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

Ladies and gentlemen, good day, and welcome to Cera Sanitaryware Limited Earnings Conference Call. [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, Mr. Singh.

Thank you. Good morning, everyone, and thank you for joining us on the earnings conference call for Cera Sanitaryware Limited for Q2 and H1 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 of Cera Sanitaryware. 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 will 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 to our Q2 FY '26 earnings conference call. I will begin by sharing a brief update on our operational and strategic progress, following which our CFO, Mr. Vikas Kothari, will take you through the financial highlights for the quarter. In the backdrop of demand environment that remains subdued, particularly on the retail side, we are pleased to report a steady performance this quarter. Our Sanitaryware segment delivered a year-on-year growth of 1.4%, supported by stable demand and continued traction in our product portfolio. While the Sanitaryware segment continued to face headwinds, the pace of contraction moderated compared to the previous quarters. We believe that improving macro fundamentals and policy measures, including the recent GST changes will aid recovery in retail demand over time. As indicated in our previous earnings calls, I would like to reiterate that over the past few years, we have continued to strengthen the organization's strategic foundation through sharper brand segmentation, differentiated channel strategies and a focused innovation agenda. These initiatives are already enhancing our market readiness and execution agility. We believe that as the demand cycle turns upward, these efforts will translate into meaningful growth momentum across the business. Our B2B segment continued to demonstrate healthy traction during the quarter, supported by steady order inflows from the real estate sector and sustained construction activity. Project sales accounted for 39% of our top line in Q2 FY '26. We continue to benefit from our strong brand equity, execution reliability and deep relationships across the developer ecosystem, which are enabling us to participate in larger and more complex projects. This remains an important growth pillar for us and helps balance the current softness in retail demand. Another important initiative during the quarter was the rollout of our Dealer Management System, which marks a major step in strengthening our distribution network and improving data visibility. We have successfully onboarded about over 200 dealers so far with system integration and data connectors now activated at their end. Since each dealer operates on a different platform, achieving this level of alignment has been a challenging task, and we are proud to have made strong progress on this front. The DMS gives us better visibility into secondary sales, dealer-wise inventory and retail coverage, information that was earlier not available in real time. This enhanced visibility will improve accountability, track market movement more closely and support faster and more informed decision-making. Over time, the system will also aid better demand planning and channel management. We plan to extend DMS coverage to more dealers in the coming quarters. On the strategic front, our premium brand, Senator and recently launched Polipluz continue to make encouraging progress. On Senator, we remain firmly on track to achieve our FY '26 flagship rollout target of 45 to 50 stores with 28 stores already operational as on date. The format and positioning are designed to create a more immersive brand experience backed by an expanded product range, a dedicated dealer network and a focused engagement model. Over the past few months, we have strengthened the team structure, bringing on board experienced professionals across sales, business development and brand activation to execute -- to drive the execution at scale. On Polipluz, we have ramped up our efforts on Polipluz, our differentiated offering aimed at deep value segment where the unorganized market still holds significant share. The team build-out is nearly complete, and we have initiated targeted on-ground activations and promotional campaigns to establish brand presence in key Tier 3 and Tier 4 markets. At present, Polipluz is being distributed through 38 distributors and 650 dealers with a target to expand the network to 100 distributors and 2,000 dealers by March 2026. The early response for both the brands has been encouraging, validating our approach of segmentation of the portfolio to address distinct consumer and channel opportunities. In the quarters ahead, we will continue to expand distribution reach, enhance market visibility and build on this early momentum. Innovation and new product development remain core to our strategy. During the quarter, new product launches contributed about 33% of the overall sales, reflecting our continued focus on keeping the portfolio contemporary and relevant. On our new designs, our new designs are developed through regular market feedback and are designed to trends, aligning with evolving consumer preferences and emerging style themes. We will continue to strengthen our design and innovation pipeline to ensure sustained differentiation across categories. By strengthening our brand segmentation and aligning products and channels with different customer segments, we are expanding our market reach while maintaining clear focus across categories. This approach, which covers a wide range of price points and regions gives us flexibility to manage short-term challenges while staying focused on our core values of quality, innovation and customer trust. These ongoing efforts are building a solid foundation for future growth as market conditions improve. While the exact timing of a broad-based retail recovery is still evolving, we remain optimistic about the long-term growth trajectory of the industry. Structural drivers such as continued formalization, rising consumer aspirations, urban redevelopment and housing programs and sanitation initiatives remain intact. Alongside these, policy measures such as the recent GST changes should aid sentiment and activity over time. Taken together with our brand strength and distribution reach, we believe the category remains well placed for steady expansion. We continue to invest in brands, distribution and product innovation to stay ahead of evolving consumer needs while maintaining firm cost discipline. The benefits of ongoing cost optimization initiatives and operational efficiencies are visible in strengthening of our ability to sustain margins in a mixed demand environment. Furthermore, during the quarter, we completed the exit from 2 of our LLPs; Race Polymer Arts LLP and Packcart Packaging LLP, effective from 29th of September of this year, thereby streamlining our portfolio and sharpening our focus on core categories. With the divestment in these 2 entities, Cera does not have any subsidiaries and hence, will report numbers on a stand-alone basis only henceforth. To conclude, Q2 FY '26 underscores stable execution in a soft retail environment, coupled with steady traction in project sales and encouraging strategic progress. As we move into the second half of the year, we remain cautiously optimistic about improving demand trends and confident in our ability to respond with speed and scale. Our ongoing investments in brand architecture, channel segmentation and new market development, supported by strong internal capabilities are building a robust platform for sustained growth. We remain focused on disciplined execution, enhancing consumer engagement and creating enduring 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 September 2025. Thank you, and over to you, Mr. 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 and half year ended 30th September '25. Revenue from operations for Q2 FY '26 stood at INR 488 crores, remaining largely flat compared to INR 490 crores in Q2 FY '25. EBITDA without other income was at INR 67 crores as compared to the corresponding quarter of the previous year at INR 70 crores. EBITDA margin slightly declined from 14.2% in Q2 FY '25 to 13.8% in Q2 FY '26, primarily due to increase in input costs. However, the said impact is partially mitigated by improved operational efficiency and cost optimization program. Gas costs witnessed a slight decrease during the quarter with the weighted average cost standing at INR 33.79 per cubic meter in Q2 FY '26 compared to INR 33.95 per cubic meter in Q2 FY '25. Our costs remain well below the industry average, reflecting the benefit of our balanced sourcing strategy and operational efficiencies. During the quarter, gas consumption was sourced 80% from GAIL and 20% from Sabarmati. Overall, gas cost as a percentage to revenue stood at 3.6%. For the quarter under review, revenue contributions by segment were as under: Sanitaryware at 47%, Faucetware at 40%, Tiles at 11% and Wellness at 2%. On a Y-o-Y basis, Sanitaryware revenue grew by 1.4%, Tiles by 3.1%, Wellness by 3.2%, while Faucetware revenues declined by 3.5%. Revenue from Faucetware segment appears lower Y-o-Y, mainly due to the high base of the previous period, which was driven by the price increase implemented then. With no price revision taken in the current financial year, sales volume have remained healthy and the apparent decline reflects the base effect rather than any weakness in the underlying demand. Our core categories, sanitaryware and Faucetware together accounted for 87% of the total revenues. On the capacity utilization front, capacity utilization stood at 85% for Sanitaryware and 97% for Faucetware during the quarter under review. In terms of product positioning, 42% of our sales came from premium category, 36% from mid segment and 22% from entry-level products. From a geographical standpoint, Tier 3 cities led with 41% of sales, followed by Tier 1 at 36% and Tier 2 at 23%. Profit after tax stood at INR 57 crores as compared to previous year's quarter at INR 68 crores. The profit after tax appears lower mainly due to deferred tax income recognized in the previous year arising from a change in the capital gain tax rate on long-term investments. The current year's figures reflect normal operations without this onetime tax impact. Earnings per share for the quarter was at INR 43.92 compared to INR 52.44 in Q2 FY '25. In terms of the working capital management, inventory days increased from 80 to 83 days. Receivables raised from 31 to 33 days, while payable days remained stable at 39 days, leading to a Y-o-Y increase in net working capital days from 72 to 77 days. For the half year under review, the company reported net revenues of INR 907 crores, an increase of 2.2% as compared to H1 FY '25. EBITDA without other income was at INR 120 crores, a decrease from INR 126 crores in H1 FY '25 and the profit after tax reported at INR 103 crores, a decrease from INR 115 crores in H1 FY '25. As of 30th September '25, our cash and cash equivalents stood at INR 736 crores. For financial year '26, we have earmarked a CapEx outlay of around INR 23 crores. This primarily covers the routine maintenance requirements, along with focused investments to strengthen our brand presence and expand our retail footprint. Our capital allocation approach continues to remain prudent and aligned with our long-term strategic priorities, ensuring that every rupee is deployed with clear visibility on returns and long-term value creation. We remain confident in Cera's financial resilience and its ability to deliver sustainable performance through cycles, supported by a healthy balance sheet, continued focus on operational efficiency and prudent working capital management, we are well placed to navigate the current environment with agility. Our disciplined capital allocation and cost optimization initiatives provides us with the flexibility to invest in strategic priorities and capitalize on emerging opportunities as the demand environment improves. With this, I would now request the moderator to open the line for Q&A. Thank you very much.

