sales in cities like Bengaluru and
Hyderabad. No relief in prices despite high inventory levels has further led to delay in the
recovery in the housing segment, in turn delaying the improvement in demand for tiles.

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Building Materials 27 April 2020

Replacement demand
According to industry sources (Company Annual Reports/Presentations), 18-20% of its
annual sales come from replacement of tiles. There are limited data sources to weigh
exactly the impact of the slowdown in the real estate segment and the overall economy.
However, historical trends, suggest that in uncertain situations that impact big ticket
spends like house purchase, customer focus shifts towards renovations/renewals, aiding
higher demand from the replacement segment. This is likely to be prominent during the
recovery phase after the current COVID 19 crisis situation and can provide a boost for the
tiles and sanitaryware sector.

Demand from commercial property

Fig 32: Pick-up in commercial property sales only soother

72 25%

60
20%

48
15%
mn sq ft

36
10%
24

5%
12

0 0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New Completion(mn sq ft) Transactions(mn sq ft) Vacancy - RHS

Source: Knight Frank, Centrum Research

Demand from commercial property has seen improvement in CY19 with robust growth in
both new project completions and transactions. The annual transaction grew to all time
high of 60.6mn [Link] backed by strong growth in the Hyderabad markets registering new
transactions of 12.8mn [Link]. The vacancy levels were maintained at ~13% in CY19.
Continuity of this robust demand for commercial real estate will drive demand for floor
tiles and large size wall tiles normally used in the offices. However the current pandemic
situation warrants some slowdown before the recovery that is expected in 2HFY21 or
early FY22.
Fig 33: Strong supply addition continues to cater to increasing demand for commercial space

(mn sqft)

14
12
10
8
6
4
2
0
Pune
Kolkata
Chennai

Delhi-NCR

Hyderabad

Mumbai
Bengaluru

CY17 CY18 CY19

Source: Colliers International, Centrum Research

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Building Materials 27 April 2020

There was a 35% YoY increase in new supply in the commercial real estate space in CY19.
Leasing activity continued its strong momentum in CY19 across the seven major cities of
India. In CY19, the top seven cities in India recorded gross absorption of 58.5 million sq. ft,
17% YoY rise over CY18. Demand was driven by technology sector and shared workspace
offices, which contributed 39% and 19%, respectively, of the total gross leasing space in
India. This will continue to drive replacement demand for tiles and ceramics.
Fig 34: Gross leasing continues strong momentum in CY19 supported by the technology sector
and demand for shared workspace

18

15

12
mn sqft

0
Bengaluru Chennai Delhi-NCR Hyderabad Kolkata Mumbai Pune
CY15 CY16 CY17 CY18 CY19

Source: Colliers International, Centrum Research

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Building Materials 27 April 2020

Gulf Co-operation Council (GCC) contemplating imposition of

anti-dumping duties on Indian tile exports to gulf countries
The Gulf Co-operation Council (GCC) had initiated an inquiry against Indian, Chinese and
Spanish ceramic products following a complaint registered by Saudi Ceramics, Alfanar
Ceramics and Porcelain Factory of Saudi Arabia, which together represent 32% of the total
ceramic output of GCC countries. The findings of this investigation resulted in GCC
imposing provisional anti-dumping duties of 40-106% on ceramic products exported from
India to gulf countries. GCC is a political and economic union consisting of Arab states of
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. However, GCC does not include
Iraq in its council. India exported a total of 274msm of tiles in CY18, out of which, ~35%
was exported to GCC countries. India exported a total of Rs120bn worth of ceramic
products in CY18, out of which, 40% i.e. Rs48bn was exported to gulf countries. Out of the
850 units operating in Morbi, 400 units export ceramic products to gulf countries. So any
definitive duties on exports to gulf countries will have a huge impact on the operations,
and hence, turnover of ceramic manufacturers in Morbi. This may even lead to huge
layoffs of both direct and auxiliary employees.
A delegation from the Morbi cluster visited Saudi Arabia in November 2019 along with the
senior official from Union ministry of commerce to propose a level playing field for exports
to GCC countries. The GCC declined to accept the proposals of the delegation, thereby,
failing to provide any relief to the Morbi manufacturers.
Expected impact of the anti-dumping duties
Most of the Indian ceramic exports to GCC countries will be liable for 42.9% anti-dumping
duty as compared to 24% duty levied on exports from China. This will clearly discourage
demand for Indian ceramic products in the export markets. If the announced anti-
dumping duties are not brought on par with the duties on Chinese products, there would
be production cuts in Morbi. Excess inventory, as a result of these duties, will be sold in
the domestic market resulting into an oversupply scenario, and hence, intensify price war
in local markets.
Current situation of exports to GCC countries
There has been no disruption in the Indian ceramic exports to GCC countries, as no
decision has been made yet on the definitive anti-dumping duties by the GCC. Imposing of
the duties amid the subdued trade environment (due to the disruption by Covid-19 virus),
will further lead to shortage of ceramic products in the GCC countries. This will benefit the
Indian tile and ceramic manufacturers mostly from the unorganised segment (Morbi
based). We expect the GCC countries to take cognisance of the current changed situation
that may impact the demand supply dynamics before taking any decision on the duty
structure.

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Building Materials 27 April 2020

Sanitaryware market in India

India is world’s second largest sanitaryware manufacturer after China with capacity of ~40
million pieces/year. The Indian sanitaryware market is concentrated in Gujarat,
contributing 75% of the total sanitaryware output of India. Gujarat has an installed
capacity of 30 million pieces/year manufactured at two locations i.e. Morbi and Thangadh.
Emergence of the sanitaryware hub in these two towns of Gujarat is attributable to
proximity to highways, seaports & airports, the availability of raw material i.e. clay in
Gujarat and Rajasthan and the easy availability of manual and skilled labour. According to
Morbi Ceramic Association, there are currently 76 sanitaryware manufacturing units in
Morbi with an annual production of ~9 million pieces/year. Total annual output at
Thangadh is in the range of 14-16 million pieces/year catering to lower end of the market;
and are mainly used in government projects in rural areas or exported to Africa.
Share of major players in the India sanitaryware industry
Fig 35: Indian sanitaryware and faucet industry (FY19)
Sanitaryware market in India Rs48bn
Organised market 60%
Share of players in total market
CERA sanitaryware 15%
HSIL 16%

Faucetware market in India Rs88bn

Organised market ~55%
Share of players in total market
CERA sanitaryware 4%
HSIL 4%
Source: Company Annual Report, Presentation, Centrum Research

The India sanitaryware industry was worth Rs48bn in FY19, of which 60% is the organised
market. Parryware India is the leader with the highest capacity in sanitaryware followed
by HSIL and CERA Sanitaryware. CERA has a share of 15% in the total market (25% of the
unorganised market) of sanitaryware in India.

Fig 36: Capacity of the leading manufacturers of sanitaryware in India

Company Location Installed capacity (pcs/year)
4 plants in Ranipet, Perundurai, Dewas,
Parryware India (Roca Group) 6,300,000
Alwar
HSIL Hindustan Sanitaryware
2 plants in Bibinagar and Bhahdurgarh 3,800,000
Industries Limited
Cera Sanitary Ware Mehsana – Gujarat 3,200,000
Jaquar India Bhachau – Gujarat 1,800,000
Anchor Sanitaryware Thangadh – Gujarat 1,800,000
Simpolo Vitrified Pvt Limited Morbi – Gujarat 1,600,000
Kohler India Jhagadia – Gujarat 1,500,000
Bell Sanitarywares Morbi – Gujarat 1,200,000
Rak Ceramics India Samalkot - Andhra Pradesh 1,100,000
Somany Morbi – Gujarat 1,100,000
Source: World Ceramic Review, Centrum Research

Import/Export dynamics for sanitaryware market

The total world sanitaryware exports were 2.7mn tonnes in CY18. India was the third
largest sanitaryware exporting country in CY18 after China and Mexico. Indian exports
were 182,691 tonnes in CY18, contributing 6.3% of the total world exports. China
contributed 53% of the total world exports in the same year. The total world sanitaryware
imports were 1.8mn tonnes in CY18. Further, USA, Germany and Korea were the leading
importers with 33% share of the total world imports.

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Building Materials 27 April 2020

Fig 37: Valuations of global players

Mkt Cap CAGR (FY20E-FY22E) EBITDA Margin (%) P/E RoE EV/EBITDA
(US$ mn) Revenue EBITDA PAT FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
Somany Ceramics Ltd 87 8.1 11.5 21.9 9.6 9.8 10.2 22.1 7.3 5.4 8.7 9.7 11.4 7.1 6.5 5.7
Kajaria Ceramics Ltd 729 4.5 8.8 12.3 15.2 15.0 16.5 21.0 21.9 16.7 15.4 13.3 15.6 11.8 12.1 9.3
Cera Sanitaryware Ltd 356 4.5 9.6 9.8 13.7 14.3 15.0 24.6 28.1 20.4 14.1 11.3 14.0 15.6 17.3 12.9
Asian Granito India Ltd 61 9.1 10.1 20.5 10.1 10.2 10.3 14.5 8.5 7.0 9.7 9.7 6.0 5.4 5.0
Global Ceramic peers
Mohawk Industries Inc 5,621 (4.3) (1.0) (10.4) 14.3 13.8 15.3 12.9 17.3 13.2 9.6 6.0 7.2 8.8 7.9 6.1
Siam Cement PCL/The 11,956 1.0 12.4 5.1 12.0 14.5 14.8 16.2 12.8 11.4 11.5 10.8 10.9 13.4 9.7 9.4
Saudi Ceramic Co 394 8.8 18.5 367.7 16.9 19.2 20.0 191.4 21.6 12.2 0.5 7.0 11.7 8.8
Dynasty Ceramic PCL 341 1.7 4.9 (1.4) 24.2 25.4 25.8 14.6 12.7 12.2 27.6 24.9 23.4 9.2 6.0 7.0
Villeroy & Boch AG 341 0.1 (19.7) (39.0) 16.8 8.3 10.8 4.7 33.0 11.8 35.3 2.3 4.5 3.4
TOTO Ltd 5,880 1.0 3.7 (5.0) 10.8 10.9 11.4 22.5 26.5 23.9 9.6 7.6 8.3 11.5 10.9 8.5
Source: Bloomberg, Centrum Research

Centrum Institutional Research 25

 Initiating Coverage

Institutional Research
India I Building Material
27 April 2020
Kajaria Ceramics Buy
Target Price: Rs508
Leader by a margin Price: Rs350
Forecast return: 45%
Kajaria Ceramics (KJC) is the largest ceramic tile producer in India with a volume share of 11% in the Market Data
overall market and 21% in the organised market. We prefer KJC owing to its focus on high product
Bloomberg: KJC IN
quality, superior manufacturing practices, wide product range and even wider distribution network
coupled with strong brand recall, which aids the company to sustain performance in the current 52 week H/L: Rs650/330
challenging environment (the ongoing cyclical downturn and COVID 19 impact). We expect KJC to Market cap: Rs56bn
emerge stronger owing to its cautious business strategy with focus on strengthening balance sheet Shares outstanding: 159mn
by conserving cash (without unnecessary aggression), maintaining largely debt free status, attention Free float: 52%
on the existing business, leading to aggressive growth once the cycle reverses. Effectively, this will Avg. daily vol. 3mth: 219096
mean limited catalyst for strong growth in the next two years as a part of business strategy to wither
Source: Bloomberg
the current tough business conditions. However, we feel this will be strongly remunerative after
normalcy unfolds. For FY20E/FY21E/FY22E, we expect KJC to deliver ROCE in the range of 18-19%
with CAGR 6% EBITDA growth over FY19-22E translating into 13% earnings CAGR growth. EBITDA KJC relative to Nifty Midcap
margin should be maintained at 15%/16% (exceptional year will be FY21), while we estimate revenue
CAGR of 3% over FY19-22E. We initiate coverage on KJC with a Buy rating and a target price of Rs508,
up 45% from the CMP.
Key beneficiary of the economic revival
The steady revival of the economic cycle post demonetisation and introduction of Goods and Services
tax (GST) is currently stunted due to multiple domestic and global factors. As the economy revives
gradually in FY21E/FY22E, KJC stands in a favourable position; we expect the economy to grow in the
range of 5-6% in FY22E (official estimates by various global agencies) following a dip to ~ 3% in FY21
due to COVID 19 impact. We estimate KJC’s earnings to grow at a CAGR of 7% (FY19-FY22E). As the Source: Bloomberg
revival in construction activity becomes more visible in 2HFY21 post the pandemic impact KJC will
Shareholding pattern
benefit from rising demand for tiles.
Dec-19 Sep-19 Jun-19 Mar-19
Focus on balance sheet strength, conserving cash to pay rich rewards
In past three years (FY16-FY19), the net sales to free cash flow conversion of KJC is ~ 6% average on the Promoter 47.6 47.6 47.6 47.6
back of 7% revenue CAGR. The prudent capital allocation and steady cash flow has added to the FIIs 24.0 26.2 26.0 26.0
balance sheet strength. Cash was effectively put to repay debt, reducing the debt/equity to almost nil DIIs 12.7 9.6 9.8 10.3
currently from ~0.3x in FY16. Moreover, KJC has indicated lower capital expenditure for the next two Public/oth 15.7 16.6 16.7 16.2
years and is treading cautiously with focus on further strengthening the tile business and steady Source: BSE
diversification in the sanitary and faucet segment.
Strong brand recall and wide distribution network
KJC enjoys the best brand recall amongst all ceramic tile companies in India as a result of its
investments in marketing, distribution and product innovation over the past several years. Wide
product range, better quality and timely availability also helped in maintaining its leadership position.
Strong relationship with dealers helped KJC to maintain lower receivable days, better shelf space and
customer service. However, despite this, it lacks significant pricing power.
EBITDA margin expansion, ROCE to be maintained despite limited pricing power
We expect KJC’s EBITDA margins at 16.5% in FY22E vs. 15.2% in FY20E (notwithstanding dip to 15.0% in
FY21E) driven by pricing revival on the back of steady business revival, cost pass through and benefits
of muted fuel prices. We believe KJC’s EBITDA margin will likely revert to its fifeen-year average (long
tenure to ride business up/down cycles) of 16.2% by FY21. Margin expansion coupled with a higher
share of trading revenues (sales of outsourced tiles) should help RoCE to hover around 19% in
FY20E/FY21E/FY22E.
Initiate with a BUY rating:
In our view, prudent capital allocation, strong focus on balance sheet strengthening and sharp eye on
EBITDA margins will assist KJC to maintain its leadership position and gear up for a strong leap as
business cycle reverses. With strong return ratios and margins, we expect KJC to be the best bet in the
industry. We value KJC at an average of 15-year long business cycle and past years (to capture the
recent earnings trend). At the target multiple of 24.3x FY22 Earnings of Rs21/share, we arrive at target
price of Rs508 translating into a 45% upside from the CMP. Our exit multiple of 24.3x is at ~20%
discount to the stock’s past five-year median multiple of 31x.
Financial and valuation summary
Milind Raginwar
YE Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E
Cement Team

