Cera Sanitaryware Limited — Q4 FY25 earnings call

So as you have rightly said, the margins have improved in the 4th quarter. And overall, if we see the margins, what we generally say is in the range of 15% to 16%, and that has been proven through our past performances also. So, the way forward is also very clear - margins will be within this range. Now, coming to the part of what has played a role in terms of the improvement - this 1.5% improvement, which is there, this is contributed by a 0.10% improvement of gross margin. Then we have the publicity savings, which contributed 0.5%, and cost effective measures, mainly in production overheads and sales and marketing expenses, that contributed 0.9%, - overall, leading to 1.5% in terms of improvement in the margins.

Management clarifies the drivers behind the Q4 margin improvement, attributing it to a combination of gross margin gains, publicity savings, and cost efficiencies, and reiterates the target margin range of 15-16% as sustainable.

Asked by Praveen Sahay

So, this increase that we are seeing is not on account of the project business. This is mainly on account of a change in the credit policy. The cash credit policy that we used to have earlier that has undergone a change in the recent past. This has resulted in changes in the cash discounts that we offer to customers who pay before time. In this context, earlier our total discounted sales - city sales - constituted something like 74%. In Q4, this has gone down to 67%. So, this is the primary reason why the receivable days have gone up. ... As of May, this has already come down from 44 days to 38 days at the end of April.

Management explains that the increase in working capital, specifically receivable days, is due to a change in credit policy and not an increase in project business, noting that receivable days have already started to normalize post-quarter.

Asked by Praveen Sahay

The slowness in demand is mostly in the retail sector. In the project sector as we have mentioned earlier, it has been going up. If you look at the proportion of our project sales vis-à-vis the total sales, it has persistently gone up. Two years ago, project sales accounted for about 30%, with 70% being retail. This went up to 35% in FY24, and by Q4 FY25, we are looking at approximately 40% coming from projects. So there has been slowness in demand in the retail sector.

Management clarifies that the demand slowdown is concentrated in the retail sector, while the project (B2B) segment has shown consistent growth, increasing its contribution to 40% of revenues in Q4 FY25.

Asked by Lakshminarayan KG

Yes, Sonali, I'll take your second question first - on pricing pressure. There has been some pricing pressure in FY25. With the slowness in demand prevailing during the current year, the industry has been facing over supply and overcapacity, resulting in most players offering higher discounts. As a result, even our discounts have gone up slightly over the past year, which has prevented us from taking price increases during this period.

Management confirms that the industry is experiencing pricing pressure and increased discounting due to subdued demand and oversupply, which has impacted Cera's ability to implement price hikes.

Asked by Sonali Salgaonkar

So, the guidance was given in a scenario where the market would perform well or market conditions would be positive. As we have seen, market conditions have remained subdued for almost six consecutive quarters, primarily due to the weak retail demand. So, the projections we made were based on the anticipation that market growth would be 7% to 8% in the Sanitaryware segment and 12% to 13% in the Faucetware segment. And we had expected to outperform the market by 6% to 7%. ... We are confident of meeting our growth target as the retail momentum improves.

Management reiterates the FY27 revenue target but explicitly links its achievement to an improvement in market conditions, particularly retail demand, acknowledging that current market growth has fallen short of initial expectations.

Asked by Rudraksh Gupta

So as of now it is on hold. We have purchased the land, as we have communicated earlier also. The land acquisition is complete, but the construction activity we be evaluated on a quarterly basis, depending upon the demand scenario. As of the end of the year, we are not intending to start the construction.

Management confirms that the previously planned Sanitaryware CAPEX is on hold, with future construction decisions contingent on demand recovery, indicating a cautious approach to capacity expansion.

Asked by Pranav Mehta

So now, we are strategically introducing our two new brands - Cera Luxe and Senator - which will show our premium face, and these two brands will contribute around 10% of our total turnover in the next two to three years... there is a separate team which is going to focus on the Senator brand, under the leadership of Mr. Ramesh Baliga... we are also connecting with our architects through the Architect Connect initiative and other influencers, which will help in showcasing the product and its technical strengths, enabling us to compete with the competition.

Management details the multi-pronged strategy for premiumization, including new brand launches (Luxe, Senator), dedicated teams, store expansion targets, and engagement with architects to enhance market presence and competitiveness.

Asked by Shubham Padhiar

So, in terms of the gross margins, if you see, full year basis if you see for the FY25, our gross margin is 52.51%, and the previous year if you see FY24, it is 52.86%. So there is a slight decrease you can say in terms of the overall gross margin on the overall full year basis. ... The discounts may have increased by more than 0.4%, but the cost efficiencies have helped offset the impact of the increasing discounts.

Management addresses the slight sequential and YoY decline in gross margins, attributing it to increased discounts which were partially offset by cost efficiencies.

Asked by Akshay Chedda