Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Stocks

Cera Sanitaryware Announces Q2 Results; Net Profit Soars 48.31%, Shares At A 52-Week High

Cera Sanitaryware (BSE: 532443; NSE: CERA) today hit a 52-week high of Rs. 1848 (at 13:56 p.m.). That is a jump of 16.72% from the previous close price of Rs. 1583.25.

CS_01

Not only did the share price see a surge, there were massive volumes being traded today. A total of 47,009 shares were traded today; the highest since 5th May, 2014 when 79,870 shares exchanged hands.

Why did the share price jump so much?

Earlier today, Cera released their stand-alone financial results for Q2 2015 (period ending Sept 30, 2014). The numbers look very impressive:

CS_02

Looking at the year-on-year numbers, we see that:

  • Total Income from Operations has increased 25.72%, from Rs. 158.76 cr. to Rs. 199.60 cr;
  • Finance Costs have increased ever so slightly; a 5.59% increase year-on-year;
  • Net Income has jumped by 48.31%!

That is quite staggering. Cera saw a massive jump in Net Profit for Q2 2015; up from Rs. 10.62 cr. of the same quarter last year, to Rs. 15.75 cr. this year. Total Income from Operations increased by 25.72%, but Net Income increased by 48.31%. That is mainly because expenses did not increase by as much as Total Income (25%), pointing to possible economies of scale.

It doesn’t just end here. Industry professionals and analysts are predicting a surge in demand (albeit a small one) for the sanitary ware industry, ever since PM Narendra Modi announced the Swachh Bharat Abhiyan – a mission to clean India.

In addition, the Board of Directors today announced that in the current financial year, the company would be investing in:

  1. Increasing the production capacity of the Sanitaryware Division from 2.7 mn to 3 mn pieces;
  2. Increasing the capacity of the Faucetware Division to 10,000 pieces per day;
  3. Setting up 2 Wind Turbine generators of 2 Mega-watts each in the State of Gujarat;
  4. Setting up a Roof-top Solar plant that can generate 1 MW in Kadi, for captive use.

This would involve a considerable capital expenditure, albeit geared towards expanding the company’s production facilities. Going by what the Board has stated, if the company decides to expense the capex in the current year (as opposed to capitalizing it as an asset), the bottom line would take a hit. Short-term pain for long-term gain is the hope.

With Cera touching their 52-week high today, will the stock move further up amidst renewed optimism? Or will it take time for the company to reap the benefits of their purported expansions? We shall wait and watch.

(The stock closed at Rs. 1706.05 at end-of-day today; an increase of 7.76%).

Disclaimer: I do not own any positions on Cera Sanitaryware. Others at Capital Mind have long positions on the stock.

divider

Subscribe to Capital Mind:

To subscribe to new posts by email, once a day, delivered to your Inbox:

 

Also, do check out Capital Mind Premium, where we provide high
quality analysis on macro, fixed income and stocks. Also see our
portfolio which has given stellar returns in our year, trade by trade
as we progress. Take a 30-day trial: