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Friday, March 24, 2017

NAIL THE FENCE - NAIL THE ANGER STORY !!!

Once upon a time there was a little boy who was talented, creative, handsome, and extremely bright. A natural leader. The kind of person everyone would normally have wanted on their team or project. But he was also self-centered and had a very bad temper. When he got angry, he usually said, and often did, some very hurtful things. In fact, he seemed to have little regard for those around him. Even friends. So, naturally, he had few. “But, arrogantly, he told himself, that how stupid most people are!”
As he grew, his parents became concerned about this personality flaw, and pondered long and hard about what they should do. Finally, the father had an idea. And he struck a bargain with his son. He gave him a bag of nails, and a BIG hammer. “Whenever you lose your temper,” he told the boy, “I want you to really let it out. Just take a nail and drive it into the oak boards of that old fence out back. Hit that nail as hard as you can!”
Of course, those weathered oak boards in that old fence were almost as tough as iron, and the hammer was mighty heavy, so it wasn’t nearly as easy as it first sounded. Nevertheless, by the end of the first day, the boy had driven 37 nails into the fence (That was one angry young man!). Gradually, over a period of weeks, the number dwindled down. Holding his temper proved to be easier than driving nails into the fence! Finally the day came when the boy didn’t lose his temper at all. He felt mighty proud as he told his parents about that accomplishment.
As a sign of your success,” his father responded, “you get to PULL OUT one nail. In fact, you can do that each day that you don’t lose your temper even once.”
Well, many weeks passed. Finally one day the young boy was able to report proudly that all the nails were gone. At that point, the father asked his son to walk out back with him and take one more good look at the fence. “You have done well, my son,” he said. “But I want you to notice the holes that are left. No matter what happens from now on, this fence will never be the same. Saying or doing hurtful things in anger produces the same kind of result. There will always be a scar. It won’t matter how many times you say you’re sorry, or how many years pass, the scar will still be there. And a verbal wound is as bad as a physical one. People are much more valuable than an old fence. They make us smile. They help us succeed. Some will even become friends who share our joys, and support us through bad times. And, if they trust us, they will also open their hearts to us. That means we need to treat everyone with love and respect. We need to prevent as many of those scars as we can.”
A most valuable lesson learned. Everyone gets angry occasionally. The real test is what we DO or how we react when we are angry. If we are wise, we will spend our time building bridges rather than barriers in our relationship. This story is probably not new and you might have read or heard it before. But everytime when you read this it brings a fresh perspective and each time reminds us the side effects of not keeping our anger in control

Thursday, March 23, 2017

KNOWLEDGE PAYS THE BEST INTERESTS !!!


Friends , many times in our markets invetors or traders always strive to understand whats happening with particular stock or the markets as a whole, here comes the experience, knowledge and wisdom to the rescue. I came across many stories on markets and one such is articulated here about the power of training and wisdom. 

This story is in Arabic context where an arab sheik, father of three sons left 17 Camels as an Asset after his death. His will was read to his three sons. The Will of the Sheik were Father stated that the Eldest son should get half of 17 camels, the middle son should be given 1/3rd of 17 camels, the youngest son should be given 1/9th of the 17 camels.

As it is not possible to divide 17 into half or 17 by 3 or 17 by 9, the sons started to fight with each other. So, they decided to go to Cadi (judge) a wise man. The wise man listened patiently about the Will. The wise man, after giving this thought, brought one camel of his own & added the same to 17. That increased the total to 18 camels.

Now, he started reading the deceased father’s will again.

Half of 18 to eldest son = 9.

So he gave 9 camels to the eldest son.

1/3rd of 18 to middle son = 6.

So he gave 6 camels to the middle son.

1/9th of 18 to youngest son = 2.

So he gave 2 camels to the youngest son.


Now add this up:

9 + 6 + 2 = 17 &

This leaves 1 camel, which the wise man took back.

MORAL of the story: Training or wisdom is that 18th camel that we bring to the table to solve any problem! However, to reach a solution, the first step is to believe that there is a solution. If we think that there is no solution, we won’t be able to reach any!  -  READ SUCH STORIES HERE


                                           !! HAPPY INVESTING !!


MORE SUCH SHORT STORIES - here
 

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ESCORTS LTD: GROWTH ON FUNDAMENTALS !!!

Scrip Code: 500495 ESCORTS
CMP:  Rs. 521.75; Market Cap: Rs. 6,395.44 Cr; 52 Week High/Low: Rs. 531.40 / Rs. 130.40
Total Shares: 12,25,76,878 shares; Promoters : 5,26,93,738  shares – 42.99 %; Total Public holding : 6,98,83,140 shares – 57.01 %; Book Value: Rs. 150.05; Face Value: Rs. 10.00; EPS: Rs. 9.58; Dividend: 12.00 % ; P/E: 54.46 times; Ind. P/E: 49.08; EV/EBITDA: 25.05.
Total Debt: Rs. 354.79 Cr; Enterprise Value: Rs. 6,719.08 Cr.
                                                                         
ESCORTS LIMITED: ESCORTS Ltd was incorporated on December 21, 1944 in Lahore and then after partition it shifted to Delhi, India. The company was earlier known as Escorts (Agents) Pvt. Ltd and changed its name to Escorts Ltd in 1959. The company, gave its first bonus shares in May 1968, in ratio of 1 new for every 5 equity shares held, then in May 1974 in ratio of 1 new for every 2 shares held, then in May 1977 in ratio of 3 new for every 5 shares held, in May 1979 in ratio of 3 new for every 5 shares held, in May 1987 in ratio of 3 new for every 5 shares held. Company has not declared any split in face value of its shares. Escorts Limited is an engineering company, which offers agricultural tractors and construction equipment. The Company's segments are Agri Machinery, Auto Ancillary Products, Railway Equipment, Construction Equipments and Others. It is engaged in the business of manufacturing of engines for agricultural tractors, earth moving and material handling equipment, round and flat tubes, heating elements, double acting hydraulic shock absorbers for railways coaches, center buffer couplers, automobile shock absorbers, telescopic front fork and Mcpherson struts, brake block, internal combustion engine and various types of brake used by railways. Its brands of tractors include Escort, Farmtrac and Powertrac. The Jai Kisan Series of tractors comes in five new categories– ValueMaxx, LoadMaxx, AgMaxx, InfraMaxx and SuperMaxx. It also manufactures diverse range of equipment like cranes, loaders, vibratory rollers and forklifts. Escorts, in the over six decades of inception, has sold over a million tractors and over 16,000 construction and material handling equipment that have rolled out from the facilities. Escorts have over 1600 sales and service outlets and in over 40 countries. ESCORTS Limited is locally compared with Mahindra & Mahindra, Sonalika Tractors, Eicher Motors, Tractors And Farm Equipment Ltd and globally compared with John Deere Tractors of USA, New Holland Tractors of Pennsylvania, Kubota Tractors of USA, Mccormick Tractor of USA, Class Tractors of Germany, Kioto Tractors of South Korea, Belarus Tractors of Belarus, Allis Chalmers tractors of Europe, Indo Farm Equipment of Poland, Yanmar of Japan, Millat Tractors Ltd of Pakistan, Maruyama Manufacturing Company Incorporated of Japan, Thor Industries Inc, Mitubishi Motor Corp of Japan, Bayer Motoren Werke AG (BMW) of Germany, Piaggio & C. SpA of France, Porsche Automobil Holding SE of Germany, Renault Societe of France, Volkswagen Aktiengesellschaft of Germany.