Analyst
Revenue 27,067 29,508 29,612 28,548 32,354 +91 22 4215 9201
[Link]@[Link]
EBITDA 4,564 4,495 4,506 4,302 5,335
EBITDA margin (%) 16.8 15.2 15.2 15.0 16.5
Adj. PAT 2,342 2,314 2,646 2,535 3,334
Diluted EPS 14.7 14.6 16.6 15.9 21.0
Sahil Sanghvi
P/E(x) 23.8 24.0 21.0 21.9 16.7
Associate
EV/EBITDA(x) 12.4 12.1 11.8 12.1 9.3 +91 22 4215 9203
RoE (%) 17.1 15.2 15.4 13.3 15.6 [Link]@[Link]
Source: Company, Centrum Research estimates
Kajaria Ceramics 27 April 2020

Thesis Snapshot
KJC vs. NIFTY Midcap 100 Valuations
1m 6m 1 year We value KCL at an average of the 15-year long business cycle and past
KJC IN (1.4) (37.0) (43.4) years (to capture the recent earnings trend). At the target multiple of 24.3x
FY22 Earnings of Rs21/share, we arrive at target price of Rs508 translating
NIFTY Midcap 100 7.9 (22.0) (28.4)
into a 45% upside from the CMP. Our exit multiple of 24.3x is at ~20%
Source: Bloomberg, NSE
discount to the stock’s past five-year median multiple of 31x.

Key assumptions Target Valuations

a) 15-year long term median P/E (x) 17.1
YE Mar FY18 FY19 FY20E FY21E FY22E
b) Previous 5-year median P/E (x) 31.4
Tile capacity (msm) 67.4 68 73 73 73 c) Average of the above (a&b) 24.2
Tile sales (msm) 71.9 80.3 82.8 81.8 90.3 d) FY22 Estimated EPS (Rs) 21.0
Sanitaryware capacity (mn e) Target Price (Rs) 508
1.0 1.0 1.0 1.0 1.0
pieces)
Faucet capacity (mn
0.54 0.6 0.75 0.75 0.75
pieces)
Average tile Realisation
357 344 331 321 332
(Rs/sq. mt)

Revenue (Rs mn) 27,067 29,508 29,612 28,548 32,354

YoY change - % 9.0 0.4 -3.6 13.3
Cost of goods sold (Rs mn) 7,300 7,918 7,863 7,579 8,588
YoY change - % 8.5 -0.7 -3.6 13.3
Energy cost (Rs mn) 5,194 6,162 5,776 5,362 6,077
YoY change - % 18.6 -6.3 -7.2 13.3
Source: Company, Centrum Research estimates

PE Band chart PE Median and standard deviation

60
800
700 50
600 40
500 30
400 20
300
10
200
100 0
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
0
Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

P/E Median
Close Price 22x 28x 36x 45x Median + Std Dev Median - Std Dev
Source: Bloomberg, Centrum Research Estimates Source: Bloomberg, Centrum Research Estimates

Peer comparison
Mkt Cap CAGR FY20E-FY22E (%) EBITDA Margin(%) EV/EBITDA (x) PER (x) ROE (%)
Company
Rs bn Rev EBIDTA PAT FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
Kajaria Ceramics 56 4.5 8.8 12.3 15.2 15.0 16.5 11.8 12.1 9.3 21.0 21.9 16.7 15.4 13.3 15.6
Somany Ceramics 5 8.8 12.5 25.8 9.6 9.8 10.2 7.1 6.5 5.7 22.1 7.3 5.4 8.7 9.7 11.4
CERA sanitaryware 27 4.5 9.6 9.8 13.7 14.3 15.0 15.6 17.3 12.9 24.6 28.1 20.4 14.1 11.3 14.0
Source: Company, Centrum Research Estimates, Bloomberg

Centrum Institutional Research 27

Kajaria Ceramics 27 April 2020

Key Investment Thesis

Tile consumption remains a secular growth story - Journey
from necessity to aspirations
The Indian tile industry grew at CAGR of 12.2% over FY09-19 from Rs95bn in FY09 to
Rs300bn in FY19, registering a 12.2% CAGR. In the same period, volume posted a 6.4%
CAGR to touch 750msm. Notably, the higher value growth over volume growth indicates
that it is not only the consumption that is growing, but there is a shift in consumption
pattern towards more expensive or organised segment. As the aspirational aspect starts
domintaing the necessity of tiling, we will see the trend grearing-up, especially given that
the per captia consumption of tiles in the country continues to be very low.
In FY09, India’s per capita ceramic tile consumption stood at 0.41sqm, which has only
moved to 0.55sqm in FY19. This is far behind China’s growth rate over the decade, at
3.95sqm over 1.88sqm in FY09. Chinese growth was driven by higher real estate (housing
demand), urbanisation and increased disposable income. The Indian growth story, will, in
all likelihood follow the Chinese pattern over the next few years, and hence, the per
capital consumption is likely to improve though lower than the Chinese pace.

Rising urbanisation
The urbanisation rate of the country is increasing with 28% urban population in 2001
expected to rise to ~36% by CY21. It is expected that 500mn people of the total population
will live in cities and towns by 2021, which will be the major market for tile manufacturers.
Fig 38: The pace of urbanisation has increased since the past three decades

100%

80%

60%

40%

20%

0%
1951 1961 1971 1981 1991 2001 2011
Hamlets (Population < 1k) Small villages (2k > Population > 1k)
Medium sized villages (5k > Population > 2k) Very large and large villages (Population > 5k)
Class V and VI towns (Population between 5k and 10k) Class II, III and IV towns (1 lakh > Population > 20k)
Other Class-I cities (10lakh > Population > 1 lakh) Million-plus cities (Population > 10 lakh)

Source: IIHS, Centrum Reserarch

Centrum Institutional Research 28

Kajaria Ceramics 27 April 2020

Rural segment with higher disposable income

Further, the rising farm income in the last two decades and the increase in salaried
income following the sixth and seventh pay commission in the rural and semi-urban areas
have resulted in the higher aspirations of rural population. The shift towards
premiumisation and branding has been strong in these regions given the higher
affordability of the population staying in the rural and semi-urban areas. If we leave out
the 27% population still leaving in small villages (39% in 2001), the mass market in the
aspirational rural India residing in the large and mid-size villages (population above 2000
people) is large at 37%. This is also the market that has the potential and will be tapped by
KJC.
Fig 39: Paddy Minimum Selling Price (MSP) has bitten inflation with a healthy margin
1700 Paddy MSP vs. WPI
1500
1300
1100
900
700
500
300
100
1983-84

1985-86

1987-88

1989-90

1991-92

1993-94

1995-96

1997-98

1999-00

2001-02

2003-04

2005-06

2007-08

2009-10

2011-12

2013-14

2015-16

2017-18
Paddy MSP WPI

Source: Bloomberg, Centrum Reserarch

Fig 40: Rural wage and inflation (WPI) have seen sharp deviation since Mid-2000
700 Average rural wage/Agricultural wage vs. WPI

600
500
400
300
200
100
0
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19

Simple average wage rate for all rural occupations Average wage rate for Agricultural occupations
WPI

Source: Bloomberg, Centrum Reserarch

Increased importance of flooring

Indian consumers in metro cities now no longer view tiles as a product for high-income
individuals/families. Aspiration for better-looking homes, need for durable flooring and
rising affordability because of better household income drives the demand for tiles.
According to Census 2011, nearly 47% of Indians lived in houses with mud flooring, 37%
with cement flooring and only 11% with mosaic and tile flooring. In cities, 26% houses had
tile flooring, while 46% houses had cement flooring in 2011. As urbanisation gains
momentum, the demand for tile flooring should also rise. We expect this trend to spread
to smaller cities and towns where most of the houses still have mud/cement flooring as
mentioned earlier. This leaves huge potential for tile demand in the rural as well as urban
regions.

Centrum Institutional Research 29

Kajaria Ceramics 27 April 2020

Fig 41: Small proportion of rural Indian population prefer tiles leaving big scope for the industry
India Urban Rural
Flooring Preference - % 1991 2001 2011 2001 2011 2001 2011
Mud 67 57 47 18 12 72 63
Stone 0 6 8 9 12 5 6
Cement 21 27 31 48 46 18 24
Tiles/Mosaic 4 7 11 21 26 2 4
Others 8 3 4 4 4 3 3
Source: Census India, Centrum Research

Advantages over alternate flooring materials

Tiles have multiple advantages over other flooring options like marble/stone, cement,
wood, PVC, etc. Low water absorption, higher durability, termite-resistance and a wide
range of sizes and designs place tiles on top of the list among other options. While marble
and stone are worthy competitors, their high daily maintenance (increased cost of
ownership), fragility and difficult application makes them less appealing as compared to
tiles.

Initiatives to shift towards organised market gradually

The Goods and Services Tax introduction was expected to eliminate the price disparity
(due to tax avoidance) between the organised and the unorganised segment. However,
initially the impact was opposite with increased value and volume share from the
unorganised segment. This was largely due to incorrect execution and soft pedalling by
the compliance authorities. The authorities addressed it by reducing the GST rate to 18%
from 28% earlier that tilted the advantage more effectively in favour of the organised
segment. Introduction of e-way bill in early FY19 further reduce tax evasion, though this
impact will be gradual, as the various ways of tax evasion have followed since then.
Further, business under the new tax regime will be extremely difficult for small
entrepreneurs leading to healthy consolidation in the tile segment. KJC will be the key
beneficiary of the same due to its healthy balance sheet, strong free cash generation,
scalability capabilities and branding.
This will also limit the entry of new unorangised manufacturers in the tile segment.
Unorganised players today control 50% of India’s tile market and have concentrated their
manufacturing in Gujarat’s Morbi district.

Ban on coal as fuel add trigger for shift to organised segment

The National Green Tribunal (NGT), in March 2019, directed closure of ceramic units
running on coal-based gasifiers in the Morbi region. The Morbi cluster in Gujarat is the
largest tiles manufacturing zone in India and accounts for 75-80% of India’s tiles and
sanitaryware products in volume terms, with more than 800 tile factories in the region.
Among these units, those most affected are the wall tile and soluble salt tile
manufacturers as they were meeting nearly their entire thermal energy requirements
through coal gasifiers. While the overall production has not got materially impacted due
to easy availability of gas connection in the region, the switch from coal to PNG has
increased the fuel expenses for the manufacturers due to the higher cost of PNG in
comparison to coal and also resulted in increase in working capital intensity due to the
lower credit period available on PNG purchase than that of coal purchases.
In 2014, the savings in fuel expenses was 20-25%, which narrowed down to 10-15% over
the years because of increase in imported coal prices and reduction in imported gas prices
from the peak levels. However, based on the existing price differential between the coal
and the PNG energy cost, switching to PNG as a fuel source has increased the fuel
expenses by 10-15%. The total fuel expenses for most of the units remained significant at
around 25-30% of the operating income. Moreover, tile players were claiming input tax
credit of 5% on coal consumption, while on natural gas the benefit of input tax credit is
not available to the consumers as it is under VAT of 6% (value added tax structure). Thus,
it is an additional cost burden on tile players on switching to PNG.

