Volume rise makes Cera step up branding

Analysts warn that diversification may add to topline but bottomline might suffer as faucets earn low margins

Cera Sanitaryware - third-largest sanitaryware company in India - has stepped up its marketing, leading to improved visibility for the brand. It has signed up Sonam Kapoor, the Bollywood actor, as the brand ambassador for the next two years. It is also sponsoring the high-TVT dance reality show "Nach Baliye - Season 6" on Star Plus and increased participation in real estate exhibitions. Cera's marketing expenses have grown by 46.3 per cent between financial year 2008 and 2013.

The rise in marketing marks Cera's increase in volume share in the branded space, from from 19 per cent three years back to about 23 per cent. The sanitaryware market is estimated to be around Rs 2,500-2,700 crore. Hindustan Sanitaryware (with 44 per cent market share) and the unlisted Roca Parryware (with 26 per cent market share) are Cera's key competitors. Rising disposable income and nuclear families have led to the growth in branded sanitaryware as style statements in one's home. With plans to diversify into more product lines to offer complete bathroom solutions, it has set aside Rs 150 crore of capex for financial year 2014-16. It recently increased sanitaryware capacity by 30 per cent.

Cera has focused on the mass market and placed most of its products at competitive prices. Twinkle Gosar, research associate, Angel Broking, says, "Our channel-checks with multi-brand dealers suggest that Cera products are priced 10-15 per cent lower than that of other organised peers such as Hindustan Sanitaryware, giving it an edge. Though, Hindustan Sanitaryware has a strong brand name but it does not have strong marketing drive. Cera, on the other hand, has been giving attractive incentives to dealers to push its products. Roca Parryware is losing market share after taking over Parryware from the Murugappa group in 2010. Cera has gained most of Roca Parryware's market share." Innovations in sanitaryware, tiles and faucets have also held the company in good stead.

It now has high-end bath tubs, steam cubicles, shower partitions and shower panels. The company is using its existing distribution channels to attain grow in these categories. Over the next 3-5 years, the Cera management expects tiles and faucets to account for nearly 50 per cent of revenues from their current 25 per cent. "Cera aims to become a major player in the faucets segment and expects its market share to touch double digit in the next two- three years", says Vikram Somany, chairman and managing director, Cera Sanitaryware.

Cera is planning to widen its reach in tier II and III cities in other markets besides the south of India where it has a strong foothold.

And Somany says that it will extend one of its differentiators to these new markets too. It has a team of 200 technicians for after-sales service. "Our USP has been a combination of attractive designs made by people from NID and the likes, and excellent and responsible service calls," says Somany. On the cards are style galleries and style studios which will be company-managed and experiential. But Nitin Bhasin, analyst at Ambit Capital says, "We remain sceptical of the management's aim to extend into related but brand-dilutive toilet products such as cleaners/dispensers." He believes these products may not be commensurate to Cera's margins so far and neither improve its brand positioning.

After all, Cera's faucets business is making losses and is expected to book marginal profits in 2014-15. The tiles business, too, is expected to give amere 5-7 per cent margins, much lower than Cera's EBITDA margins of 15.4 per cent in 2012-13. While faucets and tiles raise the topline, analysts warn that the company's margins might come down to 13 per cent in 2013-14, driven by the rising share of low-margin products and higher marketing spends. Despite its competitive pricing, Cera would also have to look out for unorganised players who don't pay excise duties and sales tax, and can price products 70 per cent cheaper than sanitaryware brands.

With inputs from Vinay Umarji