Investment Rationale:
ESCORTS Ltd is one of the largest tractor and agri Machinery Company, established in 1944. It is engaged in the manufacturing of agri-machinery, construction & material handling equipment, railway equipment and auto components. The ESCORTS GROUP is among India's leading engineering conglomerates operating in high growth sectors of Agri Machinery, Material Handling & Construction Equipment, Railway Equipment and Auto Components. The Group has earned the trust of over five million customers by way of product and process innovations over six decades of its existence. Escorts has further unveiled its new 'Jai Kisan Series' of tractors, which focuses on maximizing farmer productivity by providing differentiated products that are well suited to agricultural, haulage, infrastructure as well as specialized applications. Escorts Ltd also manufactures and markets a diverse range of equipment like cranes, loaders, vibratory rollers and forklifts. Today, the company is the world's largest Pick 'n' Carry Hydraulic Mobile Crane manufacturer. Faridabad is home to all its manufacturing facilities, which include Agri-Machinery; Construction Equipment; Railways; Auto Parts. The Indian Tractor industry has always been a barometer for the state of rural economy. It is relatively young but now has become the largest market worldwide (excluding sub 20 HP belt driven tractors used in China), accounting for one-third of the global production. The other major tractor markets in the world are China and US. In India till 1960, the demand for tractor was met entirely through imports. Indigenous manufacturing of tractors began in 1961 in India and the industry has come a long way since then. The production output of the Indian Tractor industry has grown from 50,000 units in the early 1980’s to over 6,00,000 units in FY16. Volume grew at a CAGR of 10.9 % over the past decade, despite seasonal vagaries. Industry volume is expected to go up by 16 %-18 % on an annual basis in FY17 to nearly 6,96,000 units. The long term growth fundamentals of industry are strong owing to lowering of the replacement cycle, expectation of increase in MSP for key crops, scarcity of labour and ease of credit availability from Government. Also, pace of the central & state Government’s policy roll out and the final monsoon behaviour governs the short term industry performance. ICRA continues to be positive over tractor sales and believes domestic market can achieve a CAGR of 8 % to 9 % in the long term. The tractor industry sales is classified into four parts according to the tractor’s power as < 30HP, 31-40 HP, 41-50 HP and >50 HP. The 41-50 HP category holding 45.4 % market share is the most popular segment in India followed by 31-40 HP category which has 37.8 % market share as these tractors is suitable for average farmer who owns approximately 5 acres agricultural land. The > 50 HP category has market share of 6.1 % with 23,692 units. The domestic construction industry is set to become a driving force in 'Make in India' initiative. The Indian Construction Equipment Manufacturers Association (ICEMA) pegs the Construction Equipment Industry at USD 2.8 billion and expects it to grow to over USD 5 billion by 2020 on back of infrastructure growth. After facing a prolonged decline in sales since past 5 years, the industry has now witnessed a growth of 4 % during 9M FY16 due to commencement of infrastructural projects. India Union ministry expects that there would be huge opportunities for equipment manufacturers as at least 10 new express highways will be built soon. Also, highways worth at least Rs. 5 lakh cr will be built in 2016 and National Highways strength would be taken to 1.5 lakh km by March 2016 from the present 96,000 km. The Indian auto-components industry has experienced healthy growth over the last few years. Some of the factors attributable to this include: a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. The auto-components industry accounts for almost 7 % of India’s GDP and employs as many as 2 Cr people, both directly and indirectly. The industry can be broadly classified into the organised and unorganised sectors. The organised sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-value precision instruments while the unorganised sector comprises low-value products and caters mostly to the after-market category. Revenues of the Indian auto-components industry grew by 11 % over the past year to Rs. 2.34 trillion in FY 16. This growth was primarily driven by healthy recovery for major OEMs in the medium and heavy commercial vehicles (M&HCV) and Passenger Vehicle (PV) segment. According to the Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is expected to register a turnover of USD 66 billionn by FY17 with the likelihood to touch USD 115 billion by FY21 and USD 200 billion by FY26. In addition, industry exports are projected to reach USD 12 billion by FY17 and add up to USD 30 billion by FY21, further rising to USD 80 billion by CY 2026. The sector’s contribution to manufacturing GDP is expected to double from 5 % in 2015 to 10 % in 2026. The Indian auto components industry is set to become the third largest in the world by 2025 and auto-component makers are well positioned to benefit from the globalisation of the sector. Tractor Industry is all set for a comeback. The monsoon deficit years in over last 30 years were 1982, 1986, 1987, 2002, 2004 and 2009. India experienced two years of consistent monsoon deficit in 1986 & 87 followed by a monsoon surplus year in 1988. Historical data suggests a direct correlation between monsoon level and tractor sales During 9M FY16, the Tractor Industry registered sales decline over 20 % y-o-y as the Agriculture sector struggled with second consecutive year monsoon deficit at 14 %. Deficient monsoon, worsening water reservoir, lower wholesale prices resulted in lower disposable income in rural areas impacting rural demand negatively. It is expected that, India to have adequate monsoon in FY17. Considering historical trend, it is expected that the sale of tractors to bounce back sharply post satisfactory monsoon and can register a growth of 10 % in FY17. The launch of new products by ESCORTS under the Farmtrac and Powertrac brands like XP series, Classic series, Euro