Centrum Institutional Research 30

Kajaria Ceramics 27 April 2020

Fig 42: Impact on cost of tile manufacturers due to shift from coal to natural gas
Cost structure post switching to
Increase in cost after shift to PNG Existing cost structure
PNG
Total operating income (a) 100 100
Cost of fuel (coal) expense (%) 25 27.5
Cost of manufacturing (%) (b) 85 87.5
Gross margin (%) (a-b) 15 12.5
Source: Industry, Centrum Research

Additionally, the credit period enjoyed by unorganised tile manufacturers from coal
suppliers was ranging from 30 to 45 days, while for PNG suppliers the payment needs to
get completed within a fortnight. Thus, the switch to PNG from coal has increased the
overall working capital intensity of these units as credit period has truncated and the
procurement cost has increased. The unorganised segment is working capital intensive
and the additional burden has put further pressure on the liquidity of affected
manufacturers.
The impact of the ban has been visible in the strong consolidation of the unorganised units
and KJC is the prime beneficiary given its strong balance sheet.
Morbi shifts focus to exports
Following the Indian government’s intiatives to tighten the unorganised tiles trade in
India, unorganised manufacturers have focused on the more lucrative export markets.
This has helped to ease supply pressure in Indian market and also aided the organised
players like KJC. In FY17, tile exports from Morbi amounted to Rs62bn, this was equivalent
to 22% of Morbi’s total annual tile sales of Rs285bn. In FY18, it touched Rs110bn,
registering a whopping 77% YoY growth, this was equivalent to nearly 34% of Morbi’s total
FY18 tile sales of Rs320bn. Going forward, we expect the share of exports in Morbi’s total
tile sales to continue to rise as any incremental capacity addition is likely to be export-
oriented.

Centrum Institutional Research 31

Kajaria Ceramics 27 April 2020

KJC beats competition by a margin

Market share on the rise
KJC has gained volume share in the recent past largely due to the company’s strategy to
differentiate its products in terms of design, pattern and size, which has helped attract
customers and increase market share. In the overall industry volume, KJC increased its
share from 7% in FY14 to 9% in FY18. Among the organised players, KJC captured the
largest share of 30% in FY18 as compared to only 21% in FY14. This is attributed to the
prudent marketing and branding campaigns and strong relationship with distributors,
which also resulted in higher mindshare among its prospective customers.
We expect KJC to maintain its lead and grab a higher share from unorganised players over
the next few years. Market share gains for KJC are likely to be driven by innovative
products, designs and competitive pricing.
Fig 43: Market share of major players in the tiles industry by sales value
Market share tiles (Sales value) FY14 FY16 FY18

Organised Total Organised Total Organised Total

Size (Rs Size (Rs Size (Rs
Companies market market market market market market
mn) mn) mn)
share share share share share share

Kajaria Ceramics 19,930 21% 10% 26,960 22% 11% 27,110 20% 10%

Somany Ceramics 12,669 13% 6% 18,010 15% 8% 17,130 13% 6%

Prism Johnson 19,325 20% 10% 24,500 20% 10% 16,850 12% 6%

CERA Sanitaryware 557 1% 0% 1,249 1% 1% 2,375 2% 1%

Other organied players 44,519 46% 23% 53,361 43% 22% 71,535 53% 26%

Total Organised market size 97,000 50% 124,080 52% 135,000 50%

Unorganised players 98,000 50% 115,920 48% 135,000 50%

Total tiles market 195,000 240,000 270,000

Source: Latest Company Information (AR, presentations, press releases), Centrum Research

Fig 44: Market share of major players in the tiles industry by sales volume
Market share tiles (Sales volume) FY14 FY16 FY18
Organised Total Organised Total Organised Total
Size (Rs Size (Rs Size (Rs
Companies market market market market market market
mn) mn) mn)
share share share share share share
Kajaria Ceramics 52 21% 7% 64 25% 8% 72 30% 9%
Somany Ceramics 38 15% 5% 46 18% 6% 64 27% 8%
Prism Johnson 38 15% 5% 43 17% 5% 39 16% 5%
CERA Sanitaryware 4 2% 1% 4 2% 0% 4 2% 1%
Other organied players 118 47% 16% 95 38% 12% 62 26% 8%
Total Organised market size 250 33% 252 31% 241 31%
Unorganised players 507 67% 573 69% 545 69%
Total tiles market 757 825 786
Source: Latest Company Information (AR, presentations, press releases), Centrum Research

Centrum Institutional Research 32

Kajaria Ceramics 27 April 2020

KJC, a leader in margins, ahead of the

industry
KJC’s average margins are ahead of its nearest competitors in the tiles segment by a
decent distance. KJC continues to maintain its leadership position among peers in the tile
business with margins in the mid-teens at 16.2% (FY09-19 average) vs. ~9% of Somany
Ceramics
Fig 45: EBITDA Margins – KJC leads the pact aided by premium products and higher in-house
manufacturing of tiles
24.0

20.0

16.0

12.0
x

8.0

4.0

0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
HSIL Somany Ceramics Kajaria Ceramics CERA sanitaryware

Source: Company Annual Reports, Centrum Reserarch

The key reasons for superior margins of KJC are its focus on value added products, higher
proportion of in-house manufacturing and fast adaptation of newer technology over its
peers. KJC will continue its leadership in maintaining higher margins in the near future
according to our estimates.
KJC’s In-house manufacturing has a dominant share in the total volume/revenue of the
company. KJC’s in-house manufacturing is ~ 55% compared to 42% that of its nearest rival
Somany. This helps KJC in lowering its working capital investments, prudent procurement
and better gross margins. Additionally, with volumes nearly 50% higher than its rivals, the
economies of scale also aid in improving operating efficiencies.
KJC has focused on high end superior products that have helped in commanding better
margins than that of its peers. Galavnized Vertified Tiles (GVT) contributes ~30% of the
total sales revenue, while that for Somany is only ~19% of the total sales revenue. Though
the high-end products have been hit by the current economic slowdown, they still
command superior pricing (nearly 2x of the low-end products), thus, safeguarding the
margins.

Centrum Institutional Research 33

Kajaria Ceramics 27 April 2020

Margin strength gives a boost to superior RoCE

KJC’s long term (10-year) average Return on Capital Employed (RoCE) is notably high at
~24% compared to Somany Ceramics at ~17%, over the same period, despite the better
capital allocation by Somany compared to KJC. This indicates better operating efficiencies
by KJC over Somany Ceramics.
Fig 46: Investment in high yielding assets helps KJC outperform its peers

35.0

30.0

25.0

20.0
%

15.0

10.0

5.0

0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
HSIL Somany Ceramics Kajaria Ceramics

Source: Company Annual reports, Centrum Research

Somany Ceramics has lower capital employed compared to KJC over the past 10-years.
However, in the recent past (FY18/FY19), the asset turnover by KJC is superior over
Somany Ceramics. This is indicative of KJC focus on investment in assets yielding better
realisation in high-end products vs. Somany Ceramics’ investment in lower end products,
yielding sub-optimal realisations.

Fig 47: Fig 49: Somany beats KJC in capital employed per [Link] Fig 48: Fig 50: Asset turnover – KJC topples Somany in the last 2
but gets beaten in ROCE years

300 Capital employed per msm of tile capacity (Rs/msm) 2.0 Asset Turnover(x)

250 1.6

200
Rs/mn

1.2
%

150 0.8

100 0.4

50 0.0
FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

Kajaria Ceramics Somany Ceramics HSIL Somany Ceramics

Source: Company Annual Reports, Centrum Research Source: Company Annual Reports, Centrum Research

KJC’s higher RoCE is the function of its superior margin or realisation. This is essentially
due to KJC’s larger proportion of its sales from higher-priced (and larger-sized) premium
tiles as compared to Somany Ceramics and also on the back of its brand equity and better
product display.

Centrum Institutional Research 34

Kajaria Ceramics 27 April 2020

Kajaria Ceramics has the lowest cash

conversion cycle (CCC)
During the five-year period i.e. FY09-FY14, KJC’s CCC averaged at 36 days, which is far
better than its nearest rival Somany Ceramics’ average of 62 days and 132 and 78 days of
HSIL and Cera, respectively. Following the disruption collectively attributed to
demonetisation, GST, slowdown in the real estate sector and unfavourable demand-
supply equation, the cash conversion cycle for both tiles and sanitaryware industry in the
past five years period has increased. However, KJC still continues to convert its sales into
cash faster than any other manufacturer in the organised segment, keeping itself ahead of
the curve.
Between FY14-FY19, CCC for all players increased because of elevated receivable and
inventory days. However, the increase was at a far reasonable pace of 12% CAGR to 53
days for KJC compared with 24% CAGR to 65 days for Somany Ceramics. The CCC rose to
181 and 100 days for HSIL and Cera, respectively, during the same period. Few dealers
indicated that they pay KJC relatively earlier (less credit days) than other rivals as KJC’s
products have a quicker turnaround to sales.
Fig 49: Fast cash conversion of sales helps KJC with lower working capital requirements
Working capital as a % of Capital employed (%)
45
40
35
30
25
%

20
15
10
5
0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Kajaria Ceramics Somany Ceramics HSIL

Source: Company Annual Report, Centrum Research

Fig 50: KJC has the lowest cash conversion cycle and superior working capital management
Kajaria Ceramics
Cash conversion cycle(days) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Receivable days 37 38 36 33 33 33 35 42 49 61 59
Inventory days 76 70 59 52 50 39 51 58 53 51 50
Payable days 47 60 91 59 44 36 48 55 52 42 45
Cash conversion cycle 66 48 5 26 38 36 38 45 50 70 64
Somany Ceramics
Cash conversion cycle(days) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Receivable days 66 68 66 58 61 62 62 68 83 108 89
Inventory days 46 48 50 42 42 26 32 30 30 55 54
Payable days 31 39 30 51 61 55 53 47 52 56 47
Cash conversion cycle 82 78 86 50 42 33 41 51 62 107 97
HSIL
Cash conversion cycle(days) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Receivable days 62 83 78 102 128 138 135 133 119 137 118
Inventory days 91 74 76 77 85 89 89 93 88 93 78
Payable days 69 56 53 37 39 34 32 34 40 40 40
Cash conversion cycle 84 101 100 143 174 193 192 192 166 190 156
Source: Company Annual Reports, Centrum Research

Centrum Institutional Research 35

Kajaria Ceramics 27 April 2020

Regional advantage over unorganised

segment in Morbi
The unorganised segment largely in Morbi is in strong competition with the organised
segment, and hence, KJC being the leader, also faces tough competition. However, Morbi
manufacturers have limitations due to the proximity given the locational disadvanatage.
While Morbi manufacturers can easily tap the western region and have sea route access
to the southern parts of the country, tapping the northern, eastern and central regions is
limited due to restricted logistics cost. Further, with the nature of the product (brittle in
nature), transporting to far flung areas can lead to wastage due to cracks or breaking
down.
However, KJC has an advantage over unorganised and other organised companies due to
its wide spread manufacturing units across the country. This enables KJC to tap the five
regions of the country cost effectively. Further, with relatively limited lead distance from
its units to markets, the losses due to wastage are also controlled.
Effectively, this has helped KJC to maintain its leadership position with easy access to most
of the regions of the country (key markets) and also compete cost effectively with the
unorganised units (largely in Morbi).