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

Congrats on Q2 earnings. I have 3 questions. Firstly, on full year FY '26 earnings. In the last earnings call, you guided high single-digit sales growth and given we have grown just 2% in H1 of FY '26, is the net sales growth of 13%, 14% is doable in H2 FY '26 or we have to rework on the growth guidance, both on top line as well as operating margin front? That's my first question, sir.

We continue to be optimistic about the H2 performance. Like we have done 2% in the H1, and we anticipate that H2 will be improving with all the macroeconomic factors being positive. So we anticipate that we should be ending H2 with something like 10% to 12% of a growth number. So that for the full year, we should end up at something like 7% to 8% growth for the full year.

Sure, sir. But then that also means we need to slightly reduce our operating margin guidance.

Operating margin should be remaining at that region of 14.5% to 15% that we're seeing right now. Typically, because the numbers are smaller in the first half, you'll find that operating margins are also slightly lower. Once the numbers improve in H2, which is typically higher than H1 by typically, it is 45% in the first half and 55% of our total sales coming in the second half. So with improved volumes, the margins automatically improve in the quarter 3 and quarter 4. So we should continue to maintain margins in the range of 14.5% to 15%.

Sure, sir. You spoke about capitalizing on this emerging macro demand tailwind. So can you help us understand it better in terms of any particular product segment is witnessing higher demand? Or is there any specific regional level revival? Also, how has been the performance in October and early November this month?

So as far as the macro factors are concerned, so the -- whatever the numbers what we have told or the initial expectation what we have given in H1, that remains conditional on the recovery of -- on the recovery in the end market demand. So -- but we see very positive signs in macro environment like the interest rates are stable, steady GDP growth is there, increased government spending on housing and infrastructure and the recent rollout of GST 2.0, which simplifies the tax framework. So overall, all these factors encourage us in terms of improved H2, like Deepak told. And our understanding is that we will be able to reach out to the numbers, but we remain cautiously optimistic of the demand recovery, what we stated that it will happen in H2 FY '26.

Sure, sir. Sir, in fact, this October and November, we saw some green shoots in demand or it was like still okay-ish and we need to give some more time to see the actual recovery.

So just to give you an overview, what we have seen is over the past several quarters, we have seen that the demand is sluggish across all the categories. But what we have seen in the H1 or the late start of H1, the Sanitaryware segment in our case, which was almost muted or in some quarters, it was degrowing, that degrowth has been arrested. And this -- for the last 2 quarters, if you have seen, we have -- in this quarter, I think we have grown by 1.4%. And Faucetware is growing at a good speed, except this quarter, which was just a onetime adjustment in terms of the price rise what we have taken last year. So Faucetware again is growing at a speed of 8% to 10%. So our understanding is that the growth, which is going to be there, it will come in H2, and we will definitely be able to see the better months coming in the H2.

Next question comes from the line of Praveen Sahay with PL Capital.

Sir, my first question is related to the divestment. So in the press release, you had mentioned that the divestment, you have received a consideration of around INR 18.7 crores. So is that booked in the P&L in the Q2 or yet to?