series and Anti-Lift Tractor (ALT) are creating pull-based market demand amongst the prospective buyers. The new products have stunning looks backed by enhanced engine power fuel efficiency & reliability. Despite of declining tractor sales, Escorts 9M FY16 market share stands at 10.1 % as compared to 10.3 % last year. Escorts’ sales are mainly in the 31-40 HP and 41-50 HP categories. Both these segments have stiff competition and constitute over 93 % of overall tractor sales. In the 31-40 HP category Escorts, over the last few years, has at best managed to maintain its market share at 13 %. While in the northern states of UP and Bihar it has marginally ceded its share, it has made handsome gains in MP. In the 41-50 HP categories, Escorts performance has been less than satisfactory as it has lost market share 3 % since FY13 in virtually all markets except UP, where it has retained market share. Taking cognizance of its lack lustre performance, Escorts has embarked on a three pronged strategy to improve sales growth, boost market share and improve profitability. With a view to focus on improving sales and market share, Escorts has carved a separate dealer network to spearhead growth of the power brands Farmtrac and Powertrac. This new dealer network will help sharpen focus on these power brands, which constitute a bulk of the sales. Further, with a view to enhance market share in the south and west, where it has a small presence, the company is stepping up dealership additions. The company has 760+ dealerships PAN India with 65 % of these concentrated in the six states of MP, UP, Bihar, Punjab, Rajasthan and Haryana. While the company is not looking to beef up the overall dealer strength there is a conscious effort to retain dealerships in existing markets while adding some in the incumbent markets. The aim is to bring this ratio to 60:40, in favour of the established markets Escorts believes that there is substantial head room for improving profitability and has targeted RM cost reduction and employee force rationalization as immediate amelioration areas to boost margins. With a view to lower RM costs the vendor strength has been reduced to 250 from the erstwhile 400 and there is intent to further lower the vendor list. Hard bargaining with vendors to reduce costs in lieu of higher business volumes should help boost margins. It is also undertaking several value engineering projects to lower RM costs. Currently, RM costs have reduced by 2.00 % to 69.1 % and eventually the aspiration is to bring it to 67 %. Escorts (ESC) improved its market share by 0.60 % in 9MFY17, driven by key strategic initiatives planned and executed in the last 3‐4 years. It would continue to focus on increasing its share through deeper penetration and creating a parallel channel of Farmtrac and Powertrac in its strong markets. Reduction in employee cost would be a key lever to expand margins. Also, the management believes there is further room for reduction in raw material cost. Construction equipment business is on a strong footing and this should aid growth as well as margin expansion. Escorts’ tractor volumes saw robust growth of 23 % in FY17 YTD driven by normal monsoon and key strategic initiatives. During this period, its market share improved from 9.5 % to 10.1 %. Escorts would continue to focus on market share gain through tractor seeding program in untapped regions in its strong markets and increasing the pace of parallel channel creation for Farmtrac and Powertrac. To improve its visibility, Escorts has also piloted a rental model through e‐up with the government, which provides capital subsidy for farm equipment. The company is currently testing the model and would gradually scale up if it finds the model right. Exports would be a key area of focus in FY18; Escorts has new higher HP models that meet regulatory requirements. The key regions it intends to tap are Africa, Middle East and US. The management has highlighted that 450 blue collar employees are due for retirement in the next three years. It also plans to offer VRS to a similar number of employees. Since the cost of blue collar employees is high, reduction of 900 employees over the next three years would result in significant savings on employee cost. Escorts has also entered into a long‐term settlement with the labour union, wherein productivity improvement would result in employee costs remaining constant in absolute terms, even if VRS doesn’t go through. The expected 2.00 % saving in employee costs would drive EBITDA margin higher. In the construction equipment business, Escorts is confident of achieving 20 % to 25 % growth. At this pace of growth, the company expects to achieve 5 % to 6 % EBITDA margin in the long run. In the railways business, it has an order book of Rs. 1.3 billion executable over 5‐6 months. The three new products bogey and axle‐mounted disc brakes, and automated door systems it has launched offer a market opportunity of Rs. 5 billion. Escorts are also open to an inorganic acquisition in the railways business. In last Union Budget, Government had proposed and presented its vision to double farmers’ income by 2022 and to support its vision, the Government has undertaken significant measures. Pradhan Mantri Fasal Bima Yojana to stabilize farmers income and has replaced the NAIS, which provides crop insurance to farmers on liberal terms. This should go a long way in raising farmers’ income security. Rs 5,500 crore has been allocated under the PMFBY. This scheme aims at supporting sustainable production in the agriculture sector. Escorts is rightly placed to be the dependable outsourcing partner of world's leading engineering corporations looking at outsourcing manufacture of engines, transmissions, gears, hydraulics, implements and attachments to tractors, and shock absorbers for heavy trailers. In today's Global Market Place, Escorts is fast on the path of an internal transformation, which will help it to be a key driver of manufacturing excellence in the global arena. For this they are going beyond just adhering to prevailing norms, & are setting their own standards and relentlessly pursuing them to achieve our desired benchmarks of excellence. Escorts surely a best bet looking at the factors and is a best stock in the sector.