Fig 52: Logistics advantage – KJC vs. unorganised market in

Fig 51: Proximity of Morbi is limited to western region
Morbi

 Kajaria Ceramics plants and

JVs


 

Morbi

 Morbi
Morbi
Morbi





Source: Company, Centrum Research Source: Company Annual Reports, Centrum Research

Fig 53: KJC’s manufacturing capacity are well spread across regions helping better geographical reach
Capacity break-up ( in mn [Link]) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E
Sikandrabad, UP 6.9 9.3 8.2 8.2 8.2 9.8 9.8 9.8 8.4 8.4 8.4 8.4
Gailpur, Rajasthan 14.1 14.1 20.1 20.1 20.1 21.5 21.5 24.5 26.6 30.1 34.3 34.3
Malootana, Rajasthan – PVT 0 0 0 0 0 0 0 6.5 6.5 6.5 6.5 6.5
Soriso Ceramics (51% stake) – PVT 0 0 2.3 4.6 4.6 4.6 4.6 4.6 3.6 3.6 0 0
Jaxx Vitrified (87.37% stake) – VT, Morbi 0 0 0 3.1 3.1 5.7 10.2 10.2 10.2 10.2 10.2 10.2
Vennar Ceramics (51% stake) – CT, A.P. 0 0 0 0 2.3 2.3 2.3 2.3 2.9 2.9 2.9 2.9
Cosa Ceramics (51% stake) – VT, Morbi 0 0 0 0 2.7 2.7 5.7 5.7 5.7 5.7 5.7 5.7
Taurus Tiles (51% stake) – PVT 0 0 0 0 0 0 0 5.0 5.0 0 0 0
Floera Ceramics - Kajaria Tiles Pvt. Ltd., A.P.. 0 0 0 0 0 0 0 0` 0 0 0 5.0
Total capacity 21.0 23.4 30.6 36.0 41.0 46.6 54.1 68.6 68.9 67.4 68.0 73.0
Source: Company, Centrum Research

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Kajaria Ceramics 27 April 2020

Brand and product leadership

KJC has strongly focused on marketing, distribution and product innovation investments
over the past several years. Effectively, though KJC does not have any significant pricing
power, it does enjoy the best brand recall among all ceramic companies in India.
Additionally, wide product range, good quality and timely availability also helped in
maintaining its leadership position. Strong relationship with dealers aided KJC to maintain
lower receivable days, better shelf space and customer service. KJC has 1,400 dealers and
5,000 sales touch points across India.
Fig 54: Highest advertisement spends among peers reflects KJC’s focus on marketing and brand
leadership
Advertisement expense as a% of Revenues(%)
6.0

5.0

4.0

3.0
%

2.0

1.0

0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Kajaria Ceramics Somany Ceramics HSIL

Source: Company Annual Reports, Centrum Research

Fig 55: Advertising spends have increased 5x over last 10 years for ceramics players
35000 Advertisement Expenses(Rs mn)

30000

25000

20000
Rs mn

15000

10000

5000

0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Source: Company Annual Reports, Centrum Research

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Kajaria Ceramics 27 April 2020

Strong balance sheet and FCF generation

Despite strong focus on newer products, wider dealer network and prudent
advertisement expenses, KJC never lost focus on capital allocation. The company has been
continuing to maintain a very fine balance between growth and capital allocation. Healthy
cash flow generation helped KJC to have a strong balance sheet. In the past three years,
on an average, KJC converted 6.3% of its net sales into FCF while delivering 7% revenue
CAGR. In the same period, Somany Ceramics delivered negative 6.5% FCF with flat sales
growth. Healthy FCF generation was used by KCL to reduce its net debt/equity ratio from
0.26x in FY16 to -0.08x in FY19. Somany Ceramics continues to finance its operations with
higher debt, as the net debt- equity ratio remains largely unchanged from 0.7x in FY16 to
0.8x in FY19.
Fig 56: KJC’s healthy free cash flow generation was channelized for debt reduction
Free Cash Flow as a % of Revenues(%)
20.0

10.0

0.0

-10.0
%

-20.0

-30.0

-40.0

-50.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Kajaria Ceramics Somany Ceramics HSIL

Source: Company Annual Reports, Centrum Research

Fig 57: KJC turned net cash in FY19

Net Debt to Equity(x)
2.5

2.0

1.5

1.0
x

0.5

0.0

-0.5
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
HSIL Somany Ceramics Kajaria Ceramics

Source: Company Annual Report, Centrum Research

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Kajaria Ceramics 27 April 2020

Valuations
In the current uncertain scenario and negative sentiment, KJC’s stock performance has
been no different. However, we believe its fundamentals are in place and the valuations
are favourable. We expect its earnings growth to pick up going forward. Further, margins
leave scope for improvement from our conservative estimates, given the correction in the
crude oil prices.
Fig 58: Median PER for the last three 5 year periods
FY04-09 FY09-14 FY14-19
Revenue CAGR 24% 26% 8%
EBITDA CAGR 10% 26% 6%
EPS CAGR -20% 29% 5%
Median PER - (x) 15.6 8.4 31.0
Source: Company Annual Report, Bloomberg, Centrum Research

In the past 60 quarters (15 years), that includes a full business cycle, KJC’s shares have
traded at a median level of 17.6 times. However, the last five years reflect more recent
earnings trend, with past year median at ~30 times. We, therefore, value KJC at an
average median of the 15-year long business cycle and past five years in order to capture
the recent earnings trend. At the target multiple of 24.3x FY22E earnings of Rs21/share,
we arrive at target price of Rs508 translating into a 45% upside from the CMP. Our exit
multiple of 24.3x is at ~20% discount to the stock’s past five-year median multiple of 31x.

Centrum Institutional Research 39

Kajaria Ceramics 27 April 2020

Key Risks
Gas cost volatility and its impact
Tile industry uses gas for spray dryer and kiln heating, costing ~20% of net sales currently.
Spray dryer helps in converting the liquid mud mixture/silt into a fine powder. Kiln is used
to heat the tile biscuit to impart it strength and is a crucial process. Gas prices depend on
three-month average Brent crude oil prices. The sensitivity to Brent crude prices and
EBITDA margins is normally an impact of ~1%, if crude oil prices increase by ~$3.5/bbl.
Though the prices are correcting sharply, we await stability.
Further, the impact for KJC is lower as it plans to move spray dryer operations on coal (as
it is a less important process as per quality control point of view) for its in-house
manufacturing plants.
Fig 59: Higher gas costs dent KJC’s EBITDA margins in the last 2 years
12.0 20.0
19.0 19.5

9.2
8.7
9.0 18.0
7.4
6.4 6.1 16.8
6.0 16.2 16.0

15.2
3.0 14.0

- 12.0
FY15 FY16 FY17 FY18 FY19

Spot LNG prices(US$/mmBtu) EBITDA margins (%) - RHS

Source: Bloomberg, Company Annual Reports, Centrum Research

Slowdown in new construction activity

Building material industry derives its demand from the real estate industry. Hence, any
slowdown in the real estate sector will impact KJC. However, we expect the impact to be
limited as a major portion of its sales is derived from retail customers.

Competition
Tile industry is highly competitive, which restricts players’ ability to pass on cost inflation.
While KJC continues to gain market share, it has very little influence on prices. KJC is
exposed to the competitive pricing risk, as witnessed in GVT price decline recently.
Further, the aggressive competition from the unorganised segment despite challenges will
add burden on the margin improvement in case of KJC.

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Kajaria Ceramics 27 April 2020

Company Background
Kajaria Ceramics (KJC) is the largest manufacturer of ceramic and vitrified tiles in India
with a capacity of 73 mn sq. meters spread across Rajasthan, Uttar Pradesh (UP), Gujarat
and Andhra Pradesh. Kajaria Ceramics was founded by Mr. Ashok Kajaria and the company
was incorporate in 1985. Kajaria Ceramics got listed in 1988 to raise capital for setting up
the Sikandrabad plant in Uttar Pradesh. Currently, the promoter shareholding stands at
47.58%.
KJC’s product portfolio consists of 3,311 SKUs of ceramic wall and floor tiles, vitrified tiles
and designer tiles. Kajaria Ceramics also manufactures sanitaryware and faucets through
its subsidiary Kajaria Bathware Ltd. The faucet capacity is 1mn pieces per annum
manufactured at Gailpur plant in Rajasthan and sanitaryware capacity of 7.5 lakh pieces
per annum manufactured at Morbi plant in Gujarat. Kajaria Ceramics also manufactures
plywood and other wood panel products (Blackboard and Flush Door) through its
subsidiary Kajaria Plywood Pvt. Ltd. under the brand of ‘Kajaria PLY’. KJC exports to more
than 35 countries across the globe including Gulf countries, Australia, New Zealand, USA,
Canada, UK, and some countries of the European Union and Africa.
Kajaria currently has a distribution network of 1,500 dealers (FY14: 900 dealers) spread
across the country. Tiles are manufactured either at its own manufacturing plants at
Sikandrabad in UP, Gailpur and Malootana in Rajasthan or from the joint ventures in
Morbi (Jaxx Vitrified and Cosa ceramics) and Andhra Pradesh (Vennar Ceramics and Floera
Ceramics). Further, 18-20% of KJC’s total tile sales are outsourced from third party
manufacturers. Over the last 6-7 years, KJC has setup dedicated manufacturing units and
invested in joint ventures (Cosa Ceramics and Floera Ceramics) to cater to the increasing
demand for vitrified tiles, especially glazed vitrified tiles (GVT).
Fig 60: Profile of Board of Directors
Name of the Director Designation Profile
Ashok Kajaria is the founder of Kajaria Ceramics and has 38 years of experience in the tiles
Mr. Ashok Kajaria Chairman & MD industry, global marketing and business related to the construction industry. He holds an
engineering degree from California University.
Rishi Kajaria has been associated with the company since 2004, and he holds a bachelor’s degree
in Business Administration from Boston University. Mr. Rishi Kajaria joined Kajaria Ceramics in
Ms. Rishi Kajaria Joint Managing Director the year 2003 and spearheaded the expansion of the vitrified tile vertical. He is also responsible
for spearheading the lateral shift of the company into Sanitaryware and faucets in keeping with
the overall growth plan.
Chetan Kajaria is a gold medalist in engineering from Pune University and holds a master’s degree
in Business Administration from Boston University. He has 14 years of experience in the ceramics
Mr. Chetan Kajaria Joint Managing Director industry. Mr. Kajaria is spearheading the ceramic tile vertical. He is responsible for the first ever
acquisition in the Company’s history - acquiring a ceramic tile plant in Gujarat in 2011 and in
Vijaywada in 2012.
Mr. Dev Datt Rishi has completed his BSC (engineering) with Chemical Hons. Graduate and also
has a Diploma in Management. He is associated with Kajaria Ceramics since inception in January
Mr. Dev Datt Rishi Non-executive director
1987. He has rich experience in the field of production, quality control, R&D, technology transfer,
projects, organization development, etc.
Mr. Raj Kumar Bhargava, a B.A. (Hon.) and M.A., is a retired IAS officer. He joined the Board of
the Company in 1998. He has served as Industry Secretary, Finance Secretary, Irrigation & Power
Mr. Raj Kumar Bhargava Independent Director
Secretary in U.P. He has also served Government of India as Jt. Secretary Petroleum, Jt. Secretary
Industries, Secretary Home and Secretary Urban Development.
Mr. Debi Prasad Bagchi, retired as Chief Secretary to the Government of Orissa. He is MA
Mr. Debi Prasad Bagchi Independent Director (Economics) and [Link] in Public Administration. He had served the Government of India as JS, AS
and Secretary. He joined the Board of the company on June 2, 2007.
Mr. H. Rathnakar Hegde is a Science Graduate. He joined the Board of Directors on January 17,
Mr. H Ratnakar Hegde Independent Director 2012. He has served the banking industry for four decades. His most recent position was as the
Executive Director of the Oriental Bank of Commerce (OBC).
Mrs. Sushmita Singha has Post graduate degree in English from Patna University and a Diploma in
Urban Town Planning from HSMI, New Delhi. She has over 30 years of experience in the industry
Mrs Sushmita Singha Independent Director
and has held various posts/assignments in various organisations including PHD Chamber of
Commerce and Industry, UN Task Force and took various assignments for Government of India.
Source: Company Annual Report, Centrum Research

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Kajaria Ceramics 27 April 2020

Capacities of Kajaria Ceramics Ltd.

Fig 61: Pan India spread helps KJC to have less region specific exposure
MSM: Million Square Meters
JV: Joint Venture
34.30 MSM
Gailpur, Rajasthan
8.40 MSM
6.50 MSM Sikandrabad, Uttar Pradesh
Malootana, Rajasthan


 



5.70 MSM
JV with Casa Morbi, Gujarat





10.20 MSM
JV with Jaxx Morbi, Gujarat
2.90 MSM
 JV with Vennar,
 Vijaywada, Andhra Pradesh




5.00 MSM
JV with Floera Ceramics,
Chiittor, Andhra Pradesh

Source: Company, Centrum Research

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Kajaria Ceramics 27 April 2020

Business Overview
Revenue break-up
For KJC, revenue contribution from relatively lower-priced ceramic tiles has been declining
as higher-priced GVT increased its share. Additionally, bathware has also increased its
revenue contribution to 6% in FY19. This was absent in FY14 but unlikely to change very
sharply in the near term.

Fig 62: KJC revenue break-up: GVT has gained revenue share over last 5 years due to higher demand

KJC Revenue share(%) - FY14 KJC Revenue share(%) - FY19

GVT GVT
15% 26%
Faucets and
Sanitaryware
6%
PVT
40%
Plywood
CT 1%
45% PVT
29%
CT
38%

Source: Company Annual Report, Centrum Research Source: World Ceramic Review, Centrum Research

KJC’s change in revenue mix is correlated to its volume sales mix, which clearly displays
rising GVT share. Fall in PVT revenues is higher than the fall in respective sales volume
because of price decline in the category. In the past few quarters, KJC has been witnessing
a fall in GVT prices because of oversupply in the market.

Fig 63: KJC’s volume share break-up by tile type: Share of GVT has increased over the last 5 years

KJC Revenue share(%) - FY14 KJC's volume breakup by tile type - FY19

GVT GVT
PVT 11% 21%
34%

PVT
31%

CT CT
55% 48%

Source: Company Annual Report, Centrum Research Source: World Ceramic Review, Centrum Research

We have calculated gross realisation for the tile categories due to unavailability of the
requisite data. Our calculation also includes effect of decrease in GST rate from 28% to
18% in the middle of FY18. Centrum estimates indicate the realisation change will be very
gradual and slow. Challenges from Morbi units continue despite focus on organised
segment. Recovery in sentiment, receding cost pressure due to softening oil prices and
change in trade dynamics should drive pricing.

