Cera Sanitaryware Limited (CERA.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings conference call of Cera Sanitaryware Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devrishi Singh from CDR India. Thank you, and over to you, sir.

Thank you, Nirav. Good morning, everyone, and thank you for joining us on the earnings conference call for Cera Sanitaryware Limited for Q1 FY '26 earnings, which were announced yesterday. We have with us today the management team comprising Mr. Vikas Kothari, CFO; and Mr. Deepak Chaudhary, VP Finance and Investor Relations. We will start with brief opening remarks from the management, following which we will open the call for Q&A. A quick disclaimer before we begin. Some of the statements made in today's conference call may be forward-looking in nature and a detailed note in this regard is contained in the results documents that have been shared with all of you earlier. I would now turn the call over to the management for their opening remarks. Thank you, and over to you, Deepak.

Thank you, Devrishi. Good morning, everyone. On behalf of the management team of Cera Sanitaryware Limited, I would like to extend a warm welcome to all of you on our Q1 FY '26 conference call. I will begin by sharing a brief update on our operational and strategic progress, following which our CFO, Mr. Vikas Kothari, will give you the financial highlights for the quarter. In backdrop of continued softness in consumer demand across key markets, we are pleased to report a stable performance for this quarter. Our Faucetware segment recorded a year-on-year growth of 13.4%, supported by stable demand and continued acceptance of our expanded SKU portfolio. In contrast, demand in Sanitaryware segment remained soft during the quarter. However, we remain confident that long-term tailwinds will gradually aid a recovery in this category. Over the past few years, we have consistently focused on building a stronger, more agile organization through deeper brand segmentation, new channel strategies and the sharper innovation pipeline. We remain confident that these actions will translate into tangible momentum across key growth levers going forward, as and when the market conditions improve. Our B2B segment continues to gain momentum, contributing 38% of revenues during the quarter compared to 36% in Q1 FY '25. We are witnessing healthy order inflows from the real estate sector, driven by increased construction activity and improved developer sentiment. CERA's strong brand equity, product reliability and execution capabilities have helped deepen our presence in the B2B space, further strengthening our position, as a preferred partner for large-scale projects. I would like to update you on two key strategic initiatives. The company has been consistently advancing its strategy for the Senator brand, which is positioned at the top end of our portfolio. To give you a bit more color, Senator today boasts of a much expanded portfolio with 8 full sanitaryware ranges and 9 faucetware collections and a newly introduced wellness range, including whirlpools, steam cables and high-end showers. This makes it a comprehensive solution for the discerning premium customer. We are engaging in close relationship with the architects and HNIs supported by a dedicated sales and business development team of over 50 professionals trained specifically for the luxury segment. As of Q1 FY '26, we have 23 Senator channel partners with showroom displays upgraded to 650 square feet to 800 square feet to create a more immersive brand experience. Our target is to operationalize around 45 to 50 stores by FY '26 end. Importantly, these dealers are new and exclusive to Senator, ensuring brand purity and focus. The pricing strategy is competitive with other luxury brands but offer better margins to our partners. We have also introduced a dedicated institutional catalog and pricing to address project-led premium demand, a first for this brand. These actions reflect a significant shift in our approach. Senator is no longer a tactical strategy. It is now a fully developed brand platform designed to capture a larger share of the luxury segment and drive long-term value creation. We believe the groundwork we are laying today positions Senator for a meaningful traction as the market environment improves. In parallel, during Q1 FY '26, we successfully launched a new value brand, Polipluz, marking CERA's strategic entry into deep value segment. Polipluz is thoughtfully designed to cater to the aspirational needs of households in Tier 4 cities, towns and villages, targeting an approximately INR 9,000 crore market currently dominated by the unorganized players. Polipluz will offer both PTMT and brass variants and follows a distinct go-to-market strategy via hardware stores. We aim to appoint 140 distributors with about 5,000 retail touch points by the end of 1 year, supported by our 70 member field force. Product pricing is positioned midway, bridging the typical gap between the low-cost PTMT and high-end brass products to gently push upgradation among the rural consumers. To build the mind share among influencers, we have also extended our popular Star plumber loyalty program to this new channel. Despite being an affordable offering, Polipluz is expected to be margin accretive with margin levels comparable to or even better than our current blended margins. Early market feedback has been encouraging, and we believe that this initiative will open up meaningful long-term growth opportunities for Cera in this underpenetrated segment. By establishing clear brand segmentation and tailoring our product and channel strategies to each target group, we are not only expanding our market reach, but also ensuring a sharper focus and positioning across categories. This inclusive approach spanning a wide range of price points, material preferences and regional demand clusters reinforces our ability to adapt to changing market dynamics, while staying true to our core values of quality, innovation and customer trust. While the scale-up will take place over time, the initiatives underway today lay a solid base to capture future opportunities. While the timing of a broad-based recovery remains uncertain, we remain optimistic about the future prospects of the industry. The long-term outlook is expected to stay strong, supported by continued formalization of the sector, rising aspiration of the consumers and supported policy initiatives such as urban redevelopment, housing schemes and sanitation infrastructure. These structural drivers, coupled with a strong brand and distribution reach place us well for sustained outperformance. We believe that the investments we are making today in brands, in distribution and in product innovation will position Cera to benefit disproportionately when the market conditions improve. Our focus remains on building an organization that is future-ready, resilient and aligned with the evolving aspirations of the Indian consumers. To conclude, Q1 FY '26 was marked by stable performance despite a challenging demand environment. While the near-term softness is persisting, we remain confident in the long-term potential of the industry and our own preparedness to capitalize on the future opportunities. With ongoing investments in brand architecture, channel segmentation and new product development, backed by strong in-house capabilities, our strategic focus remains on disciplined execution, deeper consumer connect and creating long-term value for all stakeholders. With this, I would like to hand over to Mr. Vikas Kothari, our CFO, who will present the operational and financial highlights for the quarter ended 30th June 2025. Thank you, and over to you, Mr. Vikas Kothari.

Thank you, Deepak, and a very good morning to everyone. I will now take you through a brief overview of the company's financial performance for the quarter ended 30th June 2025. Revenue from operations for Q1 FY '26 stood at INR 419 crores, marking a 5.4% increase over INR 398 crores in Q1 FY '25. EBITDA remained stable at INR 72 crores compared to the same quarter last year. EBITDA margin declined slightly to 16.4% from 17.5% in Q1 FY '25, primarily due to inflation-driven cost increases and initial expenses related to the launch of new brands, Senator and Polipluz. Gas costs witnessed an increase during the quarter with the weighted average cost standing at INR 33.17 per cubic meter in Q1 FY '26 compared to INR 31.64 per cubic meter in Q1 FY '25. Despite the rise, our costs remain well below the industry average. During the quarter, the gas consumption was sourced 84% from GAIL and 16% from Sabarmati. Overall, gas cost as a percentage of revenue stood at 3.6%. For the quarter under review, revenue contributions were as follows: sanitaryware at 50%, faucetware at 39%, tiles at 10% and wellness at 1%. On a Y-o-Y basis, faucetware revenues grew by 13%, tiles by 5% and wellness by 15%, while sanitaryware revenues remained largely flat. Our core categories, sanitaryware and faucetware together accounted for 89% of the total revenues. Capacity utilization stood at 92% for faucetware and 86% for sanitaryware during the quarter. In terms of the product positioning, 43% of our sales came from the premium category, 35% from mid-segment and 22% from entry-level products. From a geographical standpoint, Tier 3 cities led with 42% of sales, followed by Tier 1 at 36% and Tier 2 at 22%. Profit after tax stood at INR 47 crores, broadly in line with the previous year's quarter. Earnings per share for the quarter was INR 36.08 compared to INR 36.11 in Q1 FY '25. In terms of the working capital management, inventory days increased from 75 to 80 days, receivable days from 32 to 38 days and payable days increased from 41 to 43 days, leading to a Y-o-Y increase in the net working capital from 66 to 75 days. However, on a sequential basis, working capital has improved by 5 days, reflecting enhanced operational discipline and stronger collection efforts. As of June 30th, '25, our cash and cash equivalents stood at INR 778 crores. For financial year '26, we have marked a total CapEx outlay of INR 23 crores. This includes routine maintenance as well as select investments towards brand building and expansion of our retail footprint. We will continue to follow a disciplined capital allocation approach aligned with our long-term strategic priorities. We remain confident in Cera's financial health -- strength and long-term growth prospects, backed by a robust balance sheet, ongoing efficiency improvements and prudent working capital management, we are well positioned to navigate near-term uncertainties and seize emerging opportunities as the demand environment gradually recovers. With this, I would now request the moderator to open the line for Q&A. Thank you very much.

