Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cera Sanitaryware Ltd (BOM:532443, Financial) achieved a year-on-year revenue growth of 6.3% and a profit after tax increase of 19.7% in Q2 FY25.
- The company successfully implemented a strategic price adjustment to counter rising input costs, which is expected to cushion margins in upcoming quarters.
- Cera Sanitaryware Ltd is expanding its footprint in the luxury segment, with new product innovations like electronic toilets and touch-free flushing systems.
- The company's flagship brand continues to perform well, with an expanded production capacity yielding positive results.
- Cera Sanitaryware Ltd has a strong distribution network and a commitment to innovation, ensuring it meets evolving customer needs and maintains a competitive edge.
Negative Points
- The company faced market pressures due to an extended monsoon season, impacting demand.
- EBITDA margins decreased by 110 basis points due to increased operating expenses.
- Sanitaryware revenue decreased by 6% year-on-year, indicating challenges in this segment.
- Net working capital days increased from 60 to 72 days, reflecting inefficiencies in working capital management.
- The company experienced a decrease in cash and cash equivalents by 12.3% due to a share buyback initiative.
Q & A Highlights
Q: Why do the gross margins not reflect the premiumization despite an improved segment mix?
A: The CFO explained that both premium and entry-level segments have been stressed due to market conditions, leading to increased discounts. However, discounts have started to decrease, aligning with previous year levels. Cost increases, particularly in the faucet segment, have impacted gross margins. The premiumization will yield results over time, but current margins are maintained by reducing discounts despite cost pressures.
Q: Can you explain the discrepancy between the buyback amount and the cash flow statement?
A: The CFO clarified that the buyback amount was INR130 crore, but additional tax liabilities were incurred, which explains the higher figure in the cash flow statement. The tax liability was on the company for buybacks conducted before October, but this will shift to shareholders in future buybacks.
Q: Is the recovery in demand primarily from the project side of the business?
A: The CFO noted that project business demand has increased by about 15% over the last six months. They anticipate strong project demand in the coming half-year and expect retail segment recovery in H2, driven by factors like elections and weather conditions stabilizing.
Q: Why not expedite capacity expansion given the expected 20% growth in the next two years?
A: The CFO explained that current capacity utilization is at 88-89%, with room to increase to 120%. They have flexibility to adjust production and inventory levels to meet demand without immediate expansion. The decision to start new projects will be revisited at the end of the year.
Q: How is the company addressing competition, especially with new entrants in the market?
A: The CFO stated that they are not overly concerned about new entrants, as many are targeting the unorganized market with basic products. Cera Sanitaryware focuses on strong distribution, branding, and promotional efforts, positioning them well to capture market growth once demand picks up.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
