Rating Rationale
December 28, 2018 | Mumbai
Cera Sanitaryware Limited
Rating reaffirmed 
 
Rating Action
Rs.30 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of Cera Sanitaryware Limited (Cera).
 
The rating continues to reflect the company's established market position in the domestic sanitary ware industry, backed by a well-diversified revenue profile and a wide distribution network; and healthy financial risk profile because of comfortable capital structure, strong debt protection metrics, and healthy liquid surplus. These strengths are partially offset by vulnerability of business performance to intensifying competition in the building products industry and exposure to the real estate sector.

Analytical Approach

For arriving at its rating, CRISIL has combined the business and financial risk profiles of Cera and its joint ventures (JVs) - Anjani Tiles Ltd (Anjani Tiles) and Packcart Packaging LLP. Cera holds majority (51% each) stake in both these JVs. Furthermore, there exists significant operational and financial linkages among these entities.

Please refer Annexure - Details of consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established market position: The company has a track record of nearly three decades, strong brand image, and a large retail network in the sanitary ware industry. This segment has been one of the largest revenue contributors over the years, accounting for more than 55% of turnover in fiscal 2018 (registered a compound annual rate of 15% in the five fiscals through 2018).
 
* Well-diversified revenue with value proposition of complete bathroom solutions provider: Over the past six years, Cera has been leveraging its strong market position in the domestic sanitary ware industry by venturing into related business segments such as faucet ware, and wellness and allied products (making it a complete bathroom solutions provider). Successful diversification into other related businesses has helped to scale up operations and lower dependence on the sanitary ware business.
 
* Healthy financial risk profile: Networth and gearing are expected to remain healthy at Rs 690 crore and 0.12 time, respectively, as on March 31, 2019. Debt protection metrics are likely to be robust, with interest coverage and net cash accrual to total debt ratios of 20 times and 1.29 times, respectively, for fiscal 2019. Cash accrual over Rs 110 crore per annum will comfortably fund capital expenditure (capex) and incremental working capital requirements for the three fiscal years through 2021. Thus, capital structure and debt protection metrics will remain steady.
 
Weaknesses
* Susceptibility to intense competition: The company operates in the highly fragmented mass and mid-market sanitary ware segment. Competition is also intense in the premium segment, where foreign players cater to brand-conscious customers with higher spending power. Lack of well-entrenched premium brand may impact Cera's positioning among brand-conscious customers. Though Cera is taking initiatives to enhance its retail reach and product offerings, the competitive landscape is expected to remain challenging over the medium term, given the entry of international players and expansion of domestic players at a rapid pace.
 
* Exposure to the real estate sector: Growth prospects of the sanitary ware and faucet ware segments are linked to the macro-economic scenario in general and the real estate industry in particular, thus exposing the company to demand cyclicality.
 
Liquidity
Cera has ample liquidity, with expected consolidated cash accrual of more than Rs 110 crore per annum against debt obligation of around Rs 4.35 crore and Rs 6.35 crore in fiscals 2019 and 2020, respectively. Also, cumulative capex is likely to be Rs 150 crore during these fiscals. Cash and cash equivalents were Rs 117 crore as on September 30, 2018. Fund-based limit of Rs 60 crore was utilised by 35% on average (including commercial paper issued) over the 12 months ended October 2018. With expected gearing of 0.12 time as on March 31, 2019, Cera has sufficient headroom to contract additional debt for capex. Unutilised bank limit is more than adequate to meet incremental working capital requirement.
About the Company

Incorporated in July 1998, Cera (formerly, Madhusudan Oil and Fats Ltd) is headed by Mr Vikram Somany and manufactures sanitary ware and faucets and outsources wellness products and tiles. The sanitary ware and faucet plants are located in Kadi, Gujarat, with capacities of 3.6 million and 1.85 million piece per annum, respectively. The company has green energy power projects with total installed capacity of 10.325 MW, which meet around 90% of power requirement in-house. Promoters (led by Mr Somany) hold 55% stake as on September 30, 2018.
 
Anjani Tiles
In fiscal 2016, Cera formed a JV, Anjani Tiles, with the Vishnu group of Hyderabad to manufacture tiles. The group has varied business interest, including educational institutions, cement, ceramics, and hotels.
 
Packcart Packaging LLP
In fiscal 2017, Cera formed the JV, Packcart Packaging LLP, with Ms Kinjal Bhatt (local entrepreneur) to manufacture corrugated boxes used for packaging. This is a captive unit to cater to the packaging requirements for Cera's products.
 
Milo Tiles LLP
In August 2018, Cera formed a JV (26% equity stake) with an existing supplier of tiles in the Morbi region. Milo Tiles LLP will manufacture glazed vitrified titles at a total capacity of 8,000 square metre per day.
 
On a standalone basis, net profit was Rs 49 crore on revenue of Rs 612 crore in the first-half of fiscal 2019, against Rs 47 crore and Rs 530 crore, respectively, in the previous corresponding quarter.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs Cr 1,193 1,012
Profit after tax Rs Cr 106 97
PAT margin % 8.9 9.6
Adjusted debt/adjusted networth Times 0.16 0.15
Interest coverage Times 20.57 23.49

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Commercial Paper NA NA 7-365 days 30.00 CRISIL A1+
 
Annexure - Details of consolidation
Fully Consolidated Entities: Anjani Tiles Ltd; Packcart Packaging LLP
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  30.00  CRISIL A1+      11-12-17  CRISIL A1+    --    --  -- 
Short Term Debt (Including Commercial Paper)  ST              07-12-16  CRISIL A1+  11-02-15  CRISIL A1+  -- 
                18-02-16  CRISIL A1+       
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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