[Operator Instructions] The first question is from the line of Archana Gude from IDBI Capital.

I have 2, 3 questions. So firstly, on the project sales side, that part is growing quarter-on-quarter from last few quarters. So can you help us to understand how it would be as a percentage of sales in near future? And also, you can help us what kind of typically margins would be there and the micro markets, which are seeing the exponential growth in the project business?

Okay. So thank you, Archana. Regarding the project part, definitely, if you see over last few quarters, we have seen that the real estate market is moving well. And this is also evidenced in Cera's project bank portfolio also. So on a Y-o-Y basis, if we compare the Q1 versus Q1 of the last year, we have registered a growth of 32% in our project bank. So these are the project orders, which we have won. And we are seeing the positive trend in the project bank over the last 2, 3 quarters. So this trend will continue. And this trend is now going to support considering that the overall positive macroeconomic trends, which are visible in our sector. So liquidity conditions are getting improved, and this will also support our retail segment also. So I think project business is growing, and we are getting larger value of -- large order values of contracts over a period of last 3 or 4 quarters.

Right. Sir, some guidance on margin profile and any micro market [indiscernible] which are growing?

Yes. So as far as project business is concerned, definitely, the margins are a little lower as compared to the retail. So margins are lower by 6% to 7% on account of the discounts being offered higher in the project category.

Okay. And sir, is it possible to bifurcate the sales among the Senator, CERA Luxe and CERA and Polipluz.

See as of now, these categories are just developing. So the sales numbers in respect of CERA and CERA Luxe is negligible. We'll keep on updating you, maybe start updating you by the end of the year when the numbers start becoming significant. So as of now, you can say that most of the numbers that we are reporting is coming from CERA.

Got it. And sir, maybe one more question, this Polipluz. Sir, can you help us to understand the pricing strategy, some outsourcing mix and the number of SKUs we should expect in FY '26?

