Vijay Kedia & Dolly Khanna Rake In Big Bucks In Cera Sanitaryware

Cera Sanitaryware has the unique distinction of being backed by three of the smartest investors. Vijay Kedia, who is an inspiring story of rags to riches, holds 3,15,000 shares (2.49%), Dolly Khanna, whose stock picking skills are admirable, holds 1,44,533 shares (1.14%) and Nalanda India Equity Fund, backed by wiz-kid Pulak Chandan Prasad, holds 2,16,456 shares (1.71%).

Cera Sanitaryware has been on an upward trajectory for the past several years. In the last one year, it has given a splendid return of 75%. In you go back two years the return is an astonishing 335%. Over the past 5 years (1.12.2008) the return is a mind-blowing 2317%.

Now, let us understand what attracted these three wizards to Cera Sanitaryware, what has caused the upside in the stock and whether latecomers have a chance to grab some of the action.

The best way to understand the success story of Cera Sanitaryware is to see the programme that CNBC-TV18 has prepared. It is an inspiring presentation and explains the amazing innovation and vision of Vikram Somany that has converted Cera into the powerhouse that it is today.

Now, if you go back to Raamdeo Agrawal’s analysis of what makes a wealth creator stock, you will find that Cera Sanitaryware meets all the requirements.

First, the industry that it is engaged in – sanitaryware – is a must-have for the burgeoning middle class, which has increased spending capacity and is seeking to improve the lifestyle. The size of the opportunity in a Country like ours is enormous.

Second, the quality of Cera’s management led by Vikram Somany is there for all to see. Somany has made Cera into a market leader with a 23% share of the organized market. Also, in the last 5 years, Cera has grown at a CAGR of 32% as against the industry growth rate of 15%. The sales turnover has increased from Rs. 44 crore in 1999-00 to Rs. 500 crore in 2012-13.

Mr. S. C. Kothari, the CEO of Cera Sanitaryware, succinctly attributed the success of the company to three factors:

(i) Technological up-gradation enabling production of high-value items,

(ii) Aggressive marketing and branding which made the product “youthful” as opposed to the other brands which are seen as “fuddy-duddies”,

(iii) Expansion into other value-added products such as faucets, shower rooms, tiles etc.

The other innovative marketing strategy that Cera has done is to set up “Style studios” and “bath galleries” in major cities which attract customers. If you go to the fancy malls, you will find huge stores displaying all of Cera’s products. So, if you are renovating your home, you will visit the shop for a one-stop requirement of all your bathroom needs.

Obviously, Vikram Somany knows the pulse of the consumer much better than his competitors.

The other point is that Cera has a great moat around it. First, there is a strong brand recall created by the aggressive marketing and branding. Second, there is a nation-wide network of 10,000 retailers. It is difficult for a competitor to penetrate this stronghold.

Now, the only question is whether there is any juice left for latecomers. The answer is obvious. First, Cera has a turnover of about Rs. 500 crore and a market capitalisation of Rs. 900 crore. It is the third largest manufacturer in the organized sector. The way it is growing aggressively, one can expect it to capture the second spot and even the first spot in a couple of years. Second, there is a vast segment of customers who frequent the unorganized suppliers who can be converted into Cera’s customers. Third, the P/E of about 19 times TTM EPS is not at all unreasonable for a company with the clarity of vision and scope of opportunity such as Cera.

Speaking for myself, I have a nice little chunk of Cera in my portfolio (sitting pretty along with other splendid performers like Kajaria Ceramics, Amara Raja & Bajaj Corp). I plan to add more whenever the opportunity presents itself.

Now, if you don’t have Cera in your portfolio, you need to give it serious thought. After all, wouldn’t you like to share the stage with wizards like Vijay Kedia, Dolly Khanna and Nalanda Capital?