Cera Sanitaryware Ltd is a buy
I had this stock and disposed of it in 60s last year.
Reason being, its price (not topline/bottomline) is strongly correlated to sentiments of Construction Industry. And that my friends is a dangerous place to be in given lack of information in Indian real estate market. I had a roller coaster ride in Unity Infra from 1050 Rs buy price in 2008 to 60 Rs low in 2009, back to 550 Rs now (after subdivision from 10 to 2), we learn.
Why I disposed of Cera Sanitaryware was low ROC, I like to dispose off companies that go below 20% ROE, ROCE or ROIC irrespective of brand name.
Scan through 2006 numbers, total capital employed ( Debt + Equity ) is 48 Crore and Net profit earned is 2.4 Crore, thats a rubbish number, 5% annual returns on investment, who wants to be in a business sad as that. In 2009, total capital employed was 107 Crore, return of 13 Crore, okay but not good enough @ 12% per annum.
Since no company can grow its net profits rate faster than return on equity over long term, I decided to sell. Analogous to science of accounting this is a post mortem measure too. It does not tell you that other players in industry are feeling more pain and your company is gaining market share. Net profit marging will improve from 3% of sales to 11% of sales on various accounts and economies of scale. Obviously that is overcast and veiled. This company is set to be a steady compounder 25%+ returns per annum and a buy. Especially to be loaded on bad infrastructure sentiments.
I am happy to buy at at 5x the price I sold it a year back, in investing it is never wrong to change your mind. It is only wrong to change your mind and do nothing about it.