Cera Sanitaryware stock – channel check

I am sharing the findings of channel checks that I did when I was analyzing Cera Sanitaryware.

Cera Sanitaryware sells Indian and Western toilets, basins, faucets and other high-end bathroom products like shower closets etc.

Disclosure: I own shares in Cera Sanitaryware.

You can also read the detailed stock research on Cera Sanitaryware at Capital Orbit.

I have spoken to two sanitary ware dealers, one architect, one person working with an interiors firm and one developer as part of checks on the street.

The biggest takeaway for me was that there is shift in the industry. Unorganized sanitary ware makers are losing ground to organized players.

What is good for sanitary ware companies in general is that spends on bathrooms are increasing. The product mix in sanitary ware is also shifting. The difference in cost between an Indian toilet and a Western toilet or “commode” as it is called in India works well for sanitary ware companies as people shift to Western toilets.

Sanitary ware dealer from Mumbai (deals only in Parryware and Hindware)

  • Cera has a lower recall than Parryware or Hindware. Mumbai has greater new demand as compared to replacement demand. He feels this is because many old homes are waiting for redevelopment and hence not incurring home-related expenditure.
  • Dealers face problems with product supply sometimes from Cera. With Hindware and Parryware there are no such problems.
  • Chinese imports are present in the market in a sizable way. Their quality is relatively poor.
  • He said that 5-6 years back, Morbi, Gujarat, manufactured products (domestic unorganized) had close to 40-50% of the market. Chinese products then appeared and today they have eaten share from the Morbi manufacturers to the extent of 20%. Organized continues to be close to 50-60%.


Sanitary ware dealer from Nashik

  • Is a Cera dealer since 9 years.
  • Has a good opinion of Cera, in terms of supply, designs and management foresight.
  • Over the last 4-5 years he said that they have had strong price increments which have been accepted by the market.
  • He mentioned that customers are increasingly getting brand conscious.
  • Said that practically there is not much of a price difference between Cera, Hindware and Parryware.
  • I asked him about the sanitary ware market dynamics. He said that outsourcing has increased significantly from domestic manufacturers from Morbi, Gujarat. The company provides technical guidance and designs, and reserves its right to plant capacity.
  • Morbi sanitary ware and tiles quality was always good in his opinion. But Morbi plant owners have been forced to sell their production increasingly to branded players like Hindware, Parryware and Cera.
  • Customers are shifting away from Indian toilets (squatting pans) to Western toilets (commodes). A squatting pan used to cost around Rs. 1,000 five years back. Today, many customers install a Western toilet which costs around Rs. 4,500.
  • They also install a faucet along with the commode and a flush valve which was not present in Indian toilet configuration. This adds at least around Rs. 1,000 more.
  • This means around a 5 times increase in spends for a growing segment of customers.

Architect from Mumbai

  • Mentioned that Cera is picking up over the last few years in Mumbai in the non-premium buildings segment .
  • It does not have a premium positioning in the minds of the developer community in Mumbai.

Developer who has projects in Mumbai and Nashik

  • Has an ongoing premium project in Nashik.
  • He said that there is a definite shift in market from unorganized to organized sales.
  • Their firm otherwise installs Hindware and Parryware products. In premium projects they install foreign brands.
  • Young buyers are decision makers for real estate purchases and items like sanitary ware, door handles and locks are “visible” when a prospective customer walks in to a flat. Brands matter for these items. Technically, cement and paint matter more but most people don’t understand these items that go into flat construction.

Interiors firm employee

  • Said that Cera is a second-rung brand as compared to Hind, Parry and the imported ones like Toto, American Standard, etc.
  • He usually does corporate offices of financial services firms in Mumbai.
  • The segment of the market that he works in is brand conscious and installs mostly foreign brands.

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Comments

  1. Anil Kumar Tulsiram says

    Excellent Kunal

    There are few risks which I have been thinking for along time, but still not able to analyse the real impact. Infact not sure to what extent one should factor this, as it is high impact low probability events.

    1) What happens to all these companies which depend on real estate market activity when the ‘bubble’ in various parts of India like Mumbai, Noida, Gurgoan etc finally burst. To what extent these companies got benefit from this bubble and how much was genuine structural growth.

    2) Regarding competition from China, what happens when China real estate bubble burst. I agree currently there might be supply of only cheap items. But once the China real estate bubble burst, they will have TOO MUCH of spare capacity and resulted impact can be very NEGATIVE ON Indian industry.

    • says

      Thanks Anil.

      1. I agree there is the risk of a bubble in real estate. I have done some analysis of EID Parry sanitary ware business over 1996-2002 when real estate was bad. It still grew by 12% in revenue terms through that period. Growth decreased from pre-1996 levels but it kept growing nevertheless. Increasing sanitation levels and awareness of branded products is helping these companies.

      2. In this scenario, if it plays out like you say, there could be pressure. But then who can predict exchange rates between India and China. Incidentally, exchange rate has played out in favour of domestic businesses (all sectors).

      Diversification can help you against high impact, low probability events. That’s what I try to do for things we cannot predict.

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