Yes. So Praveen, thank you very much for asking the question. Just to update, as we have already given our financials also, the company has divested its stake in its 2 subsidiary LLPs that is Race Polymers Arts LLP and Packcart Packaging LLP. This is owing to the relatively lower business magnitude and limited strategic reliance and with respect to the focus what we want to develop in our core business activities. So that was the event which has occurred in Q2 before the closure of Q2. And regarding the deal which has been done, so the total consideration what we have received of these 2 LLPs is what you have rightly told is INR 18.75 crores. And we have the profit on sale of on divestment of INR 5.54 crores, which forms part of this Q2 and is in other operating -- other income, sorry.

Okay. Okay. Second question is related to your guidance of 7% to 8% of a growth on the overall side. You also mentioned that the retail is a bit slow. And to offset that, you are entering in the project business. Now it's a 39% contribution from the project business. So the way forward in the latter year, we will see this contribution to increase further to bring the growth.

Praveen, it is very difficult to say as to whether the project size would -- as a proportion of the total business would be growing or not. Essentially, that is totally dependent upon how the demand revives. If retail improves, then obviously, this proportion will remain same and then over a period of time, steadily decline to the levels that we anticipate of 35%. But if that sluggishness continues, then obviously, this proportion will most probably remain at this level or maybe again go up slightly. But that will totally depend upon the kind of growth which happens in retail. In the shorter term, let's say, for the H2 kind of the numbers that we are seeing, we are kind of thinking that it should remain at the current levels at the level of 40% because we have started seeing green shoots in the retail environment also. So we anticipate that it should be remaining in the level of 39%, 40% for the current year ending March '26.

Okay. Secondly, on the brands, Senator and Polipluz. So is there are any contribution so far from these 2 brands in our numbers?

Currently, it is more about the setting up of the team, setting up of the distribution channel, getting the products in place. So as of now, there are no significant numbers. The costs have started coming in, but the sales have -- will be starting in Q3 and Q4. We anticipate that we should be ending the year with both these brands at something in the region of INR 40 crores to INR 45 crores.

Sorry, I missed. How much you said? INR 40 crores, INR 45 crores.

Correct. Correct. For Senator and Polipluz taken together for the next 2 quarters?

[Operator Instructions] Next question comes from the line of Jaspreet Arora with Equentis PMS.

The segment-wise growth rate that you mentioned, sir, just to clarify that sanitaryware 1% growth and faucets minus 3%, that was for Q2?

Right.

Okay. And what would be, sir, for H1, the similar number?

So if you talk about H1, so in case of H1, Sanitaryware has grown by 0.58%, Faucetware has grown by 3.5%, Wellness has grown by 8.2% and Tiles have grown by roughly 4%. So overall growth in terms of H1 is 2.2%.

So faucets had grown 3%.

Yes.

3% plus and despite quarter 2 being negative. So the first quarter growth was very good.

Yes. So the -- you will see the impact in quarter 3 because like I told, in case of Faucetware, last quarter -- last year's quarter, the price rise impact was taken in case of Faucetware because of the rising brass prices. And because of that anticipation, the preorder bookings were done, resulting into the comparative corresponding growth with their previous quarter was roughly 20%. So that was a onetime impact. But overall, we are quite positive in terms of Faucetware demand. So there is a good demand in Faucetware. The impact is, if you see for H1, it is somewhat 3.5%. The growth which was there in Q1 is somewhat offset by this onetime effect. But we are quite positive that by end of year, the numbers which we are saying roughly 8% to 10% growth in Faucetware, that seems appearing.

Okay. So full year, we are saying 8% to 10% faucet revenue growth?

Yes.

And what would be the volume and price mix within this?

Volume and price mix is very difficult to say in case of Faucetware because both in case of sanitaryware as well as Faucetware because it's a completely mixed basket. And we have a lot of SKUs, which are in completely different price ranges. So we will always go by the -- in terms of the revenue growth.

But some idea, would it be a large part would be price or large part -- just to get a -- I'm sure faucets, I understand sanitaryware is difficult. Or even there -- yes, so if you take like one standard product or whatever, just to get a sense because volume at the end of the day is a barometer of how the economy is growing. Price is always secondary. I mean that's not in our hands.

