Hindware, Cera Sanitaryware , Merino - Strong Industry Tailwinds Should Lead To Robust Demand: Yes Securities

Yes Securities Report

Hindware Home Innovation - Confident On Growth

Pipes and fittings segment

Hindware Home Innovation Ltd.'s demand for CPVC products is sluggish in Q2 FY24, (seasonality impact), however for PVC pipes demand from both agri and plumbing remains robust. Due to lower revenue share of CPVC products in Q2 FY24, management expects margin to remain under pressure.

Management anticipates demand for CPVC products will recover in H2 FY24. Company reiterated their guidance of delivering a Rs 10 billion revenue from pipe segment by FY25E.

Uttarakhand plant will have capacity of 25,000 million tonnes per annum (12,500 mtpa in Phase I and Phase II each). Phase-1 is expected to commence production from October 2024. Capacity utilisation for pipe segment is 80-85%. CPVC product prices and quality are at par with their peers.

Bathware Segment

Demand for premium segment products is healthy while for demand for mass market products continue to remain sluggish in Q2 FY24.

Company has revamped its distribution system in FY22 that has increased its reach. Company has also appointed separate sales team for sanitaryware and faucet division.

Consumer appliance and retail segment

Demand for kitchen appliances is healthy. Higher channel inventory impacted revenue for fan’s while sales of air coolers were lower in Q1.  Company has gradually phased out air purifiers and plans to sell water purifiers only through online channel.

Management plans to sell-off the retail biz in near future.

Cera Sanitaryware - Maintained Their Annual Guidance

• The demand has been decent for sanitaryware and faucets. Management expects growth of 9-10% for sanitaryware industry and 10-11% for faucet industry.

• Management expects demand to shift materially towards organised players especially in faucets due to increase in demand for branded products.

• Cera Sanitaryware Ltd. is targeting revenue of Rs 28.8 billion in FY26E i.e. Rs 3.5 billion incremental revenue per annum with 50-75 basis points margin improvement every year.

• Management is focused on expanding its existing business segments and do not have any plans to enter adjacent product segments.

• ISVEA is a premium Italian brands with price point of more than Rs 70,000. Company imports ISVEA products directly from Italy. Senator brand has price point between Rs 25,000-Rs 70,000. Cera is the key brand for the company that contributes ~98% of revenue. Brand has price point in the range of Rs 5,000 – Rs 25,000. Jeet Brand offers commodity products with price point less than Rs 5,000. Company supplies Jeet brand products majorly for project biz/tenders.

• For Sanitaryware, China clay and Feldspar are key raw material that accounts for 95% of cost of goods sold. Brass is the key raw material for Faucets. There has not been material changes in these input cost.

• Sanitaryware production is very labor intensive while faucet manufacturing is more automated process. Company required ~2,000 skilled labors for manufacturing of sanitaryware products.

Merino Industries - Largest Laminates Capacity, Expanding In Particle Boards

• Merino Industries Ltd. has clocked revenue of Rs 22 billion in FY23, out of which laminates contributed ~Rs 18 billion, while furniture and pre-lam particle board contributed ~Rs 2 billion and ~Rs 1 billion respectively.

• Domestic sales were ~Rs 13.5 billion while exports stood at ~Rs 4.5 billion for laminates.

• Domestic laminate realisations are 4-5% higher as compared to exports, hence company enjoys better margins in domestic biz as compared to exports.

• Laminates market size was ~Rs 170 billion in FY23, out of which domestic market was Rs 120 billion. Unorganized domestic market was ~50 billion.

• Management expects laminate industry to grow at ~10-11% for next two-three years, which will be driven by renovation/home improvement trend.

• Organised sector is expected to grow at 13%-15% while unorganised sector is anticipated to grow at 8%-10%.

• Company has largest laminates capacity of 21 million sheets p a. and capacity of 0.5 million boards for particle boards.

• Management stated that sustainable margins for laminates is ~13-14%.

• Company has a wide distribution reach in domestic market with 650 stock points, 22,000 dealers spread across ~1,000 towns.

• Company aims to hold dominant market position in B2C market that contributes ~65% of revenue.

• Merino has planned capex of Rs 10 billion majorly for particle board segment, which will have an A/to of ~three times at full capacity utilisation.

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