Outlook and Valuation: 
ESCORTS LTD. is one of the largest players in the tractor and agri machinery business with humble beginning in 1944. The Company operates in the sectors of agri-machinery, construction & material handling equipment, railway equipment and auto components. Its products include Agri Machinery, Construction Equipment, Auto Products such as shock absorbers, struts and telescopic front, and Railway Products. The Company offers more than 45 variants of tractors from 25 to 80 HP. Escorts Ltd, for Agri Machinery they have Four plants: Farmtrac, Powertrac, Component, Crankshaft & Hydraulic covering manufacturing area of 1,34,000 sq.m., with production capacity of 100,000 tractors p.a. It also has Poland plant, a 100 % subsidiary, has an installed manufacturing capacity of 2,500 tractors p.a Escorts Agri Machinery offers a comprehensive range of tractors with more than 45 Variants starting from 25 to 80 HP. Escorts Agri Machinery segment has positioned itself as a change leader in the agriculture sector having rolled out over 1 million tractors, ranging from hi-capacity engines to modern rugged transmissions and multi-utility taking capabilities. Escorts construction Equipment: Escorts Construction Equipment is a leading materials handling and construction equipment manufacturer. It manufactures and markets a diverse range of equipment like cranes, loaders, vibratory rollers and forklifts. Escorts, is the world largest Pick’n’ Carry Hydraulic Mobile Crane manufacturer. State-of-the-art manufacturing and assembly facility sprawling 250,000 sq.ft. of space, Capacity of 14,000 units p.a. Escorts Railway Products: Escorts Ltd has played a major role in the modernization of Indian Railways with over 40 years of rich experience in manufacturing of critical railway systems. The manufacturing plant spread across an area of over 12,500 sq. meters, Houses superior production and testing facilities, inclusive of a research and development centre; ISO 9001:2008. Product offerings include brakes, couplers, shock absorbs, rail festering systems, composite brake blocks and vulcanized rubber parts. Escorts Auto Products (EAP): Pioneered the manufacturing of automotive shock absorbers in India and it continues to be one of the leading manufacturers of auto suspension products. Plant spread across in an area of 2,25,000 sq.ft., Capacity to produce 3.2 million shock absorbers & struts and 0.3 million front forks. It also trades in oils and lubricants, implements, trailers, tractors, compressor accessories and spares, construction and aero business. It offers Euro Series under Powertrac; Classic Series in 41-50 HP under Farmtrac brand, and FT 6055 Xtra Torque Tractor with approximately 20 speed transmission. Engineering And Maintainace contributes the largest chuck to the company’s top-line at 79 % of total sales. Though it is not their most profitable segment it is the highest contributor to the company’s profit at 7.6 % at operating level. ECE is the company’s second biggest top-line contributor at 13 % but currently suffers loss at operating level. A much smaller segment, Railway Equipment’s at 6 % of top-line contribution is the company’s second most profitable business at 13 % at operating level. Over the period FY12 -15, policy paralysis had led to a severe logjam, bringing infrastructure development to a screeching halt. As a result, Escorts’ construction equipment segment revenues de-grew at a 3-year CAGR of 19 % during FY12-FY16 and there were losses at the EBIT level. With the monsoon progressing well and government spending on infrastructure projects at an all-time high, the fortunes of this segment have started to look up. This should lead to a recovery in the demand for construction equipment. Escorts’ railway segment revenues have de-grown at a 3 year CAGR of 8 % Rs. 205 crore in FY16. With the Railways being a thrust area for the government which is expected to spend Rs 1 lakh crore per annum over the next five years and 100 % allowance in FDI, this segment opens a huge opportunity for Escorts as it is one of the major vendors to the Railways. Escorts supplies manufactured products like brakes, couplers and shockers which has combined market size of Rs. 500 crore to the Railways. It has introduced two new products – Bogey Mounted Brake System (completed testing) and Axle Mounted Brake System (ongoing testing), which are in advanced stages of deployment and are Rs. 300 crore opportunity. Escorts’ has a presence only in three categories, viz., Earthmoving-Backhoe Loaders, Material Handling - Pick and Carry cranes and Road Building-Compactors. And it is expected that all the segments to do well in the short to medium term. Escorts by virtue of being a dominant player in all these segments is expected to be one of the biggest beneficiaries. The ECE segment expected to breakeven by FY17. The ECE volumes stood at 698 units in 3Q FY16. ECE is required to sell 750 units in a quarter in order to achieve its break-even point, The team is confident of breaking even from FY17 onwards due to initiatives like realizing better Average Selling Price (ASP), inclination towards higher contributing model and cost reduction. ERP new products to further enhance profitability Escorts has over 40 years of rich experience in manufacturing of critical railway systems (Safety and comfort) and has played a major role in the modernization of Indian Railways. ERP’s existing products contributes about Rs. 1,837 mn towards Escorts revenue in FY15. ERP team received a development order for Axel Mounted Disc Brakes in 2Q FY16 and company expects to execute the order by end of FY16. The new segment has a market potential of Rs. 3 billion with only one competitor. Escorts scouting for strategic partner to divest & reducing losses in EAP segment EAP pioneered the manufacturing of automotive shock absorbers in India. Its key customers are BEML, Tata Motors, TVS, Maruti Suzuki, Eicher Motors, Piaggio, Polaris and Yamaha. Escorts Management is actively scouting for strategic partner to divest EAP segment. The Company is looking forward to reduce its losses in EAP segment through cost saving from VRS and better sales portfolio rationalization in FY17. These measures are expected to yield positive results in FY17. Escorts exhibited strong volume growth of 29.5 % YoY with 4,247 units in February. This growth comes on the back of 16.3 % YoY growth in January & 27.4 % YoY growth in Q3FY17. On a YTD basis April-February, Escorts’ domestic tractor volumes have grown at 23 % YoY to 51,581 units against industry growth of 18 % YoY. The management expects to end FY17 at a growth rate of 23 % YoY. In Q1FY8E, the company expects growth to taper down to 10-15 % due to base effect. Pre-demonetisation, the industry was growing a high rate of 20 % YoY. In November, the domestic tractor industry witnessed de-growth of 13 % YoY & single digit growth of 8 % YoY in December. In the same period, Escorts outperformed the industry with flat performance in November & 12 % YoY growth in December. As per the management, the outperformance is attributable to poor winter rains in southern India, where Escorts does not have a strong presence. After a year of strong 20.2 % growth in FY14, domestic tractor sales fell 13 % YoY in FY15 due to poor Kharif harvest & lower Rabi sowing due to dipping reservoir levels. A second consecutive year of deficient rainfall which was 14 % lower than normal impacted agriculture output and led to a decline of the tractor industry by 11 % in 2015-16. In the same period of FY14-16, Escort’s volumes declined at 28 % CAGR. The primary reasons for Escort’s underperformance were gaps in the product portfolio and lack of focus on growing markets like the south & west region that together contribute 47 % of the total market. However, in YTD FY17, Escort’s volumes have outpaced industry volumes, growing 23 % YoY vs. industry growth of 18 %, with market share gain of 0.30 %. This strong growth is on the back of new products launched like 10 new models launched in the last two years, increased focus on opportunity markets of south & west region and separate Powertrac which is its economy brand & Farmtrac brand which is its premium brand in its strong northern market. The management expects industry growth of 18-20 % in FY17E & 6-8 % in FY18E.And can have a tractor volume CAGR OF 10 % in FY17-19E. To improve its visibility, Escorts has also piloted a rental model through tie‐up with the government, which provides capital subsidy for farm equipment. The company is currently testing the model and would gradually scale up if it finds the model right. Exports would be a key area of focus in FY18; ESC has new higher HP models that meet regulatory requirements. The key regions it intends to tap are Africa, Middle East and US. The management believes there is further room of 1.00 % reduction in raw material cost through value engineering. Going ahead in FY18, the monsoon is likely to play a critical role. Yet, as sowing in most regions is healthy, the season would begin on a strong note. Margin expansion through employee cost savings would be a strong lever for earnings growth. EBITDA margin is likely to expand from 4.1 % in FY16 to 10.3 % in FY19 as a result of cost rationalizing. Escorts are taking initiatives to lower raw material costs to 68 % of sales in FY19 from 71 % in FY15 through vendor rationalizing and value engineering. It targets to reduce employee cost to 8.9 % of sales through VRS in the next three years from 12.3 % of sales in FY16. It is expected that the revenue/PAT CAGR of 12 %/40 %, driven by EBITDA margin expansion of 2.80 % to 10.3 % over FY17‐19. At the current market price of Rs. 521.75, the stock is trading at a PE of 23.93 x FY17E and 15.90 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 21.80 in FY17E and Rs. 32.80 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALSFY16FY17EFY18EFY19E
SALES ( Crs) 3,537.604,118.004,680.205,170.60
NET PROFIT (₹ Cr)77.10138.20269.10349.30
EPS () 11.1021.8032.8042.60
PE (x)44.8022.9015.2011.70
P/BV (x)2.702.502.201.90
EV/EBITDA (x)31.4014.509.907.50
ROE (%) 6.10 11.4015.6017.70
ROCE (%)7.4010.4015.1017.70

As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase(Why Strict stop loss of 8 % ?) -  Click Here

*As the author of this blog I disclose that I do not hold  ESCORTS LTD in my any of the portfolios.

**Dear Reader Friends, if you enjoyed this article then please do share it with your friends & colleagues through Facebook and Twitter, also do drop in your valubale thoughts in comment box...
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !! 

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 


As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
 

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Monday, March 13, 2017

CERA SANITARYWARE LIMITED: THE BEST ONE !!!

Scrip Code: 532443 CERA
CMP:  Rs. 2,532.50 ; Market Cap: Rs. 3,293.74 Cr; 52 Week High/Low: Rs. 2,780.00 / Rs. 1,709.95
Total Shares: 1,30,05,874 shares; Promoters : 71,20,639 shares –54.75 %; Total Public holding : 58,85,235 shares – 45.25 %; Book Value: Rs. 323.71; Face Value: Rs. 5.00; EPS: Rs. 75.98; Dividend: 180.00 % ; P/E: 33.46 times; Ind. P/E: 35.08; EV/EBITDA: 18.85.
Total Debt: Rs. 35.08 Cr; Enterprise Value: Rs. 3,269.43 Cr.

CERA SANITARYWARE LIMITED: Cera Sanitaryware Limited was incorporated in 1980, and is headquartered in Kadi, India. The company was formerly known as Madhusudan Oils and Fats Limited and changed its name to Cera Sanitaryware Limited in November 2002. Cera Sanitaryware Limited manufactures and sells sanitary ware and faucet ware products in India. The company offers sanitary ware products, including EWC’s, kids range products, wash basins, urinals, cisterns, seat covers, sensors, and bath accessories; special needs products consisting of cranes, shower chairs, wall mounted and U shaped rails, wall mounted inverted rails, and corner and wall mounted grab bars; and faucets, such as fittings, basin mixers, showers, bath tub spouts, flush valves and cocks, angle cocks, taps, and accessories. The company announced its bonus shares last July 2010 in ratio of 1:1. It also provides wellness products comprising steam shower rooms, shower rooms and cubicles, shower partitions, indoor swimming pools, bath tubs, shower panels, and pressure pumps; kitchen sinks and mirrors; and personal care products comprising hand dryers, perfume sprayers with remote control, automatic soap dispensers, and hair dryers, as well as wall and floor tiles. Cera has emerged as the third largest player in the sanitary ware industry in India. The company enjoys 24 % market share in the organised segment. It has installed manufacturing capacity of 2.7 mn pieces p.a. in sanitary ware and 2,500 pieces per day in faucet ware in Kadi (Gujarat). As of May 2016, Cera has 1,000 distributors - dealers, 14,000 retailers and 12 major stock points across India. CERA’s subsidiary includes Madhusudan Industries Ltd; Madhusudan Holdings Ltd; Madhusudan Fiscal Ltd; Vikram Investment Co. Ltd; Cera Foundation; Swadeshi Fan Ind. Ltd. CERA SANITARYWARE is locally compared with Kajaria Ceramics, Grindwell Norton, Acrysil India Ltd, La Opala RG,  Asian granite India Ltd, Euro Ceramics, Hindustan Sanitaryware India Ltd, Morganite Crucible India Ltd, Murudeshwar Ceramics, Nitco tiles Ltd, Orient Bell Ltd, Regency Ceramics, Restile Ceramics, Somany Ceramics, Kisan mouldings Ltd,  and Globally compared with China Ceramics Co Ltd of China, Ziyang Ceramics of China, Topps Tiles of China, China GengSheng Minerals Inc of China, INTL DE Ceramica Com of USA, EGE Seramik of Turkey, Dynasty Ceramics of Thailand, Ceramica San Lorenzo, CARBO Ceramics Inc of USA, Fairmount Santrol Holdings Inc. of USA, Compagnie De Saint Gobain SA of France, U.S. Silica Holdings, Inc of USA, Arab Ceramics Co of Saudi Arabia, Al Anwar Ceramic Tiles Co of Saudi Arabia, Saudi Ceramics Co of Saudi Arabia, Saudi Vitrified Clay Pipes Company of Saudi Arabia, General Comapany for Ceramic and Procelain Products SAE, Forage Orbit Garant Inc of Canada,Ceramika Nowa Gala Sa of Turkey, Usak Seramik Sanayi As of Turkey, Dvarcioniu Keramika AB of Lithuania, Goh Ban Huat Berhad of Malaysia, Chang Yih Ceramic JSC of Vietnam, Royal Ceramics Lanka Ltd of Sri Lanka, Konoshima Chemical Co Ltd of Japan, Roy Ceramics Se of Germany, Troax Corp Publ AB of Sweden, Expedit AS of Denmark, Exel Composites Oyi of Finland, Royal Ceramic Industry Public Co Ltd of Thailand, CMC Joint Stock Co of Vietnam, Shabir Tiles & Ceramics ltd of Pakistan, Onex Corporaion of Japan, Sapura Industrial Berhad of Malaysia, Nansin Company Ltd of Japan, Masonite International Corp of USA, Owens Corning of USA, Nci Building Systems Inc of New York, Masco Corp of USA.

