tag:blogger.com,1999:blog-735209523627178736.post7352589141743945593..comments2024-01-22T16:29:52.183+05:30Comments on Value Investing: An Intutive Approach to Investing: My First Tryst With Scuttlebutt: Cera SanitarywareDhwanilhttp://www.blogger.com/profile/02537043667425952923noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-735209523627178736.post-71553038609582151482014-02-18T17:42:18.111+05:302014-02-18T17:42:18.111+05:30Hi everyone,
I am very happy to contact to landmaa...Hi everyone,<br />I am very happy to contact to landmaark why because they had provide quality marbles and tiles. Marble tiles are very clean looking good and superb. Landmaark is the best company about fitting dealers and flooring tile dealers. Landmarks is the top company in Bangalore to sell the materials, marbles, tiles cement etc.<br /><a href="http://www.landmaark.in" rel="nofollow"> Sanitary ware dealers-Hindware </a><br />Anonymoushttps://www.blogger.com/profile/12296615144439048059noreply@blogger.comtag:blogger.com,1999:blog-735209523627178736.post-35920325013930604832013-03-17T00:39:25.371+05:302013-03-17T00:39:25.371+05:30wonderful study on CERA. helped me in selecting ce...wonderful study on CERA. helped me in selecting cera sanitary than hindware..Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-735209523627178736.post-66725036118742257882012-05-15T17:12:51.911+05:302012-05-15T17:12:51.911+05:30Hi Dhwanil
Thanks for your detailed responses. Hi...Hi Dhwanil<br /><br />Thanks for your detailed responses. Highly appreciated.<br /><br />I have dug more on why HSIL makes such low returns on capital as compared to Cera. Even if I just look at Sanitaryware segment of HSIL, its ROA is below Cera's. One reason you have pointed out is Cera is much more cost efficient and has better margins. <br /><br />Another thing I can note is that Cera generates huge income from trading business (outsourcing). Outsourcing revenue was 109 cr in FY 2011, which is ~ 44% of total revenues. <br />And this trading business doesn't require much capex; so this could be a big factor in Cera's superior performance. <br /><br /><br />Regards<br />RajatAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-735209523627178736.post-35301307076148454712012-05-14T19:25:21.454+05:302012-05-14T19:25:21.454+05:30Hi Rajat,
First of all, your blog is equally inte...Hi Rajat,<br /><br />First of all, your blog is equally interesting and "widening the moat" is a wonderful name! <br /><br />Regarding your queries on Cera, following is the point wise reply.<br /><br />1) HSIL has a very strong brand of Hindware and it is much older and more widely recognized than Cera. HSIL also has much deeper reach and "premium" image which helps them charge higher than Cera. However, in terms of margin and ROE, it does suffer due to lower margins/ROCE for container glass division. If you look at FY11 ROCE (as reported segment wise and before interest and tax), it is 22.8% for building materials while 13.8% for container glass. Now sales mix is 50/50 which impacts margin/ROCE significantly. Moreover, Cera is one of the lowest cost producer in branded sanitaryware segment which leads to superior margins. <br /><br />2)In order to calculate free cash flow for any company (for valuation), one should divide capital expenditure in two parts namely maintenance capex and growth capex. Maintenance capex is capital expenditure necessary for maintaining current level of business activity and market share. It shall not include expansion of capacity which will contribute towards growth. While counting free cash flow, one should focus on maintenance capex and not growth capex. Generally in manufacturing industry, maintenance capex is equivalent to depreciation. Rest is growth capex. If, I look at cera, my perspective is that company is plowing back free cash flow for growth and hence it will be misleading to assume that Cera does not have free cash flow generation. Next step of this analysis should be, If cera is redeploying free cash flow in business, is management generating sufficient return on money plowed back? In case of cera, the answer is emphatically yes as its ROCE/ROE is increasing. However one catch here is, if you are deducting only maintenance capex for calculating FCF, don't take very high growth rate for long period of time (10-12% for 5-7 years).<br /><br />3) I do not see oversupply situation for two three reasons<br /> - in India. Replacement demand for sanitaryware only represents 10% of total sanitaryware sales while in other countries it represents 60-80%. As Indian market matures, India is going to catch up with global trend increasing the market size substantially.<br /> <br /> - Branded sanitaryware segment is expanding by eating into market share of local/unbranded sanitaryware players. People have turned style/quality conscious which is helping branded sanitariware players (I have visited many new constructions coming up in Ahmedabad, and most of them have bathrooms fitted with branded sanitaryware, clearly representing consumer's preferences )<br /><br /> - HSIL's expansion plans are spread over 3 years and will also include tiles manufacturing which does not compete with Cera products. Considering that India is one of the least sanitized country (even less than pakistan and bangladesh), I do not see over capacity as an issue.<br /><br />I hope, I have been able to partially answer your questions.<br /><br />Best Regards<br />Dhwanil Desau<br /><br />P.S.: I am also invested in Swaraj engines and had very similar investment rationale as described by you in your blog.Dhwanilhttps://www.blogger.com/profile/02537043667425952923noreply@blogger.comtag:blogger.com,1999:blog-735209523627178736.post-53013437527772003722012-05-14T15:26:21.536+05:302012-05-14T15:26:21.536+05:30Hi Dhwanil, nice to see someone applying scuttlebu...Hi Dhwanil, nice to see someone applying scuttlebutt approach, brings so many new perspectives.<br /><br />I am also tracking Cera, and luckily came across your blog while searching for Cera.<br /><br />Few doubts I had:<br />1. You mention that HSIL has pricing power, charges 15-20% premium over Cera. Still, its profit margins and ROE are much lower than Cera. Surely Glass division can't be holding back HSIL's performance to such a large extent. What could be possible reasons for Cera's superior performance?<br />2. Cera doesn't generate much free cash flows, hardly any if we consider a period of 5 years or more. So, how do you factor that into the projections and valuation?<br />3. HSIL is also expanding quite aggressively - from 2.8 million pieces to 5 million pieces. <br />http://www.business-standard.com/runup/news/hsil-to-invest-rs-650-crcapacity-expansion-in-3-yrs/135655/on<br />Wouldn't that create a situation of oversupply and cause lower profitability for Industry as a whole?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-735209523627178736.post-3702427508178618132012-04-23T12:31:40.738+05:302012-04-23T12:31:40.738+05:30Hi Raja,
Thanks for compliments. Yes, I feel scut...Hi Raja,<br /><br />Thanks for compliments. Yes, I feel scuttlebut is a very useful tool if applied correctly especially in the case of business which have brands and distribution network (as it is easier to get responses from various stakeholders). <br /><br />Currently reading Mohnish Pabrai's Dhandho Investor and am liking it very much. If you have not read, it will be a good read. <br /><br />Best Regards<br />Dhwanil DesaiDhwanilhttps://www.blogger.com/profile/02537043667425952923noreply@blogger.comtag:blogger.com,1999:blog-735209523627178736.post-60615139939418835332012-04-21T19:09:25.050+05:302012-04-21T19:09:25.050+05:30Lovely first tryst with Scuttlebutt approach.
Co-...Lovely first tryst with Scuttlebutt approach.<br /><br />Co-incidentally am reading that very book these days and also hold Cera. So, it made all the more sense.<br /><br />Regards<br />RajaRaja Pandahttps://www.blogger.com/profile/02623082490628245667noreply@blogger.com