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Kajaria Ceramics 27 April 2020

Fig 64: KJC tile realisations by type of sourcing

KJC Realisation (Rs/sq. mt) FY13 FY14 FY15 FY16 FY17 FY18 FY19
Own manufacturing 328 345 372 362 367 383 374
JV's 368 376 377 387 362 348 319
Outsourcing/imports 422 386 366 370 318 293 288
Source: Company Annual Report, Presentations, Centrum Research

Fig 65: KJC tile realisations by type of tile

KJC Realisation (Rs/sq. mt) FY13 FY14 FY15 FY16 FY17 FY18 FY19
CT 297 311 321 294 302 300 293
PVT 459 451 435 392 370 355 337
GVT 575 536 621 514 488 496 467
Source: Company Annual Report, Presentations, Centrum Research

KJC has been industry leader in product innovation as well. It has been ahead of the curve
in launching better designs, large-sized tiles and offering more choice (larger number of
SKUs – stock keeping units) to its customers. The trend in the tables below indicates that
the company has internally shifted its focus from ceramic tiles to higher-priced PVT and
GVT categories in recent years, in-line with its strategy of premiumisation. However, it
could not yield full benefits of the strategy because of market disruption and price
erosion. Going forward, the focus remains on introducing large-sized tiles in all categories
that command higher prices per sqm because of better look and shine. KJC’s product
excellence is one of its key differentiating factors that help drive more customer footfall
into the dealers’ showrooms
Fig 66: Kajaria’s tile design – SKUs, higher focus on value added products
SKU FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
CT 517 545 750 790 932 1214 1270 1800 1800 2000

PVT 50 50 60 58 60 95 90 74 173 215

GVT 50 60 100 175 320 360 468 800 890 1096
Bathware - - - - - 65 200 100 250 250
Source: Company Annual Report, Presentations, Centrum Research

Fig 67: Kajaria’s tile - Size Offering (sqm)

Sizes variants FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
CT 8 10 11 11 11 11 11 15 NA 17
PVT 3 3 3 3 2 3 3 3 NA NA
GVT 4 3 2 6 6 7 8 12 15 NA
Source: Company Annual

KJC capacity expansion is focused with higher joint ventures:

Capacity break-up ( in mn [Link]) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Sikandrabad, UP 6.9 9.3 8.2 8.2 8.2 9.8 9.8 9.8 8.4 8.4 8.4
Gailpur, Rajasthan 14.1 14.1 20.1 20.1 20.1 21.5 21.5 24.5 26.6 30.1 34.3
Malootana, Rajasthan - PVT 0 0 0 0 0 0 0 6.5 6.5 6.5 6.5
Soriso Ceramics (51% stake) - PVT 0 0 2.3 4.6 4.6 4.6 4.6 4.6 3.6 3.6 0
Jaxx Vitrified (87.37% stake) - VT 0 0 0 3.1 3.1 5.7 10.2 10.2 10.2 10.2 10.2
Vennar Ceramics (51% stake) - CT 0 0 0 0 2.3 2.3 2.3 2.3 2.9 2.9 2.9
Cosa Ceramics (51% stake) - VT 0 0 0 0 2.7 2.7 5.7 5.7 5.7 5.7 5.7
Taurus Tiles (51% stake) - PVT 0% 0% 0% 0% 0% 0% 0% 500% 500% 0% 0%
Floera Ceramics - Kajaria Tiles Pvt. Ltd. 0 0 0 0 0 0 0 0.0 0.0 0 0
Total capacities 21.0 23.4 30.6 36.0 41.0 46.6 54.1 68.6 68.9 67.4 68.0
Own manufacturing 21.0 23.4 28.3 28.3 28.3 31.3 31.3 40.8 41.5 45.0 49.2
JV 0 2.3 7.7 12.7 15.3 22.8 27.8 27.4 22.4 18.8
Source: Company Annual Report, Presentations, Centrum Research

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Kajaria Ceramics 27 April 2020

KJC has a healthy mix of in-house and JV capacity. The company has maintained at least
~80% of its tile manufacturing capacity in-house (including JVs), which helps in
maintaining margins. Its bathware and faucet capacity is in-house. KJC’s manufacturing is
well spread and closer to consumption centres. This is particularly important for a tile
company that has high logistic costs and higher SKUs.
Fig 68: KJC has maintained a judicious mix of own manufacturing and outsourcing/JV partners
100%
12% 12%
90% 20% 19% 18% 18%
80%
70% 37% 33%
27% 31% 26% 26%
60%
50%
40%
30% 55% 55% 55%
53% 50% 51%
20%
10%
0%
FY14 FY15 FY16 FY17 FY18 FY19
Own manufacturing JV's Outsourcing/imports

Source: Company Annual Report, Presentations, Centrum Research

Diversification: Sanitaryware and faucets

KJC entered sanitaryware and faucet manufacturing in FY15-16 as complement to its tile
offering. Currently, the company manufactures 0.75 million sanitaryware and 1 million
faucet pieces annually. Both the products contribute 5% to KJC’s consolidated top-line.
The company is not planning any major expansion in this business, but wants to operate
as a complement offering and grab more shelf space.
Fig 69: Shareholding pattern of Kajaria Ceramics
Kajaria Ceramics - Shareholding pattern

Domestic
institutional investor Public/Others
13% 15%

Foreign Portfolio
investors
24%

Promoter &
Promoter group
48%

Source: BSE, Centrum Research

Centrum Institutional Research 45

Kajaria Ceramics 27 April 2020

P&L Balance Sheet

YE Dec (Rs mn) FY18 FY19 FY20E FY21E FY22E YE Dec (Rs mn) FY18 FY19 FY20E FY21E FY22E
Revenues 27,067 29,508 29,612 28,548 32,354 Equity Share Capital 159 159 159 159 159
Materials cost 10,603 11,464 11,707 11,281 12,911 Reserves & surplus 13,351 15,590 17,402 19,365 22,127
% of revenues 39.2 38.8 39.5 39.5 39.9 Shareholders' fund 13,510 15,749 17,561 19,524 22,286
Power & fuel 5,194 6,162 5,776 5,362 6,077 Total Debt (incl. pref shares
1,703 1,203 1,328 1,360 1,287
% of revenues 19.2 20.9 19.5 18.8 18.8 if its thr)
Others 6,745 7,442 7,682 7,654 8,087 Def tax liab. (net) 1,114 1,075 1,076 1,076 1,076
% of revenues 24.9 25.2 25.9 26.8 25.0 Minority interest 661 659 685 709 741
EBITDA 4,564 4,495 4,506 4,302 5,335 Total Liabilities 16,988 18,687 20,649 22,669 25,390
EBITDA margin (%) 16.8 15.2 15.2 15.0 16.5 Gross Block 16,964 16,775 17,090 17,696 18,304
Depreciation & Amortisation 885 891 944 980 1,015 Less: Acc. Depreciation (5,497) (5,980) (6,916) (7,884) (8,886)
EBIT 3,787 3,785 3,794 3,647 4,726 Net Block 11,467 10,794 10,174 9,812 9,418
Interest expenses 241 156 184 188 178 Capital WIP 176 934 2,000 2,500 2,500
Other income 108 180 232 325 406 Net Fixed Assets 11,643 11,728 12,174 12,312 11,918
Exceptional items 8 (48) - - - Investments 3 3 3 3 3
PBT 3,553 3,580 3,610 3,459 4,549 Inventories 3,785 4,058 4,219 4,224 4,787
Taxes 1,267 1,293 939 899 1,183 Sundry debtors 4,506 4,751 4,989 5,045 5,717
Effective tax rate (%) 36% 36% 26% 26% 26% Cash 825 2,524 3,605 5,029 7,116
PAT 2,286 2,288 2,671 2,560 3,366 Loans & Advances 656 671 809 865 925
Minority/Associates 64 (22) (25) (24) (32) Other assets - - - - -
Extraordinary Items - - - - - Total Current Asset 9,772 12,003 13,623 15,162 18,544
Reported PAT 2,350 2,266 2,646 2,535 3,334 Trade payables 2,578 3,091 3,137 2,896 3,115
Adjusted PAT 2,342 2,314 2,646 2,535 3,334 Other current Liab. 1,673 1,757 1,794 1,832 1,871
Provisions 179 200 220 81 89
Ratios Net Current Assets 5,342 6,955 8,472 10,354 13,469
YE Dec FY18 FY19 FY20E FY21E FY22E Total Assets 16,988 18,687 20,649 22,669 25,390
Growth Ratio (%)
Revenue 6.3 9.0 0.4 (3.6) 13.3 Cash flow
YE Dec (Rs mn) FY18 FY19 FY20E FY21E FY22E
EBITDA (8.1) (1.5) 0.2 (4.5) 24.0
Operating profit bef
Adjusted PAT (7.4) (1.2) 14.3 (4.2) 31.5 4,205 4,064 4,545 4,428 5,551
working capital changes
Margin Ratios (%)
Trade and other recievables (1,117) (245) (239) (55) (673)
Operating 16.7 15.1 15.0 14.9 16.3
Trade payables (196) 597 83 (203) 259
EBITDA 16.8 15.2 15.2 15.0 16.5
Net change - WC (1,144) 86 (435) (458) (1,028)
Adjusted PAT 8.7 7.8 8.9 8.9 10.3
Direct Taxes (1,260) (1,331) (938) (899) (1,182)
Return Ratios (%)
Cash flow from operations 1,801 2,818 3,172 3,070 3,340
ROE 17.1 15.2 15.4 13.3 15.6
Net Capex 440 569 1,381 1,106 608
ROCE 23.1 21.2 19.3 16.8 19.7
Acquisitions, net - - - - -
ROIC 15.5 15.0 16.9 15.6 19.5
Others (2) - - - -
Turnover Ratios (days) Cash flow from investing
Gross block turnover ratio (x) 2.3 2.5 2.5 2.3 2.7 (442) (569) (1,381) (1,106) (608)
activities
Debtors 61 59 62 65 65 FCF 1,359 2,250 1,791 1,964 2,732
Inventory 51 50 52 54 54 Issue of share capital 7 0 (266) - -
Creditors 42 45 46 44 42 Increase/(decrease) in debt (428) (500) 125 32 (73)
Cash conversion cycle 70 64 68 75 77 Dividend (381) (575) (572) (572) (572)
Solvency Ratio (x) Cash flow from financing (1,054) (551) (709) (540) (645)
Net debt-equity 0.1 (0.1) (0.1) (0.2) (0.3) Net change in cash 305 1,699 1,082 1,424 2,087
Debt-equity 0.1 0.1 0.1 0.1 0.1 Source: Company, Centrum Research estimates
Interest coverage ratio 15.7 24.3 20.7 19.4 26.6
Gross debt/EBITDA 0.4 0.3 0.3 0.3 0.2
Current Ratio 2.2 2.4 2.6 3.2 3.7
Per share Ratios (Rs)
Adjusted EPS 14.7 14.6 16.6 15.9 21.0
BVPS 89.2 103.2 114.8 127.3 144.8
CEPS 20.3 20.2 22.6 22.1 27.4
DPS 1.8 3.0 3.0 3.0 3.0
Dividend payout % 16.3 24.8 21.6 22.6 17.2
Valuation (x)*
P/E (adjusted) 23.8 24.0 21.0 21.9 16.7
P/BV 3.9 3.4 3.1 2.8 2.4
EV/EBITDA 12.4 12.1 11.8 12.1 9.3
Dividend yield % 0.5 0.9 0.9 0.9 0.9
Source: Company, Centrum Research estimates;