Investment Rationale:
Cera Sanitaryware incorporated in the year 1998 is a pioneer in the sanitary ware segment in India. Cera Sanitaryware Limited, India’s fastest growing company in the sanitary ware segment in India. It has an extensive product portfolio that includes high end showers, steam cubicles, and whirlpools, besides sanitary-ware and faucets, such extensive product ranges has made CERA the primary choice of customers looking for stylish products in a contemporary lifestyle. It’s also the first sanitary ware company to use natural gas, for its commercial needs, Cera has been on the forefront of launching a new and versatile colour range and introducing the bath suite concept. CERA’s constant innovations have given several path breaking contributions to the industry. Some of its innovations have become benchmarks for the industry- like water-saving twin-flush coupled WCs, 4-litre flush WCs, and one-piece WCs. Advanced technology has been the forte of CERA. Its state-of-the-art manufacturing plant has been following the highest standards of quality with an emphasis on sustainability since its inception in 1980. The total size of the Indian sanitary ware and bathroom fittings industry is at Rs. 9,500 Cr in FY16, of which the sanitary ware accounts for roughly Rs. 3,500 Cr and is growing at an average rate of 20 %. The remaining Rs. 6,000 Cr is attributed to bathroom fittings, also growing at an average rate of 18 %. The outlook for the industry is robust on the back of country’s very low sanitation coverage, housing shortage and potential for the replacement market. The contribution from the replacement is very low at 8 % in comparison to 80 % in the developed economies. In the sanitary ware industry, the organized market is 65 % while the unorganized market is about 35 % and in the bathroom fittings, the organized market share is around 45 % and the unorganized market is about 55 %. According to the report on world health statistic by World Health Organization (WHO), the sanitation coverage in India is very low at 36 %. This in itself shows the growth potential for the industry in a country which has a population of over 121 Cr and is expected to grow to 135 Cr by 2021, as per census 2011. Further, the growth would be boosted by the government initiatives such as affordable housing, Swachh Bharat Abhiyan and development of 100 smart cities. In Union Budget for 2015-16, the finance minister has announced 100 % sanitation by October 2019 with a provisional amount of Rs. 3,625 Cr, including Rs. 1,000 Cr for urban sanitation. It has also allocated Rs. 10,025 Cr for rural housing and Rs. 4,150 Cr for Urban housing with an objective of providing housing for all by 2022. In the recent union cabinet meeting, the government has approved development of 100 smart cities along with the new urban renewal mission with a planned outlay of Rs. 100 lakh Cr. The Indian tile Industry is expected to witness better days over the medium-term. This optimism is based on important realities. Over the last two decades, India’s urban population increased from 21.7 Cr to 37.7 Cr and this is expected to reach 60 Cr, or 40 % of the population by 2031. By then, India is expected to have 68 cities with population of more than one million – driving housing demand. India is one of the few countries with a third-quartile median age of 27 years, which represents a younger, ambitious and forward-looking population. As the internet penetration deepens, consumption is seen to increase. The proportion of people employed in the country's workforce will continue to rise. By 2030, India is expected to constitute 28 % of the world's workforce with the worker-to-dependent ratio expected to be 2.1 (14 in 1990). Besides, steady urbanisation will graduate labour markets from low paying agricultural jobs to better-paying manufacturing and service engagements. India’s sanitaryware and bathroom fittings industry is undergoing a transition phase. The consumers are now moving from low-end basic product to middle and high end premium segments. This is in conjunction with the growing urbanization and ever increasing middle-income segment. As per the National Council for Applied Economic Research (NCAER), the middle-income segment has grown from 1.1 Cr households in 2001-02 to 3.1 Cr household by 2010-2011 and is expected to grow to 5.3 Cr by 2015-16 and 11.4 Cr by 2025-2026. This shift will benefit the industry players in terms of higher margin and ability to pass on the cost increase to the consumers. The recent reduction in interest rates augurs well for the housing sector. Beside, declining commodity prices are expected to reduce inflationary pressure on the Indian economy, creating a foundation for further interest rate reduction. This should improve housing demand. Reduction in international crude prices should optimise the energy bill strengthening business profitability. Cera in the sanitary ware segment has strong positioning and over the years has gradually increased its market share in the sanitary ware from 18 % in FY09 to 23 % in FY15. The company is also growing higher than most of its peers and industry. The company started the faucet business by trading activity and today it has built-up huge capacity to encash the opportunity in the under-penetrated faucet ware market. The revenue contribution from the faucet business has increased from 14 % in FY13 to 17 % in FY17E, with the increasing capacity the contribution is expected to increase further. Recently, the company has also expanded its business activities in the tiles business through contract manufacturing with the unorganized players. The products launched by the company in the tiles business have been widely accepted and as a result, the contribution from the tiles business has also increased from just 2 % in FY13 to 13 % in FY15. The diverse product offering has helped the company to achieve higher revenue growth, even when the economy and the industry were under pressure. Lately, the company is also evaluating opportunities for entering into a joint venture for the manufacturing of sanitary ware and Tiles. Faucet ware industry size at Rs. 6,000 Cr is double the size of sanitary ware, showing huge growth potential going forward. The contribution of the organized market is 45 % and is growing rapidly. The company already supplies to the industry in the mass segment through outsourcing but now the company is targeting the premium segment and in this direction, the company has increased its production capacity by 166 % to 24.3 Cr pcs p.a i.e approx. 6,658 pcs. per day from 91 lakhs pcs p.a i.e 2,500 pcs per day. The plant located at kadi, Gujarat is further expandable to 10,000 pcs per day. Currently, jaguar has dominating in this segment with almost 40 % market share. The company is going aggressively on branding and expects to garner 3 % market share in the near future. Meanwhile, CERA has also expanded the sanitary ware production capacity from 27 lakhs pcs p.a to 30 lakhs pcs p.a in FY15. The company is also planning to increase the sanitary ware capacity to 33 lakhs pcs by FY16E. In the last couple of years, the company has reported healthy growth in its sanitary ware business and has gained market share from 18 % in FY09 to 23 % at the end of FY15. The industry has huge opportunity as the organized sanitary ware market is growing faster than the unorganized market and now account for 65 % of the total industry size of Rs.3,500 Cr. For the additional capacity, for both faucet ware and sanitary ware, the total capex is approx Rs. 100.30 Cr, which would be funded from the amount raised through preferential issue and remaining from internal accruals. Recently, the company has raised Rs. 70.6 Cr by way of preferential allotment of 3,51,000 equity share at Rs. 2,011.5 per shares. The company has been using full utilization of its existing capacity and post expansion, and is expected that the company to make full utilization of its increased capacity in the due course. Company’s Brand loyalty and strategic marketing network have paid dividend to the company in terms of robust revenue growth of 36 % CAGR in the last four years. The company has strong pan India presence with 1400 dealers and 14000 retailers targeting both its retail and institutional customers. And to supplement its network the company also has 20 stock points across the country. The company has also initiated touch and feel experience to its customers by setting up bath studios. In order to target premium and luxury customers, the company has exclusive display centre, cera style studio which are located in the prime locations across the major cities. Cera style gallaries are the display and sales touch points owned and managed by its trading partners. Cera style centres are the display centres targeting smaller trade retail parners. The company has increased its Cera style studios from just one at Ahmedabad in FY06 to ten by the end of FY15. The company is also fast growing its Cera style gallaries and expects to touch 200 gallaries in the near future. With cera style centres, the company is penetrating into the tier 2 cities such as North-East and West Bengal. In South, the company has dominant position in Kerala and is now building up its positioning in Tamil Nadu and Andhra Pradesh. The Sanitary ware industry is generally growing at average rate of 14 % to 16 %, annually. The FY 2015-16 was exceptionally subdued due to various economic reasons more for the entire realty and construction industry across pan India with growth percentage coming down drastically. Despite this, 'CERA' during FY 2015-16 registered top line growths of around 13.63 % amidst subdued business conditions. The efforts are on not only to sustain CAGR last 3 years but also to improve upon. The industry structure remains unchanged viz. Indian manufacturers in organized and unorganized sectors; International brands with or without manufacturing in India and imports from countries like China. The growth of the Company has been much above the market growth and is largely on account of its continued efforts in leveraging the high brand value and product optimization besides deeper penetration in tier 2 markets. These efforts are further fortified by strong and structured marketing efforts, good product quality and after-sales service, and backed by a very loyal distribution network across India. CERA has been growing despite of the threats like international brands and slowdown in housing construction. The demand in mid-segment housing is less affected and the Company’s ability to pitch in the mid-segment will help maintain the growth rate. The announcement by Central Government about launch of 100 smart cities across India, can give a boost to construction industry and thereby for demand for sanitary ware. Another significant action plan by Central Government, "Swachh Bharat Abhiyan", can also be a booster to sanitary ware in general. Also, the newly introduced real estate regulatory authority bill is likely to help streamline the housing construction activities.

