Cera is the third largest player in the organised sanitary-ware market in the country. It sells bathroom fittings, faucets, shower panels, etc.

Cera operates in an industry that thrives on construction activity. A slowdown in real estate bears down hard on sanitary-ware players. Inspite of the slowdown, Cera saw revenues and net profit up 23.8 per cent and 30 per cent, respectively. What's got the markets spooked about Cera is the last quarter's (Q4 FY15) top-line growth slowed down to 14.8 per cent as compared to revenue growth of 28 per cent in 9M FY15. Cera's stock was pummelled following the quarterly slowdown.

To add to the company's worries, EBITDA margins fell 170 basis points (YOY) to 14.4 per cent on account of higher sales in the lower-margin faucet and tiles segment as compared to the more lucrative sanitary-ware segment. Margins are expected to remain at the same levels in FY16, according to a report by CRISIL Research, as the company could pass the benefits of lower energy costs to consumers in a bid to boost volume growth.

In the meantime, Cera is building capacity. Sanitary-ware capacity is expected to hit 3.3 million pieces per annum from current levels of 3 million pieces per annum. Faucets should see capacity jump to 2.5 million pieces per annum from current levels of 0.9 million pieces. The extended capacity in faucets is in its final stages and is likely to come online by Q1 FY16. Cera is also looking at acquiring a controlling stake in a small tile manufacturer based in Morbi, Gujarat.

The Swachh Bharat programme has given hope to industry players. Though Cera has started seeing movement in orders for the government's programme, such orders have yet to pick up scale. If they don't, the slowdown in the real estate sector and the weakness in consumer demand (that affects replacement demand) could hit revenue growth this year. The company, though, remains more optimistic and has guided revenue growth of 25 per cent and PAT growth of 30 per cent in FY16.

Cera's stock is down 30 per cent from its 52-week highs. At the current price, the stock quotes at 39 times its TTM earnings. That may appear expensive but with earnings expected to grow at 30 per cent for FY16, the PEG ratio stands at 1.3x. Cera could see revenue growth recovering in the second half of the current financial, according to CRISIL Research, as consumption spending, driven by economic recovery and improved consumer sentiment, picks up.