Sanghavi Priyank J. 1. Is Cera's 20% market share a disadvantage viz a viz HSILs 40%?

Cera Sanitaryware Ltd.

HSIL has two businesses - sanitaryware and container glass. One has to look at the segment revenues of HSIL to compare apples to apples: CAGR Mar'03 Mar- to 11 Mar'11 24295 4424 16330 2654 11156 24.7% 39.8% 18.7% 44.2% 23.8%

Cera Revenues (Rs. Lakhs) EBIT (Rs. Lakhs) Capital Employed (Rs. Lakhs) PAT (Rs. Lakhs) Net Worth (Rs. Lakhs) EBIT % (EBIT / Revenues) Revenues / Capital Employed ROCE RONW

Mar02 -

Mar03 4150 303 4145 142 2016

Mar04 5062 385 4231 161 2132

Mar05 6094 502 4356 239 2292

Mar06 7995 1035 5663 590 2826

Mar07 10667 1626 8635 907 4771

Mar08 12805 1871 11018 1005 5882

Mar09 15952 2387 11984 1311 7062

Mar10 19136 3242 12892 1961 8851

7.3% 1.00 7.3% 7.0%

7.6%

8.2% 12.9% 15.2% 14.6% 15.0% 16.9% 18.2%

1.20 1.40 1.41 1.24 1.16 1.33 1.48 1.49 9.1% 11.5% 18.3% 18.8% 17.0% 19.9% 25.1% 27.1% 7.6% 10.4% 20.9% 19.0% 17.1% 18.6% 22.2% 23.8%

HSIL Sanitaryware Business Revenues (Rs. Lakhs) EBIT (Rs. Lakhs) Capital Employed (Rs. Lakhs) PAT (Rs. Lakhs) Net Worth (Rs. Lakhs) EBIT % (EBIT / Revenues)

Mar02 11200 1822 14500 -

Mar03 11800 1443 14000 -

Mar04 13700 1998 11700 -

Mar05 17092 2697 11256 -

Mar06 23593 4523 14488 -

Mar07 26920 4748 17901 -

Mar08 30443 4778 19830 -

Mar09 31765 5449 19805 -

Mar10 37212 7223 39863 -

CAGR Mar'03 Mar- to 11 Mar'11 49720 10614 46463 19.7% 28.3% 16.2% -

16.3% 12.2% 14.6% 15.8% 19.2% 17.6% 15.7% 17.2% 19.4% 21.3% Page 1 of 7

Sanghavi Priyank J. Revenues / Capital Employed ROCE RONW

Cera Sanitaryware Ltd.

0.77 0.84 1.17 1.52 1.63 1.50 1.54 1.60 0.93 1.07 12.6% 10.3% 17.1% 24.0% 31.2% 26.5% 24.1% 27.5% 18.1% 22.8% -

HSIL - Sanitaryware divisions EBIT % is better than that of Ceras in all the years. HSILs capital employed numbers are given by management in the annual reports and HSILs website - http://www.hindwarehomes.com/results.aspx. I have taken the total balance sheet size as the capital employed. HSIL seems to have scale advantage over Cera. However, Ceras revenues and EBIT growth is faster than that of HSILs sanitaryware business over the same time period. 2. Interest cover: Mar02 Mar03 303 152 2.0 Mar04 385 122 3.2 Mar05 502 104 4.8 Mar06 1035 139 7.4 Mar07 1626 228 7.1 Mar08 1871 317 5.9 Mar09 2387 397 6.0 Mar10 3242 253 12.8 CAGR Mar'03 Mar- to 11 Mar'11 4424 272 16.3 39.8% 7.5% -

Cera EBIT (Rs. Lakhs) Interest Expense (Rs. Lakhs) Interest Cover

HSIL - Total EBIT (Rs. Lakhs) Interest Expense (Rs. Lakhs) Interest Cover

Mar02 2183 1988 1.1

Mar03 2463 1655 1.5

Mar04 3102 1177 2.6

Mar05 3987 1089 3.7

Mar06 5333 1293 4.1

Mar07 5987 1425 4.2

Mar08 6123 1631 3.8

Mar09

Mar10

CAGR Mar'03 Mar- to 11 Mar'11 26.7% 10.1% -

7341 10576 16309 1664 4.4 4009 2.6 3563 4.6

Page 2 of 7

Sanghavi Priyank J. 3. Cera Vs HSILs combined businesses:

Cera Sanitaryware Ltd.