Outlook and Valuation:
Cera Sanitaryware is a complete building solution provider and have raised itself from a provider of single sanitaryware product in the 1980’s to now vast range of product portfolio and today it has become a complete building product solutions provider by offering products like sanitaryware, faucetware, wellness & allied products and tiles. In the sanitaryware segment, the company has strong positioning in the mass segment which accounts of almost 60 % of the organized sanitaryware market. The company has in-house manufacturing facility for sanitaryware and faucetware at Kadi, Gujarat. Launched in 1980, 'CERA' is a pioneer in the Sanitaryware segment in India. The first Sanitaryware Company to use natural gas, 'CERA' has been on the forefront of launching a versatile colour range and introducing the bath suite concept. It also launched innovative designs and water-saving products. In 2011-12, the company ventured into commissioning its state-of-the-art faucet ware manufacturing facility where only quality products, new designs and innovation are the focal points. During last quarter of FY 2012-13, 'CERA' forayed into ceramic, vitrified and digital tiles for floor as well as for walls. Company’s initiative to provide touch and feel experience to its customers through its CERA Style Studios, has paid off well. CERA Style Studios are located in up market locations in Ahmedabad, Mumbai, Kochi, Bengaluru, Hyderabad, Gurgaon, Chandigarh, Chennai, Thiruvananthapuram and Kolkata. CERA Style Galleries, display and sales touch points of CERA, owned and managed by its trade partners, are increasing month after month. For smaller trade retail partners, CERA encourages display in the form of CERA Style Centre. This will help further penetrate into smaller towns and outlets, thereby increasing the visibility of brand CERA. CERA also launched CERA Style Studios on Wheels, a novel concept to take CERA products to the doorsteps of key decision makers like architects, developers, etc. The Company also strengthened CERA Care, its after-sales division with induction of technicians for taking care of its services in all key cities of the country. Currently, the facility has an installed capacity to produce 3 million pcs of sanitaryware and 2.34 million pcs of faucetware. The company is also engaged in contract manufacturing for sanitaryware and faucetware and outsourcing activities for wellness & allied products, Vitrified and Ceramic Tiles. Over the years, the company has built-up strong marketing network to promote and sell its products. As on March 2015, it has 1400 dealers and 14000 retailers. All the products of the company are sold under single brand ‘CERA’, and it enjoys strong positioning in the mass segment. It has strong positioning in the southern market, with 40 % of its total revenue coming from south. Over the years, it has gradually increased its market share in the sanitaryware from 18 % in FY09 to 23 % in FY16. The company is also growing higher than most of its peers and industry. The company started the faucet business by trading activity and today it has built-up huge capacity to encash the opportunity in the under-penetrated faucetware market. India’s sanitaryware and bathroom fittings industry is undergoing a transition phase. The consumers are now moving from low-end basic product to middle and high end premium segments. This is in conjunction with the growing urbanization and ever increasing middle-income segment. As per the National Council for Applied Economic Research (NCAER), the middle-income segment has grown from 1.1 Cr households in 2001-02 to 3.1 Cr household by 2010-2011 and is expected to grow to 5.3 Cr by 2015-16 and 11.4 Cr by 2025-2026. This shift will benefit the industry players in terms of higher margin and ability to pass on the cost increase to the consumers. The total size of the Indian sanitaryware and bathroom fittings industry is at Rs. 9,500 Cr in FY15, of which the sanitaryware accounts for roughly Rs. 3,500 Cr and is growing at an average rate of 20 %. The remaining Rs. 6,000 Cr is attributed to bathroom fittings, also growing at an average rate of 18 %. The outlook for the industry is robust on the back of country’s very low sanitation coverage, housing shortage and potential for the replacement market. The contribution from the replacement in this sector in India is very low at 8 % in comparison to 80 % in the developed economies. In the sanitaryware industry, the organized market is 65 % while the unorganized market is about 35 % and in the bathroom fittings, the organized market share is around 45 % and the unorganized market is about 55 %. According to the report on world health statistic by World Health Organization (WHO), the sanitation coverage in India is very low at 36 %. This in itself shows the growth potential for the industry in a country which has a population of over 125 Cr and is expected to grow to 135 Cr by 2021, as per census 2011. Further, the growth would be boosted by the government initiatives such as affordable housing, Swachh Bharat Abhiyan and development of 100 smart cities. In Union Budget for 2015-16, the finance minister has announced 100 % sanitation by October 2019 with a provisional amount of Rs. 3,625 Cr, including Rs. 1,000 Cr for urban sanitation. It has also allocated Rs. 10,025 Cr for rural housing and Rs. 4,150 Cr for Urban housing with an objective of providing housing for all by 2022. In the recent union cabinet meeting, the government has approved development of 100 smart cities along with the new urban renewal mission with a planned outlay of Rs. 1 Trillion. Cera maintains a strong market position in the mass market segment, because of its ‘value for money’ proposition and a wide brand appeal. Currently, the company derives bulk of its sanitary ware revenue from these segments. Competitive intensity is also relatively lower in these segments because of the lower presence of foreign players. Led by various government schemes, such as affordable housing, and the shift in consumer sentiment towards organised players, and is expected this segment to grow at a steady pace. The company did not have a second brand to cater to the premium market, and the mass-market perception associated with the CERA brand limited its ability to compete with the leading domestic and premium brands. Although the segment accounts for only 10 % of the sanitary ware market, it is one of the