See if you look across, let's say, last 3, 4 years, there has been hardly any price increase which has been taken. Last year, we have taken a price increase of roughly on an average, it was working out to 5.5% to 6% for Faucetware. Even that, you will find that the price increase takes some time to get implemented because of the fact that for all the projects, you'll have prices which are more or less remaining constant for the delivery period, which would be typically something from 1 year to 1.5 years. So projects, the rise starts happening only after the certain time lag. In retail also because the dealers normally you have an effective date, but the pickup starts happening only after some time. So the price increase has been only to the extent of 6% last year. Apart from that, everything what has come, the increases which are coming are coming on account of volume only.

Okay. Okay. And we're saying that for the second half against 2%-odd growth in revenue in the first half, in second half, we are expecting closer to 12% to 13% revenue growth. Is that what you said?

Correct. Yes.

Okay. And just to understand that part, you mentioned there are certain macroeconomic factors which will come into play. So what I couldn't understand, what were those macroeconomic factors which were absent in 1H and which will now come into force in 2H?

No. So like I talked about, there is a freeze as far as discretionary spending with respect to consumer was concerned.

There is a freeze. Slowdown. You mean a slowdown. Yes, you mean there is a slowdown in discretionary spending.

Yes. So with all the positive signs which are coming, like the interest rates are stable, we see that a lot of spendings are happening on -- from the side of government also. And all these factors, what we are saying, that will help us in terms of changing the mindset of the consumer in terms of whatever the decision they have postponed. So they will start initiating those decisions. And this will support the building material industry, including our sanitary and faucet industry also.

[Operator Instructions] Next question comes from the line of Resha Mehta with GreenEdge Wealth.

So just 2 questions, actually clarifications. Maybe I missed the opening remarks, but you've guided for a 7% to 8% overall top line growth for the full financial year? Or is that just for H2?

For the full financial year.

Full financial year. And within that, faucets will grow in double digits. Is that understanding right?

Correct, yes.

Got it. And also, you mentioned that the 2 new brands, Senator and Polipluz will contribute to INR 40 crores, INR 45 crores in H2.

Correct.

And in terms of gross margin, so why did we see a compression in gross margin this quarter?

Gross margins is more or less remaining the same. You'll find that across quarters, there will always be a variation of 1% or 2%. But otherwise, it is always in that range of 52% to 55%. The discounts, typically, you'll find that the gross margin is a function of 2 things. One is your -- the kind of discounts which is being offered by the company. Second would be the cost of the products that we are selling. So discounts have kind of remained stable over the last couple of quarters, you can see vis-a-vis Q1, we have seen that discounts are not going up. They have stabilized. But if you look at in comparison with the previous quarter, you'll find a slight 0.5% kind of a difference between the kind of discounts we offered in Q2 of the previous year as compared to Q2 of the current year. But now that discount trend has been arrested. So there are a lot of factors which go into making that the kind of stock which was being uploaded, the kind of mix which has been sold. So there's a slight variation on a quarterly basis. But overall basis, you'll find that the gross margin remains constant.

Right. And any input cost inflation?

So regarding the input cost, largely what we have seen the brass cost, which has shown the growth last year. And after that, it remained within the range of INR 590 to INR 600 per kg. So that remains there. But again, when we talk about the current scenario, maybe we are sitting in the month of November. So the metal price, brass price has again taken a sharp increase. It is beyond INR 600, roughly it is INR 620 or INR 630. So that is the one factor which has impacted the margins also, the profitability also. So that we are cautiously watching in terms of any subsequent rise if we want to take if the brass price continuously on a rising trend, so that will be taken care of. But we are right now reviewing the market scenarios in terms of the metal market. And with respect to the other prices, other input prices like the clay and the feldspar chemical, which is used. So there is an increase in the price versus the Q2 of the last year. So those prices have increased slightly. But largely, the focus is with respect to the brass prices -- so what we are smartly doing is with these prices increase which are there, we are more or less improving offsetting -- or partially offsetting the impact with our improved operational efficiencies and the ongoing cost optimization initiatives, which we are taking across the categories.