Like in respect of Polipluz, I'll just give you a broad outlook in respect of the product, the launch and the markets that we are intending to target. As we mentioned in our -- the Chairman has mentioned in his press release also that Polipluz is intended to target the Tier 3, 4 and the rural market. Now this is one segment, where Cera has been completely absent till date. And with the launch of this Polipluz, we are targeting the consumers, which we are kind of untouched by the Cera products. So primary consumer right now, as we are saying, are the ones, who are using the PTMT products. So we have launched a slew of polymer products as well as brass products. The brass products have been priced at, you can say, point which is midway between the current offerings of Cera and the PTMT products, which are being currently offered by the unorganized players. So the idea is to pull them from the current buying pattern towards a more aspirational and more longer-lasting products, which will also meet the price point as well as the quality needs of the particular range of consumer. Apart from that, we are also targeting a kind of replacement market because we are targeting items, which will be kind of small value, but which will be replaced very pretty fast. So that will consist of, you can say, the systems, the seat covers, the health faucets, the connecting pipes, a slew of other such polymer products, which currently are -- we are not -- we are doing it for our own products, but we are not targeting the replacement market. So the idea is over here that rather than targeting as a kind of being bundled with our original products, along with our sanitaryware products and along with our faucetware products, these are targeted more as a replacement market. So the idea is that margins would be good. We are expecting that the margins should be higher than what we are getting for our blended margin, which we are getting for our current range of products. It should be in the range of -- EBITDA margin should be in the range of 24% to 25% for this Polipluz range that we're talking about. At the same time, we're also offering a higher margin to the distributors, like the kind of margins which you are offering to the distributors will also be quite higher so that it becomes attractive for them to stock also the products from their point of view. Main selling point would be the kind of quality that we'll be offering and the kind of price range that we'll be offering with the Cera backing. So the top line target for the current year would be kind of in the region of, you can say, INR 25 crores to INR 30 crores because of the sales -- as of now, we are still onboarding the team and the sales should be starting by, let's say, end of September, beginning of October. So we'll be having only 6 months in the current year. And by, let's say, end of 3 years, we are targeting that it should be constituting something like 5% to 7% of our total turnover for the Polipluz range.

Right. And sir, lastly, it will be completely outsourced, the manufacturing?

As of now, it will be outsourced. Like the brass products, maybe some things would be in-house and some things would be outsourced, but the polymers part would be completely outsourced. As we go forward, depending upon the volume, once we reach a critical volume, maybe we will have our own plant coming up. But as of now, it will be completely outsourced.

Next question is from the line of Praveen Sahay from PL Capital.

Sir, my question related to your -- the segment entry mid and premium. In the last 2 years, even for this quarter, if I look at your mid segment has outperformed your entry and the premium segment. So these launches, whether it's a Senator or the Polipluz. So these 2 are in the view of that to improve your entry and the premium category way forward. Is it the case? One. The second thing is even giving a higher distribution margin in the value product, which you had launched, you are talking about the margin to be on the higher side. Even outsource -- mostly you will outsource as well manufacturing. So can you please give some more color like how it is -- the margin would be at the same level of what we are doing right now?

I'll take your question in 2 parts. The first part which you asked was that are we launching the Senator and the Polipluz to kind of supplement the midrange that has been the strongest in our case. I would be like a completely different view on this. Like the way that we are seeing it within the company is both the brands, the Senator and the Polipluz is kind of targeting a customer base, which currently Cera is not targeting. Polipluz is very different. It is going one level below the entry range that Cera has. The pricing, the product profile, everything is completely different from the products, which are currently being offered by Cera. So it is not really trying to bolster the entry range of Cera. It is a range, which is different from what we are offering in Cera and to a customer segment, which is different from what we are currently catering to at Cera. Same thing is true for Senator also. Sanitor is kind of not targeting the premium customer, which Cera targets, like Cera is more targeting the, you can say, mass premium kind of a range, which is being offered by Cera. Senator would be more on the upper -- like targeting the HNIs and the higher -- more projects, which are more premium end. So both are targeting customers, which are currently not being serviced by the Cera customer -- Cera product profile. In respect of the margin, the kind of margins that we are having in spite of being outsourced and why we are getting higher margins. In the case of Senator, higher margins would be but obvious because it is more of a premium offering. So the kind of margins, which you have, the kind of pricing, which is happening over there would be obviously higher than what we're getting for the Cera segment. In case of Polipluz, the same thing like what we have been able to source is at quite a good margin. And even like we have been able to source products at prices, which are quite reasonable. And we are confident that the margins that we are talking about is something, which will be very easily achievable.

Okay. Okay. How much is the advertisement expense for this quarter?

So for the quarter, the advertisement expense was around INR 9.3 crores as compared to the previous year's quarter around INR 11.4 crores. This differential, which is there, this is the phasing impact, reason for being there are certain activities, which are planned in the subsequent quarters. So that will be taken in Q2 or Q3.