fastest growing. The company has addressed this concern through its marketing-and-distribution agreement with the Italian company, ECE Banyo, manufacturer of the luxury sanitary ware brand, ISVEA. Cera is currently in the process of a pan-India launch of ISVEA’s products, the company’s ability to gain a substantial market share in this highly competitive segment characterised by the presence of several domestic (HSIL and Parryware) and international players (Kohler, ToTo, Duravit and American Standard) - is a monitorable. Apart from the tie-up, Cera has also consciously taken efforts to premiumise its product portfolio, by gradually launching products with innovative designs and importing high-end products. This has reflected in the steady increase in the company’s realisations of self-manufactured products and share of imports. We believe premiumisation of its product portfolio is a key positive, as it is expected to provide a fillip to revenue and aid margin expansion. The government plans to make the Goods and Service Tax (GST) effective from June 2017. The Ministry of Finance has finalised a four-tier rate structure – 5 %, 12 %, 18 % and 28 %. Mass consumption goods are expected to fall in 5 %, and luxury goods, tobacco, etc. to fall in 28 %, whereas most other goods and services are expected to fall in the 18 % category. Some of the key benefits of GST for building products players are highlighted below: The current effective indirect tax rate for most building product companies is in the range of 22 %-29 %, and it does not allow a set-off of tax paid on services. After GST implementation, the effective tax for these companies is expected to go down to 18 % to 20 %, as the base rate comes down and also as companies will be entitled for set off benefits. This is to be margin accretive for building product players. Currently, building product companies set up additional depots, employ more C&F agents in different states to bypass CST. With GST, it is expected that there will be rationalisation of warehouses and an effective inventory/supply chain management. This is also expected to reduce the logistics cost for companies owing to better turnaround time and consolidation of warehouses. Currently, the unorganised sector accounts for 30 % to 35 % of the industry. The GST is expected to accelerate the shift towards the organised segment, as the law is expected to reduce/eliminate tax sops enjoyed by unorganised players, leading to higher compliance. This will create a level-playing field and benefit organised players such as Cera. The company’s balance sheet quality is robust, driven by an efficient working capital management, low leverage and a healthy cash balance. Working capital days remained at 45-55 days during FY11-16, one of the best in the industry. The efficient working capital management has enabled it to consistently generate positive cash flow from operations and maintain a cash-rich balance sheet. Its leverage declined to 0.1 times in FY16 from 0.3 times in FY11; making Cera almost debt-free. A strong balance sheet provides additional headroom for growth and makes the company less vulnerable to external shocks. While soaring aspirations has been an important ingredient for increasing offtake, the primary trigger has been the significantly enhanced tile availability. This has worked towards making the product more affordable. Hence, what was once considered a rich man's foot-step luxury has now transcended into an Indian's regular wall and flooring solution. While this change remained concentrated in metros and urban India in earlier years, this transformation is currently sweeping Tier II and Tier III towns in India. The Indian tile industry is poised to experience significant growth over the coming year. This optimism stems from the important realities that are expected to catalyse tile demand pan-India. Going ahead, the business landscape appears promising because of passing of GST Bill. OROP; Normal monsoon; a 25 bps cut in interest rates by the RBI are expected to increase disposable income in the hands of the average Indian leading to increased discretionary spending. And this is just the beginning. India's 'Housing for All' programme proposes to build six crore houses by 2022 - four crore of them in rural and two crore in urban India. On financial side, Revenue is estimated to increase at a CAGR of 19.3 % over FY16-19 to Rs. 15.2 bn, driven by the faucet and tiles segments. Tiles segment is expected to grow 30 % over FY16-19E, followed by the faucet (20% CAGR) and the sanitary ware (18 %) segments. Consequently, the share of the sanitary ware segment is expected to decline to 57.9 % in FY19 from 62.3 % in FY14. EBITDA margin is expected to expand 110 bps to 16.5 % over FY16-19, driven by: a higher share of in-house manufacturing facility for tiles; premiumisation of the product portfolio, post-marketing arrangement with ECE Banyo and launch of high-end faucets; lower power and fuel costs, following the installation of solar panels and wind turbines, as well as lower crude oil prices; and growth in realisation, once demand recovers in FY18. Adjusted PAT is expected to grow at a three-year CAGR of 26 %. Sturdy growth is expected to stem from healthy revenue and EBITDA growth. RoCE is expected to improve to 33.6 % in FY19 from 29.1 % in FY16, driven by healthy EBITDA and low leverage. RoE is expected to increase to 24.0 % in FY19 from 21.1 % in FY16, because of strong PAT margin and faster asset turnover. At the current market price of Rs. 2532.50, the stock is trading at a PE of 31.57 x FY17E and 25.29 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 80.20 in FY17E and Rs. 100.10 in FY18E. CERA is confident of sustaining its growth in coming years with its business strategies of continuously upgrading product basket, leveraging on strong brand image, optimizing product potential capacity utilization and distribution network with all backed up by well-structured sales & marketing plans. 

KEY FINANCIALSFY16FY17EFY18EFY19E
SALES ( Crs)935.801,026.501,236.001,522.00
NET PROFIT (₹ Cr)81.50104.30130.10163.00
EPS ()62.7080.20100.10125.40
PE (x)38.6030.2024.2019.30
P/BV (x)7.506.205.104.20
EV/EBITDA (x)21.4017.8014.5011.90
ROE (%)21.1022.5023.2024.00
ROCE (%)29.1031.6033.0033.60

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 

As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
 

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