* All ratios based on average mcap for year

Centrum Institutional Research 46

 Initiating Coverage

Institutional Research
India I Building Material
27 April 2020
Cera Sanitaryware Ltd Buy
Target Price: Rs3,073
Resilient Warrior Price: Rs2,092
Forecast return: 47%
Cera Sanitaryware (CRS) has come a long way from being a challenger to attaining the top position (mid-
25% market share) in the organised sanitaryware segment. CRS’ key focus has been to tap the mass market Market Data
in the mid segment and concurrently grab the premium segment. Sharp focus on capital employed, high Bloomberg: CRS IN
product quality coupled with technology based innovation have been the key to Cera’s success. CRS is 52 week H/L: Rs3080/1986
expected to increase its revenue/PAT at 7% CAGR over FY18-22E, amid series of challenges viz. GST,
Market cap: Rs27bn
demonetisation, overall lull in the economy and the current COVID 19 pandemic. In the same period, EBIT
margin is likely to improve to ~15% from 13.9% and ROCE is expected to hover around ~19%. We expect Shares outstanding: 13mn
CRS to overcome the current challenging situation post COVID 19 in the similar manner it did during the Free float: 65.8%
GST and demonetisation phase. As the company continues to outsource manufacturing, its capex Avg. daily vol. 3mth: 23060
requirement remains limited. We initiate coverage on the stock with a Buy rating and a target price of
Source: Bloomberg
Rs3,073, up 47% from the CMP.
Focus on the mass market – Well played and paid strategy
CERA relative to Nifty midcap 100
CRS has focused on the mass market with dominant revenue contribution from this segment. With its
product JEET, the company is tapping the entry level market. Lower pricing gap between organised and
unorganised players, especially in the entry-level segment, have attracted quality-seeking first-time
sanitaryware users. Further, growing urbanisation and rising rural income have increased the aspirational
class and led the shift towards branded sanitary products. CRS has done well in tapping this segment.
Currently 50%+ revenue is contributed from the mass market segment.
Not losing sight on the premium segment
CRS, while focusing on the mass market has not lost sight on premium segment and the mix strategy has
helped to grab the top slot in organised sanitaryware segment. CRS has focused on automation for efficiency,
research & development expenditure (higher vs. competitor compared to sales revenue) and consistent Source: Bloomberg
innovations to stay relevant in the premium category. Senator is CRS second brand offering in the luxury
segment (after Italian brand ‘ISVEA’), which has helped the brand perception change from ‘value for money’ Shareholding pattern
to ‘luxury’. The premium category contributes 40% of the sales revenue. Dec-19 Sep-19 Jun-19 Mar-19
De-risking revenue streams by adding tiles and focusing on faucets segment Promoter 54.5 54.8 54.8 54.8
After stabilising its share in sanitaryware, CRS ventured into manufacturing faucets in FY11 and tiles via 51%
FIIs 7.9 7.8 7.7 7.6
JV in FY13. CRS also markets (trading) sinks, customised shower partition/cubicle, bathtub/whirlpool and
mirrors. The share of faucets and tiles has increased from 14%/2% in FY13 to 22%/20%, respectively, in FY18 DIIs 14.2 13.4 12.3 10.6
and further increased to 24%/21% in FY19. With the higher base effect in FY21/FY22, we expect the tiles and Public/oth 23.5 24.1 25.3 27.1
faucet business to contribute 24-25% in FY21/FY22. Source: BSE
Judicious cost spending and focus on expenditure control
CRS has been a pioneer in introducing celebrity-based advertising campaign to establish its brand and garner
better brand recall. The company has established studios and galleries across its distribution network to
showcase its products (10 style studios across major cities and 140+ style galleries) spending an average of
9.5% of its net revenues on advertising, sales promotion, commissions & incentives. CRS is, however,
judiciously focused on cost saving with various measures like backward integration in power requirements,
higher mix of outsourcing and focus on controlling fuel prices.
Conservative balance sheet approach helps growth without financial strain
CRS’s conservative approach i.e. maintaining a delicate balance between growth and lower financial stress
adds comfort. The debt/equity is maintained at ~ 0.1x and the total debt equity ratio has remained under
0.5x in the past decade. Given tightening working capital requirements, its WC cycle is better than
competitors, aiding better asset turnover and focus on improving ROCE.
Initiate with a BUY rating
We have valued CRS at the past 5 year median P/E ratio of ~30x (30.9). The company’s sharp focus on
innovation provides consistency in the new products, derisking business revenue streams, prudent capex,
better marketing initiatives’ with reasonable aggression coupled with healthy working capital norms and
maintaining the balance sheet health, which are the key strengths of the company. Our FY22 EPS
conservative target of Rs102.5 valuing the company at 30x translates into a target price of Rs3,073/share,
leaving a 47% upside from the current market prices (CMP).
Key Risks
a) Continued undercutting by unorganised segment, b) Better than expected reversal of the fuel prices c)
Venturing into new unventured business like water heaters d) Continued weakness in the real estate sector.

Financial and valuation summary

The Cement Team

Y/E Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E Milind Raginwar
Analyst, Cement
Revenue 11,776 13,444 12,922 10,945 14,115 +91 22 4215 9201
EBITDA 1,774 1,983 1,780 1,581 2,137 [Link]@[Link]

he safest one
EBITDA margin(%)
Adj. PAT
15.0
1,032
14.7
1,151
13.7
1,105
14.3
969
15.0
1,333
Diluted EPS 79.4 88.5 85.0 74.5 102.5
P/E(x) 26.4 23.6 24.6 28.1 20.4 Sahil Sanghvi
Associate, Cement
EV/EBITDA(x) 15.6 14.0 15.6 17.3 12.9 +91 22 4215 9203
RoE (%) 17.8 16.4 14.1 11.3 14.0 [Link]@[Link]
Source: Company, Centrum Research estimates
Cera Sanitaryware Ltd 27 April 2020

Thesis Snapshot
CRS versus NIFTY midcap 100 Valuations
1m 6m 1 year We have valued CRS at the past 5-year median P/E ratio of ~30x as it
crs IN (8.6) (17.7) (26.6) captures the recent business trend of the company. Our FY22 EPS
conservative target of Rs103 valuing the company at 30x translates into a
NIFTY midcap 100 7.9 (22.0) (28.4)
target price of Rs3,073/share, leaving a 47% upside from the current market
Source: Bloomberg, NSE
prices (CMP)..

Key assumptions Target Valuations FY22E

Past 5 year median P/E (x) 30
YE Mar FY18 FY19 FY20E FY21E FY22E
Earnings Estimate (Rs) 102.5
Sanitaryware capacity (mn
3.2 3.2 3.2 3.2 3.2 Target Price (Rs) 3,073
pieces)
Faucet capacity (mn pieces) 2.34 2.34 2.34 2.34 2.34
Tile JV capacity - sq. mt per
10,000 17,000 17,000 17,000 17,000
day

Revenue (Rs mn) 11,776 13,444 12,922 10,945 14,115

growth - % 14.2 -3.9 -15.3 29.0
Cost of goods sold (Rs mn) 1,238 1,397 1,874 1,642 1,976
growth - % 12.8 34.2 -12.4 20.4
Energy cost (Rs mn) 543 571 549 356 494
growth - % 5.3 -3.8 -35.2 38.9
Source: Centrum Research estimates

PE median and standard deviation

PE Bands
50
4,500
4,000 40
3,500 30
3,000
2,500 20
2,000
1,500 10
1,000 0
500
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
0
Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

P/E Median

Close Price 22x 28x 36x 45x Median + Std Dev Median - Std Dev
Source: Bloomberg, Centrum Research estimates
Source: Bloomberg, Centrum Research estimates

Peer comparison
Mkt Cap CAGR FY20-FY22E (%) EBITDA Margin (%) EV/EBITDA (x) PER (x) ROE (%)
Company
Rs bn Rev EBIDTA PAT FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
CERA Sanitaryware 27 4.5 9.6 9.8 13.7 14.3 15.0 15.6 17.3 12.9 24.6 28.1 20.4 14.1 11.3 14.0
Kajaria Ceramics 56 4.5 8.8 12.3 15.2 15.0 16.5 11.8 12.1 9.3 21.0 21.9 16.7 15.4 13.3 15.6
Somany Ceramics 5 8.8 12.5 25.8 9.6 9.8 10.2 7.1 6.5 5.7 22.1 7.3 5.4 8.7 9.7 11.4
Source: Company, Centrum Research estimates

Centrum Institutional Research 48

Cera Sanitaryware Ltd 27 April 2020

Key Investment Thesis

Strong presence in mass market, a healthy
strategy
Cera Sanitaryware (CRS) has followed a prudent mix of products tapping the customer
base across various income groups. Given the focus of Indian consumers on cost savings,
the company has stayed in the mass market with higher access in the rural and the semi-
urban areas. With dominant revenue mix (~50%) contributed by these groups, CRS has
managed to have strong brand recall among the income groups cutting across from the
mass to the premium category.
CRS’ shift to premium category without impacting its mass market presence

Fig 70: Revenue mix by product price range (%) - FY16 Fig 71: Revenue mix by product price range (%) - FY19
Revenue mix by product price range (%) - FY16 Revenue mix by product price range (%) - FY19
Premium Premium
Mass 15% 15%
market Mass market
40% 40%
Upper-
upper Upper-upper
23% 25%

Upper-lower Upper-lower
22% 20%

Source: Company, Centrum Research Source: Company, Centrum Research estimates

The rising income in the rural segment has helped CRS to broaden its market size, which in
turn, has helped the company to maintain its revenue mix in the mass market, despite the
company increasing its presence in the niche premium category.
Further, the rising rural income that has started gaining pace since the middle of the
previous decade (2000-2010) had helped CRS to tap the aspirational rural and semi-urban
population of the country. This was contributed by many factors including higher
minimum support prices (MSP), increased wage rates in the rural segment and revised pay
scales of the working population in the rural/semi urban segment.
Fig 72: Rising wages in rural segment has led to increased affordability and taste

350
300
250
200
150
100
50
0
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19

Simple average wage rate for all rural occupations (Rs/day)

Average wage rate for Agricultural occupations (Rs/day)

Source: Industry, Centrum Broking

The rate of urbanisation in the country is on a rise i.e. from 28% urban population in 2001,
expected to be ~36% by FY21. It is estimated that 500mn people of the total population

Centrum Institutional Research 49

Cera Sanitaryware Ltd 27 April 2020

will live in semi urban areas and towns by 2021. This wll help mass market to further gain
size and help manufacturers like CRS to gain market share.
Fig 73: Population breakup in cities and villages (%)

100%

80%

60%

40%

20%

0%
1951 1961 1971 1981 1991 2001 2011

Hamlets (Population < 1k) Small villages (2k > Population > 1k)
Medium sized villages (5k > Population > 2k) Very large and large villages (Population > 5k)
Class V and VI towns (Population between 5k and 10k) Class II, III and IV towns (1 lakh > Population > 20k)
Other Class-I cities (10lakh > Population > 1 lakh) Million-plus cities (Population > 10 lakh)

Source: IIHS, Centrum Reserarch

Prudent mix of premiumisation helps attain top market share

in sanitaryware
CRS has maintained a judicious mix of focus on the mass market and presence in the
premium segment. Despite it having a dominant presence in the mass market, the
company has not lost sight on the premium segment. It has nearly 40% of the
sanitaryware revenues coming from the premium category.
The largely unchanged real estate pricing in the premium category coupled with the
increasing affordability and changing taste of the rural population has further helped CRS
in addressing the changing requirements in the premium category.

Centrum Institutional Research 50

Cera Sanitaryware Ltd 27 April 2020

Fig 74: Largely unchanged real estate pricing in the premium category segment

40000
35000
30000
25000

Rs/[Link]
20000
15000
10000
5000
0

2QCY14
3QCY14
4QCY14
1QCY15
2QCY15
3QCY15
4QCY15
1QCY16
2QCY16
3QCY16
4QCY16
1QCY17
2QCY17
3QCY17
4QCY17
1QCY18
2QCY18
3QCY18
4QCY18
1QCY19
2QCY19
3QCY19
4QCY19
Worli, Mumbai Banjara Hills, Hyderabad Rajajinagar, Bangalore
Alipore, Kolkata Boat Club road, Pune

Source: Industry, Centrum Broking

This has helped CRS to increase its market share (in the mid 20% range) in the organised
sanitaryware segment and gain leadership by overtaking market leaders like HSIL and
Parryware. Only in the recent past, the market leaders like HSIL and Parryware were well
ahead of CRS (30-35% vs. CRS ~25%). Nevertheless, critical balancing of prudent
advertisement spending and check on the capital expenditure aiding healthy balance
sheet has helped CRS to retain the market share, while the leaders lost their leadership
position.

Growth backed by constant innovation

CRS’ cumulative R&D expense over the past five years has been Rs56mn compared to
Rs52mn of HSIL (Hindustan Sanitary Industries) even though its revenues are almost half
as compared to HSIL. To highlight CRS’ relentless focus on technology and innovation, it is
worth noting that it was the first company in India to use natural gas for manufacturing
sanitaryware. This helped the company to lower product defects (improve customer
satisfaction) and save wastage. Use of natural gas is mandatory for the unorganised sector
that has helped the organised companies to be on the level playing field today. CRS also
introduced twin-flushing system in India in the year 2000. To maintain technological edge,
the company has upgraded its manufacturing and research capabilities by inducting new
processes and automatic machines. Further, it is also introducing new product designs
focusing on aesthetics, convenience and superior functionality. The company has installed
3D printers that help in the launch of new designs from the concept stage in just a few
weeks.
Fig 75: CRS focus on R&D spending is higher, helping better innovation

Research & Development spend (Rs mn)

16.0

14.0

12.0

10.0
Rs mn

8.0

6.0

4.0

2.0

0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
HSIL CERA sanitaryware

Source: Company, Centrum Broking

Centrum Institutional Research 51

Cera Sanitaryware Ltd 27 April 2020

The major area of innovation and R&D is glazing, which provides shine and colour to the
product. CRS has upgraded to robotic glazing machines which results in better spread of
glaze while reducing wastage and dependence on labour. The company has also tested
dual glazes, which have a spectacular aesthetic appeal and imparts premium halo to the
product. Other important areas of innovation are anti-microbial glazes and recycling of
glaze.
Automation for efficiency
To achieve greater level of manufacturing efficiency, better product quality and lower
dependence on expensive labour, CRS plans to automate most of its production processes.
After ramping up the robotic glazing system, it plans to introduce robotic plaster mould-
making and automate casting and gas regulation systems. For testing the final product
quality, the management is also planning to introduce automatic leakage detection and
overflow test.
The company is also upgrading its manufacturing abilities to build more complex designs.
To do so, it plans to replace the current bench-casting with more advanced battery-casting
method/system. This is in line with global best manufacturing practices and will result in
better efficiency and productivity.