Right, sir. And the last question is related to your guidance of last quarter, you had given to outperform the industry by 6% to 7% and reach a [ INR 29 billion ] by March '27, along with a margin of 15%, 16%. Where you stand on this? You are maintaining this?

So as far as the earlier targets, which we have given with respect to reaching out [ 2,900 ] by '27, March '27, it is to say in this regard is that the market overall, if we see, this was based on the assumption that the markets will perform and the future growth will depend on the sustained recovery in the retail demand. But however, we have seen while demand challenges are likely to persist in the early quarters of this financial year also, apart from having the slowness in the past 6 to 7 quarters. However, we expect that the signs of recovery will start in the second half of the year. And this is supported by what we are saying that there are certain positive macroeconomic trends, which are already visible in the current scenario. The rural economy is gaining momentum driven by strong harvest, increased government spending and structural reforms. Liquidity conditions have also improved and the retail segment is also showing some signs of recovery. So -- and apart from that, as we have clearly told that our project segment, project business is also moving well, where we are having growth in terms of the overall project bank. So with all these improving fundamentals, we remain focused on our earlier saying that we will outperform the market by 6% to 7%. And this is -- this is the part that the recovery should start in the segment, and this is that we will outperform it. So the earlier guidance, which was given with respect to reaching out [ INR 2,900 ] was based on the assumptions that the market growth will be there in case of sanitaryware at around 7% to 8% and in case of faucetware between 12% to 13% and with the goal to achieve or with the goal to outperform this market growth by 6% to 7%. However, we have seen that the market growth has fallen short of the expectations. But our long-term strategy remains quite intact -- intact driven by innovation, operational excellence and market expansion. And in this regard, like Deepak has told, we have already launched Senator and Polipluz to cater to the different segments of the consumers. So I think the guidance what we have given of 6% to 7% outperformance will be there once the market starts recovering.

[Operator Instructions] Next question is from the line of Akash Shah from UTI Mutual Fund.

Sir, just I mean, 2, 3 questions. So sir, I wanted to ask, sir, how much cost has come into the P&L for Senator and Polipluz brand?

As of now, the cost, which would have gone into the Senator and Polipluz would be quite minimal in the sense that the onboarding has just started from the month of July. So the staff costs, et cetera, would have come into the P&L. But I can give you a kind of a broad outlook in respect of the full year kind of projections that we have once it becomes fully operational, once we have the entire team in place. We are kind of projecting that more or less the staff cost should be in the region of INR 13 crores to INR 15 crores would be added for these 2 brands, Senator and Polipluz taken together. This is the cost per annum once the entire team comes on board.

Okay. And other expenses...

Publicity -- and you can say for publicity out of that amount that we have earmarked for the company, specific amount has been earmarked for this Senator and Polipluz brands as well as Luxe. So typically, in the first year, it will be mostly -- the spending would be mostly for the generation of showrooms in the case of Senator. Polipluz is something which will not require too much of brand publicity support. It will be more first year will be kind of setting up the distributors, getting the retail channel in place. And then maybe from the next year onwards, we'll start having more expenses towards publicity. So for total Senator and Luxe, out of the -- you can say the amount of INR 60 crores that we typically spend on publicity on a per annum basis, roughly, you can say INR 11 crores to INR 12 crores should be going for Senator and Luxe brand taken together.

Right. So INR 11 crores to INR 12 crores for Senator and Luxe and rest INR 35 crores to INR 40 crores would be for Cera brand.

Correct. Correct.

Okay. And sir, also, just wanted to understand, I mean, this quarter, we saw around 5% growth on a base of minus 6% growth in the first quarter FY '25. So on a 2-year CAGR basis, there was some decline in absolute revenue. So just wanted to ask, I mean, going forward, let's say, we hope for some recovery in second half. But are we broadly implying that the growth in full year FY '26 would be, let's say, less than 10%. I mean, what is the broad thought process on -- I mean, what is the broad expectation on top line growth front in FY '26? And if you -- if we can break it up in sanitaryware as well as faucet segment, what is the growth that will help?