Widening product portfolio to de-risk earnings concentration

CRS started as a sanitaryware manufacturer, but now generates revenues from multiple
products used in the washroom. After stabilising its share in sanitaryware, the company
ventured into manufacturing faucets in FY11 and tiles via 51% JV in FY13. CRS also markets
(trading) sinks, customised shower partition/cubicle, bathtub/whirlpool and mirrors. The
share of faucets/tiles has increased from 14%/2% in FY13 to 22%/20%, respectively, in
FY18 and further increased to 24%/21% in FY19. With the higher base effect in FY21/FY22,
we expect the tiles and faucet business to contribute 24-25% in FY21/FY22.
Fig 76: Diversification of revenue streams key to add stability to the earnings
Rs mn FY18 FY19 FY20E FY21E FY22E

Sanitaryware 45% 53% 48% 47% 50%

Allied Products 11% 0% 0% 0% 0%

Faucets 22% 24% 25% 25% 24%

Tiles 20% 21% 24% 24% 23%

Wellness 2% 3% 4% 4% 3%
Source: Company, Centrum Research

The widening of the product mix has helped CRS de-risk its revenue concentration from a
single revenue stream to multiple revenue streams. Further, CRS has emerged from a
sanitary ware product company to a complete bathroom solutions provider. This was after
very meticulous and one-step at a time strategy. CRS focused on the sanitaryware
products for over two decades, ventured into the faucet business over a decade ago and
later post tasting success, ventured into the tiles business. This helped CRS to transform
itself from a challenger in the sanitaryware business to a business leader in the industry.
This journey, however, was steady with calculated risks that helped CRS to expand into
various business segments without foregoing its basic business module of being
conservative in balance sheet expansion.

Centrum Institutional Research 52

Cera Sanitaryware Ltd 27 April 2020

Judicious mix of cost spending and

control
Backward integration – Controlling costs without compromising on
quality
Cera’s investment in input supply chain has resulted in cost reduction and also aided in
maintaining margins. The company has increased its captive renewable power capacity
from 5.0MW in FY13 to 13.8MW in FY18. This captive power meets CRS’ 90% energy
requirement, which is offset against monthly energy consumption bill.
In FY18, CRS commissioned a plant for manufacturing zamac handles with an objective of
reducing its dependence on imports. Zamac is a metal alloy made from zinc, aluminum,
magnesium and copper. Zamac is a cheaper alternative to brass and is used to
manufacture mid-quality faucets.
CRS has also invested in its packaging unit to manufacture corrugated boxes. The new
R&D facility aims to develop input materials which produce less crack-prone ceramic body
along with better glazes. These qualitative steps will not only strengthen CRS’ input supply
chain, but will also help it to control the quality of its products. In our view, the
management’s proactive approach towards product development and facility upgradation
is a critical step to stay ahead of the curve and generate return on equity.

Focus on controlling fuel cost

CRS currently sources 70% of its natural gas requirments from GAIL through its niche gas
blocks near the company’s vicinity. The gas in kilns is used to heat ceramic products to
make them durable. Gas is a cleaner fuel as compared to coal, resulting in better product
quality and cheaper cost of production at that time. This gas is available to CRS at a very
reasonable and discounted price owing to the proximity of the GAIL blocks. This
arrangement has worked in favour of CRS and has been in existence for a considerable
period of time now. The residual 30% gas requirement is sourced from Sabarmati Gas at
the market prices.
Fig 77: Fuel cost is critical for CRS as it directly impacts the EBITDA margins

18.0 20.0
18.8 18.8
18.5
15.0 17.7
17.0 18.0
12.0 16.6
US$/mmBtu

16.7
9.0 16.0
%

15.4
15.4
15.4
6.0 15.0
14.3 14.7 14.0
14.3
3.0

- 12.0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Spot LNG prices(US$/mmBtu) CRS EBITDA margins (%) - RHS

Source: Company, MCX, Centrum Broking Ltd

Outsourcing vs. in-house manufacturing; CRS opts for ROE multiplier

CRS has been a pioneer in procuring finished goods through its outsourcing/JV partners.
This strategy has helped it to offer a bigger basket of products with minimal capital
expenditure and a lean balance sheet. It has also saved considerable time and R&D efforts
for CRS, which is best utilised for branding. As the focus shifts from manufacturing to
marketing, return ratios gain importance over margins.

Centrum Institutional Research 53

Cera Sanitaryware Ltd 27 April 2020

Outsourcing/JV strategy
Sanitaryware & Wellness
Under this segment, the management continues to outsource low and high-end products
while it internally manufactures mid/premium category products. The idea behind this
strategy is that low-end products are sourced from local players and high-quality products
are imported from China. This gives CRS a competitive advantage over peers who have
lower levels of outsourcing.
Revenue share of outsourced products has increased from 40% in FY17 to 54% in FY19, this
was largely due to higher imports from China to meet the fast-growing demand. After CRS
acquired reasonable experience in marketing high-end products and became familiar with
the relevant technologies, it is now upgrading its facilities to manufacture a portion of high-
end products internally. Reduced import dependence and exposure to currency fluctuations
could add incremental value as sales volume of high-end products continues to grow.
Fig 78: CRS is very prudent in maintaining own versus outsourced manufacturing mix
CERA's sourcing mix - Sanitaryware
100%

80% 40%
48%
58% 54%

60%

40%
60%
53%
20% 42% 46%

0%
FY16 FY17 FY18 FY19
Own manufacturing Outsourced

Source: Company, Centrum Research

Faucets
CRS entered or diversified into faucet business in FY11 by establishing in-house
manufacturing. Since then, the company has expanded its business multifold. During FY17,
the outsourced products contributed 50%, both in terms of revenues and volume share in
the segment. The ratio has remained largely stable over the previous year. However, CRS’
outsourced revenue contributed rose to 52%/54% in FY18/FY19. CRS plans to increase
capacity and focus on mid/premium quality products. The target customer for CRS’ faucet
offering is the first-time branded product user in Tier II/III cities and rural towns.
Fig 79: Focus on maximising returns by judicious mix even in smaller revenue streams

CERA's sourcing mix - Faucetware

100%

80%
50% 50% 52% 54%
60%

40%

50% 50% 48% 46%

20%

0%
FY16 FY17 FY18 FY19
Own manufacturing Outsourced

Source: Company, Centrum Research

Centrum Institutional Research 54

Cera Sanitaryware Ltd 27 April 2020

Tiles
The company bought a 51% stake in Anjani Tiles, Andhra Pradesh, to enter the tiles
business in FY13. The production started in FY17. CRS counts this JV as outsourced
procurement because the JV partner is responsible for production with CRS only, taking
care of the marketing aspect. CRS has added two more JV partners in Morbi (Milo LLP) and
Race polymers in Mehsana.
Fig 80: Reliance on complete tile segment outsourcing has played well for CRS
CERA's sourcing mix - Tiles
100%
90%
80%
70%
60%
50% 100% 100% 100% 100%
40%
30%
20%
10%
0% 0% 0% 0% 0%
FY16 FY17 FY18 FY19
Own manufacturing Outsourced

Source: Company, Centrum Research

Spending on branding and advertisement continues

CRS has been a pioneer in introducing celebrity-based advertising campaign to establish its
brand. This strategy largely works with low and mid-quality product customers in Tier 2/3
cities. As a result, despite being a late entrant in the industry, CRS has established high
brand recall for itself. Moreover, it has established studios and galleries across its
distribution network to showcase its products. It owns and manages nearly 10 style
studios across major cities. Additionally, its dealers own and manage 130+ style galleries
dedicated to showcase CRS’ products. Over the last decade, Cera spent an average of 9.5%
of its net revenues on advertising, sales promotion, commissions & incentives.
Fig 81: EBITDA margins continue to rise despite higher promotional spends

30000 Advertisement Expenses(Rs mn)

25000

20000
Rs mn

15000

10000

5000

0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

CERA sanitaryware HSIL

Source: Company, Centrum Research

Centrum Institutional Research 55

Cera Sanitaryware Ltd 27 April 2020

Fig 82: Prudent capex has not deterred CRS from meaningful spending

16,000 CERA's Retail touchpoints

14,000

12,000

10,000

8,000

Title
6,000

4,000

15,000

15,000

15,000

15,000

11,306

11,306
7,500

9,000
2,000

-
FY16 FY17 FY18 FY19
Retail touchpoints Active retail points

Source: Company, Centrum Research

Fig 83: Gradual increase in the retail touchpoints a conscious decision

16000 CERA's Retail touchpoints
14000 15000
12000

10000 11306
Axis Title

8000 9000
6000 7500

4000

2000

0
FY16 FY17 FY18 FY19

FY16 FY17 FY18 FY19

Source: Company, Centrum Research

Details of SKUs by CRS

Fig 84: SKU’s
Sanitaryware 460

Faucetware 484

Kitchen Sinks 56

Wellness (bath cubicles, etc) 52

Mirrors 44

Water heaters 12
Source: Company, Centrum Research

Centrum Institutional Research 56

Cera Sanitaryware Ltd 27 April 2020

Conservative financial approach propels growth without

balance sheet strain
Despite the company’s strong focus on marketing and prudent capital expenditure
venturing into new businesses to de-risk revenue concentration, the company has never
lost its eye on strengthening the balance sheet. It has always followed the conservative
approach to growth with a delicate balance of maintaining healthy cash flow postion
despite generating revenue CAGR of 23% in the past decade and 23% EPS growth.
The debt/equity has always been maintained at ~ 0.1x and the total debt equity ratio has
remained under 0.5x in the past decade.
Fig 85: CRS has kept a sharp eye on its balance sheet health
Net Debt to Equity(x)
1.8
1.6
1.4
1.2
1.0
0.8
x

0.6
0.4
0.2
0.0
-0.2
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

HSIL CERA sanitaryware

Source: Company, Centrum Research

CRS’ prudent working capital policy has helped it to maintain a very decent cash
conversion cycle compared to its key competitors.
Fig 86: Better inventory management has helped CRS lower its CCC days
HSIL
Cash conversion cycle(days) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Receivable days 62 65 56 62 82 84 78 74 71 84 80
Inventory days 91 74 76 77 85 89 89 93 88 93 78
Payable days 69 56 53 37 39 34 32 34 40 40 40
Cash conversion cycle 84 83 78 102 128 138 135 133 119 137 118
102
CERA sanitaryware
Cash conversion cycle(days) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Receivable days 70 63 58 52 62 59 72 75 80 83 81
Inventory days 61 69 75 105 70 58 56 54 54 60 59
Payable days 79 94 85 26 24 24 25 31 37 34 35
Cash conversion cycle 53 38 48 131 108 92 102 98 97 109 104
Source: Company, Centrum Research

The prudent mix of focus on technological innovation, new product investments and
venturing into new businesses with asset light model has helped CRS in better asset
turnover, effectively leading to better return on capital employed.

Centrum Institutional Research 57

Cera Sanitaryware Ltd 27 April 2020

Fig 87: Asset light model prompted by higher outsourcing helps CRS better its asset turnover
Asset Turnover (x)
2.0

1.6

1.2

%
0.8

0.4

0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

HSIL CERA sanitaryware

Source: Company, Centrum Research

Fig 88: CRS beats its nearest rival with better ROCE by a margin
ROCE (%)
35.0

30.0

25.0

20.0
%

15.0

10.0

5.0

0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

HSIL CERA sanitaryware

Source: Company, Centrum Research

With the major work force and the senior management being associated with the
company since its formative years, we think this DNA of the company is unlikely to change
in the foreseeable future.

Centrum Institutional Research 58

Cera Sanitaryware Ltd 27 April 2020

Valuations
In the current uncertain scenario and negative sentiment the stock performance of CRS
has remained largely resilent. The key reason for the same, in our view is that the
company’s fundamentals are rightly in place and the valuations are reasonable. We have
factored in the setback of the COVID-19 impact on its earnings growth partially in FY20
(4Q) and in FY21. However, we expect pick up going forward leaving scope for margin
improvement from our conservative estimates given the softening in the input cost,
revival mechanism from 2HFY21 and the current reasonable valuations.
Fig 89: Previous 5-years median P/E a better reflection of CRS recent business strategies

Source: Company, Centrum Research

We have valued CRS at the past 5 year median P/E ratio of ~30x (30.9x). Cera’s sharp focus
on innovation provides consistency in the new products, derisking business revenue
streams, prudent capex, focus on marketing intitiatives with reasonable aggression,
healthy working capital norms and maintaining the balance sheet health are the key
strengths of the company.
Our FY22 EPS conservative target of Rs103 valuing the company at 30x translates into a
target price of Rs3,073/share, leaving a 47% upside from the current market prices (CMP).

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Cera Sanitaryware Ltd 27 April 2020

Company Background
CERA Sanitaryware Ltd. (CRS) is the leading manufacturer of sanitaryware and faucetware
in India with capacity of 3.2mn pieces per annum of sanitaryware and 2.34mn pieces per
annum of faucetware based in Mehsana, Gujarat. It was founded by Mr. Vikram Somany in
1980 and incorporated in 1988. Currently, promoters’ shareholding in the company stands
at 54.75%. CRS ventured into the tile business in FY14 when its entire tile requirement was
outsourced. It eventually started manufacturing tiles through its joint venture with Milo
tiles LLP (capacity: 7,[Link] per day) in FY17 and Anjani tiles (capacity: 10,[Link] per
day) in FY19. CRS also sells bathroom cubicles, bathroom partitions and shower panels
recognized in the wellness segment. To cater to the complete range of bathware products,
CRS has also launched water heaters in FY19. CRS sources 10.33MW i.e. 90% of its total
power requirement through the captive wind and solar power plants located in Gujarat.
The premium sanitaryware products are sold under the ‘Senator’ brand while the
affordable range of bathware products are sold under the ‘JEET’ brand.
The Indian sanitaryware industry was worth Rs48bn in FY19 of which 60% is the organised
market. CRS has a share of 15% in the total market (25% of the organised market) of
sanitaryware and 4% share in the total faucetware industry in India. It has a highly
penetrated distribution network with 14,595 touchpoints across the country including
3,289 dealers and 11,306 retailers as of September 2019. CRS has four different store
formats to markets its products depending upon size, ownership and purpose of the store
as classified in the following table:
Fig 90: Judicious spending by CRS is reflected in addition of new studios and galleries in the recent past
No of stores in India(as Owner of the
Store Name Size of the store Purpose of the store Expansion plans
of December 2019) store
Company Just a Showroom Plans to open 3 stores/year in
CERA Style Studio 10 ~7,000sq ft
owned Not a sales outlet next 3 years (FY20-22)
Plans to open 25 stores/year in
CERA Style Galleries 139 ~1,000sq ft Dealer owned Showroom and a sales outlet
next 3 years (FY20-22)
Plans to open 100 stores/year in
CERA Style centres 2700 <1,000sq ft Retailer owned Showroom and a sales outlet
next 3 years (FY20-22)
CERA Tile centres 9 - Retailer owned Showroom and a sales outlet -
Source: Company, Centrum Research

Fig 91: Profile of the Board of directors

Name of the Director Designation Profile
Mr. Vikram Somany founded the business in 1980. He has in-depth knowledge and experience of the
Mr. Vikram Somany Chairman & MD sanitaryware industry. His responsibilities include initiation and execution of strategy and ensuring
high governance standards.
Ms. Deepshikha Khaitan has completed her [Link]. in Economics and LLB. She is actively associated
Ms. Deepshikha Khaitan Vice Chairperson with CERA for over 7yrs. Her responsibilities include product designing and innovation, R&D, Channel
outreach and sales with equal focus on profitability and product development.
Mr. Atul Sanghvi has completed his MBA in Marketing and has 34 years of experience in the
CEO & Executive
Mr. Atul Sanghvi industry. He has been part of the CERA leadership for over 20 years and is in charge of all aspects of
Director
manufacturing, marketing and corporate affairs.
He is a graduate from Franklin Marshall College, USA. He has been involved in capital markets,
Mr. Ayush Baghla Executive Director investment banking and mergers and acquisitions for the last 23 years. He joined the Board of
Directors last year and is involved in Investor Relations, Equity value creation, and capital allocation.
Shri. Sajan Kumar Pasari is the Non-Executive Independent Director of Cera Sanitaryware Limited. He
Independent Non- is a Businessman. His other Directorships includes Regent Estates Ltd., Pegasus Infra Estates Ltd.,
Mr. Sajan Kumar Pasari
executive Director Assam Roofing Ltd., India Automobiles (1960) Ltd., West Wing Estates Ltd., Arcus Estates Pvt. Ltd., I
A Property Developers Pvt. Ltd.
Independent Non- Mr J.K. Taparia is a member of CERA Board of director since 2016. He is also a non-executive director
Mr. J.K Taparia
executive Director at Taparia Tools ltd. and a director at Anjani tiles ltd.
Independent Non- Ms. Akriti Jain serves as Non-Executive Independent Director of the company. She holds Master of
Ms. Akriti Jain
executive Director Laws from University of London.
Independent Non-
Mr. Lalit Kumar Bohania
executive Director
Independent Non-
Mr. Surendra Singh Baid
executive Director
Source: Company, Centrum Research

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Cera Sanitaryware Ltd 27 April 2020

Fig 92: CRS has ~ 3.2mn pieces of sanitaryware capacity and ~ 2.3mn pieces of faucetware capacity based in Mehsana, Gujarat

JV: Joint Venture

7000 sq. mt per day

JV with Milo Tiles, Morbi
 
 

3mn pieces sanitaryware and

2.34mn pieces faucetware
plant
Kadi (Mehsana), Gujarat




10,000 sq. mt per day

JV with Anjani tiles,
Guntur, Andhra Pradesh

Source: Company, Centrum Broking Ltd

Fig 93: CRS plans 25 more galleries in next three years Fig 94: Glimpse of CRS Studio

Source: Company, Centrum Research Source: Company, Centrum Research

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Cera Sanitaryware Ltd 27 April 2020

Key risks
Undercutting by unorganised players
CRS’ focus is on mid and premium quality products meant largely for first-time users in
Tier2/3 cities. Therefore, it faces more competition from unorganised players rather than
high-priced products. The unorganised players have resorted to undercutting to mitigate
business loss from e-way bill implementation. This has resulted in slow transition of the
industry from the unorganised to the organised segment.

Continued slowdown in real estate

Building material industry derives its demand from the real estate industry. Hence, any
slowdown in the latter will also impact ceramic companies like Cera.

Gas cost may play the spoiler

CRS is India’s first company to use natural gas for manufacturing ceramic products. The
gas in kilns is used to heat ceramic products to make them durable. Gas, being a cleaner
fuel as compared to coal, resulted in better product quality and cheaper cost of
production at that time. The favourable gas prices currently can reverse and with limited
backward integration in the fuel segment, the company’s earnings may be impacted in
such a scenario.

Venturing into non-core business activities

CRS has currently entered into uncharted areas like water heaters and kitchen solutions.
Though these are currently in the niche stages with minimal capital expenditure or
investments, entering into newer businesses on a large scale in the future will be watched
out risk.

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Cera Sanitaryware Ltd 27 April 2020

P&L Balance Sheet

YE Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E YE Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E
Revenues 11,776 13,444 12,922 10,945 14,115 Equity Share Capital 65 65 65 65 65
Materials cost 5,156 6,062 5,911 5,122 6,422 Reserves & surplus 6,456 7,449 8,118 8,887 10,065
% of revenues 43.8 45.1 45.7 46.8 45.5 Shareholders' fund 6,521 7,514 8,183 8,952 10,130
Power & fuel 543 571 549 356 494 Total Debt (incl. pref shares
754 698 798 877 1,021
% of revenues 4.6 4.2 4.3 3.3 3.5 if its thr)
Others 4,381 4,900 4,757 3,964 5,145 Def tax liab. (net) 296 299 302 349 309
% of revenues 37.2 36.4 36.8 36.2 36.5 Minority interest - - - - -
EBITDA 1,774 1,983 1,780 1,581 2,137 Total Liabilities 7,571 8,511 9,283 10,178 11,461
EBITDA margin (%) 15.0 14.7 13.7 14.3 15.0 Gross Block 4,914 5,393 6,045 6,665 7,409
Depreciation & Amortisation 271 280 242 266 296 Less: Acc. Depreciation (1,312) (1,534) (1,776) (2,042) (2,338)
EBIT 1,647 1,888 1,737 1,534 2,081 Net Block 3,601 3,859 4,269 4,623 5,070
Interest expenses 98 85 88 88 92 Capital WIP 49 190 562 685 710
Other income 145 186 199 219 241 Net Fixed Assets 3,650 4,049 4,831 5,308 5,780
Exceptional items - - - - - Investments 1,086 1,698 1,855 2,062 2,208
PBT 1,549 1,803 1,650 1,446 1,989 Inventories 1,935 2,158 2,089 1,799 2,282
Taxes 488 652 544 477 656 Sundry debtors 2,680 2,984 2,903 2,579 3,171
Effective tax rate (%) 31% 36% 33% 33% 33% Cash 236 110 198 797 630
PAT 1,061 1,151 1,105 969 1,333 Loans & Advances 864 829 871 958 1,054
Minority/Associates (29) (0) (0) (0) (0) Other assets - - - - -
Extraordinary Items - - - - - Total Current Asset 5,715 6,081 6,061 6,132 7,137
Reported PAT 1,032 1,151 1,105 969 1,333 Trade payables 945 1,109 1,199 1,009 1,289
Adjusted PAT 1,032 1,151 1,105 969 1,333 Other current Liab. 1,829 2,112 2,165 2,219 2,274
Provisions 106 95 100 96 102
Ratios Net Current Assets 2,835 2,764 2,598 2,809 3,472
YE Mar FY18 FY19 FY20E FY21E FY22E Total Assets 7,571 8,511 9,284 10,178 11,460
Growth Ratio (%)
Revenue 17.0 14.2 (3.9) (15.3) 29.0 Cash flow
YE Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E
EBITDA 3.4 11.8 (10.2) (11.2) 35.1
Operating profit bef
Adjusted PAT 3.8 11.5 (4.0) (12.3) 37.6 1,804 2,025 1,891 1,712 2,285
working capital changes
Margin Ratios (%)
Trade and other recievables (473) (303) 80 324 (592)
Operating 14.4 14.2 13.2 13.7 14.6
Trade payables 324 447 142 (136) 335
EBITDA 15.0 14.7 13.7 14.3 15.0
Net change - WC (834) (56) 255 388 (829)
Adjusted PAT 8.8 8.6 8.6 8.8 9.4
Direct Taxes (586) (649) (541) (430) (696)
Return Ratios (%)
Cash flow from operations 383 1,320 1,604 1,670 760
ROE 17.8 16.4 14.1 11.3 14.0
Net Capex 453 621 1,024 743 769
ROCE 23.0 23.1 19.2 15.6 19.0
Acquisitions, net - - - - -
ROIC 19.7 18.6 16.7 14.1 17.5
Others (215) (612) - - -
Turnover Ratios (days) Cash flow from investing
Gross block turnover ratio (x) 3.3 3.5 2.9 2.2 2.5 (668) (1,232) (1,024) (743) (769)
activities
Debtors 83 81 82 86 82 FCF (285) 88 580 927 (9)
Inventory 60 59 59 60 59 Issue of share capital 243 40 (279) (12) 33
Creditors 34 35 39 39 39 Increase/(decrease) in debt (83) (56) 100 79 144
Cash conversion cycle 109 104 102 107 102 Dividend (188) (188) (188) (188) (188)
Solvency Ratio (x) Cash flow from financing (46) (214) (492) (328) (157)
Net debt-equity 0.1 0.1 0.1 0.0 0.0 Net change in cash (331) (126) 88 599 (166)
Debt-equity 0.1 0.1 0.1 0.1 0.1 Source: Company, Centrum Research estimates
Interest coverage ratio 16.9 22.1 19.8 17.5 22.6
Gross debt/EBITDA 0.4 0.4 0.4 0.6 0.5
Current Ratio 2.4 2.3 2.2 2.4 2.5
Per share Ratios (Rs)
Adjusted EPS 79.4 88.5 85.0 74.5 102.5
BVPS 501.4 577.8 629.2 688.3 778.9
CEPS 100.3 110.0 103.5 94.9 125.2
DPS 12.0 12.0 12.0 12.0 12.0
Dividend payout % 18.2 16.3 17.0 19.4 14.1
Valuation (x)*
P/E (adjusted) 26.4 23.6 24.6 28.1 20.4
P/BV 4.2 3.6 3.3 3.0 2.7
EV/EBITDA 15.6 14.0 15.6 17.3 12.9
Dividend yield % 0.6 0.6 0.6 0.6 0.6
Source: Company, Centrum Research estimates;

* All ratios based on average mcap for year

Centrum Institutional Research 63

Cera Sanitaryware Ltd 27 April 2020

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Centrum Institutional Research 64

Cera Sanitaryware Ltd 27 April 2020

The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Broking and
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Ratings definitions
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Reduce – The stock is expected to deliver -5-+5% returns.
Sell – The stock is expected to deliver <-5% returns.

Kajaria Ceramics CERA sanitaryware

Source: Bloomberg

Centrum Institutional Research 65

Cera Sanitaryware Ltd 27 April 2020

Disclosure of Interest Statement

Centrum Broking Limited (hereinafter referred to as “CBL”) is a registered member of NSE (Cash, F&O and Currency Derivatives
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3 Registration status of CBL: CBL is registered with SEBI as a Research Analyst (SEBI Registration No. INH000001469)
Kajaria CERA
Ceramics sanitaryware

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Centrum Institutional Research 66

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Centrum Institutional Research 67