So I think I have answered the question regarding the outlook part, both short term and long term. But having asked about this year's road map for this year, how we will progress. So we are progressing strongly as far as our operational excellence and the reach with respect to market is concerned. Now talking about what is going to be the number at the end of the financial year '26. So with the expectations what we are having and with the some positive tails what we are seeing on the macroeconomic levels, we understand that the momentum, early signs of recovery have started. And we see that this will continue over a period of time. But always, I used to say this is subject to how actual the market will perform. But we understand that with the type of recoveries what we see from H2 onwards, we expect that we will be ending with a higher single-digit number or maybe start of this double-digit number.

[Operator Instructions] The next question is from the line of Udit Gajiwala from YES Securities.

It's pertaining more to the margin outlook for the company. So when you look at the project business, since it's growing, the margins are a bit under pressure and you also say that it's lower than the retail segment. And though you are all growing your Senator and the new brand now, it will still be 5% to 7% of sales in coming years. So at least for coming 2, 3 years, do we see that the margins will be sub-15% for the company, given that the major growth will be from projects now?

We expect that the margins should be maintained at the region of 15% to 17% that we have been maintaining in the last few years. We don't anticipate a very high jump coming in, as you mentioned, because of the fact that Senator would be constituting a small proportion of the total sales in the next 2 to 3 years. But because of the fact that the project portion is increasing, we don't anticipate too much of challenge in the overall margin of the company because we have been taking measures for controlling costs also at the operational side. So from our perspective, that number of 15% to 17% is something that is a holy grail, and we intend to maintain for the next 2, 3 years.

Next question is from the line of Naysar Parikh from Native Investment Managers.

Yes. So my question was that, obviously, there is -- market is not good right now. But just from a competition perspective, what are the threats that you're currently seeing? If you can just elaborate on that? Are we losing market share in any segment that would be helpful. And especially when the market does well and some of the smaller players, players like Kajaria, et cetera, who are not big in sanitaryware, faucetware. But even if they also start getting aggressive, what is our thought around that? So any thought on that would be helpful?

You're talking about the threats from the competition. Now basically, what we have found that over the last 6 to 7 quarters, where the market has not been doing too well. It has been subdued. The major kind of problems that we have faced in the market is the kind of discounts, which have been offered by the competition because of the fact that they have already got good capacities and they are trying to -- the market has not been too great. So the discounts have kind of gone up. So we have been trying to hold on to the kind of margins that we are making in a particular sector, both in the project as well as in the retail sector. So we anticipate that once the retail market starts improving, even from the competition side, the kind of discounts, higher discounts, which have been going at their end should start coming down and reach a level, where everybody would want to make profits. That would be true for also the new entrants, which are there because as of now, they are more intent on trying to gain volume. So as of now, the broad threat, which is there in the market is the kind of pricing, which is prevailing because of the fact that there have been overcapacity with the existing players and also capacity addition by new players, which have come in. But that will be on a -- if you talk on a long-term perspective, something which is a short-term problem. And as the market improves, that threat should disappear.

I was saying -- so is it fair to assume to protect our margins, we have lost market share in some pockets maybe?

We have not lost market share, but we have been, you can say, not been answering like the other competition, where they have compromised on margins and have been totally focused on gaining volume. We have kind of maintained our volumes and also, maintain the margins.

Fair. And if you can just elaborate right, what are we doing and some points maybe you alluded to, but just protecting our dealer distribution or project level clients because as the market improves, people are not seeing profitability now. As they start seeing volumes and profitability, nothing stops them from expanding, right? Everyone has like one plant, very little capacity, and they all have capital private equity backing. So once market improves, they will also start investing. So when that scenario happens, how do we protect our market share and our dealers? What are we doing today to ensure that when they come aggressively, we don't lose market share at that time or we are not prone to the same discounting at that time also.