I have used the reported earnings. Ceras ROCE calculation is shown in point 1 above. HSILs combined business numbers are: CAGR Mar'03 to Mar-11 Mar'11 21.2% 26.7% 19.3% 41.2% 26.2%

HSIL - Total Revenues (Rs. Lakhs) EBIT (Rs. Lakhs) Capital Employed (Rs. Lakhs) PAT (Rs. Lakhs) Net Worth (Rs. Lakhs) EBIT % (EBIT / Revenues) Revenues / Capital Employed ROCE RONW

Mar02 18521 2183 30029 32 10504

Mar03 22308 2463 28431 554 10910

Mar04 27151 3102 25391 1534 10241

Mar05 29711 3987 31494 1903 10228

Mar06 39652 5333 40050 2581 12942

Mar07 47776 5987 42947 2911 20169

Mar08 52084 6123 45664 2865 22068

Mar09 61064 7341

Mar-10

78874 103533 10576 16309

76189 103103 116794 4015 25053 5243 48776 8735 70126

11.8% 11.0% 11.4% 13.4% 13.4% 12.5% 11.8% 12.0% 0.62 7.3% 0.3% 0.78 1.07 0.94 0.99 1.11 1.14 0.80 8.7% 12.2% 12.7% 13.3% 13.9% 13.4% 9.6% 5.1% 15.0% 18.6% 19.9% 14.4% 13.0% 16.0%

13.4% 0.77 10.3% 10.7%

15.8% 0.89 14.0% 12.5%

CeraS EBIT %, ROCE and RONW numbers are better than that of the combined businesses of HSIL. Point to note is that one cannot invest only in the sanitaryware division of HSIL; one has to invest in the combined businesses of HSIL.

Page 3 of 7

Sanghavi Priyank J.

Cera Sanitaryware Ltd.

4. Is growth volume based or price based? Cera Sanitaryware (in M.T.) Sanitaryware (in Rs. Cr.) Fittings (in Lakhs) Fittings (in Rs. Cr.) Mar-03 11291 39.41 5.72 6.43 Mar-09 CAGR 18769 102.48 11.87 65.38 8.84 17.27 12.94 47.19 HSIL Sanitaryware & Fittings (in M.T.) Sanitaryware & Fittings (in Rs. Cr.) Mar-04 23759 137.23 Mar-10 CAGR 26675 381.61 1.95 18.58

Ceras growth is both volume based and price based. This industry has got pricing power. Product mix for Cera has changed from Sanitaryware being 86% of revenues in Mar-03 to 61% in Mar-09. Remaining is Fittings business. For Cera, above data is available upto Mar-09 only.

5. Raw material as percentage of revenue: Sanitaryware - Raw Material (in Rs. Cr.) 5.86 7.92 9.02 9.39 11 12.67 11.76 Sanitaryware - Revenues (in Rs. Cr.) 39.41 46.87 51.93 61.98 73.47 82.9 102.48

Cera Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

% 14.9% 16.9% 17.4% 15.2% 15.0% 15.3% 11.5%

For sanitaryware, raw material as a percentage of revenues has always been less than 20%. Like for raw materials in some other industries, we are unlikely to here news like Due to some national/international event there is less production of sand this year and hence cost of sand doubled from last year. HSIL gives combined raw material costs of Sanitaryware and Fittings and combined revenues for them as well. Fittings are mostly traded by both HSIL and Cera.

Page 4 of 7

Sanghavi Priyank J.

Cera Sanitaryware Ltd.

6. Dividend payout policy: Dividend Cera Dividend, including tax (in Rs. Lakhs) Profit After Tax (in Rs. Lakhs) Payout Mar-03 36.38 141.94 Mar-04 45.47 161.11 Mar-05 49.03 239.14 Mar-06 55.15 589.94 Mar-07 78.17 906.65 Mar-08 108.5 1004.9 Mar-09 145.32 1310.85 Mar-10 184 1961.1

25.6% 28.2% 20.5% 9.3% 8.6% 10.8% 11.1% 9.4%

Dividend payout ratio decreased from Mar-06 since the company needed funds to increase capacity of its sanitaryware from 15000 M.T. in Mar-05 to 24000 M.T. in Mar-10 and wind power capacity from 1.225 MW in Mar-05 to 4.975 MW in Mar-10.

7. Owner earnings: Depreciation Capex (in Rs. (in Rs. Lakhs) Lakhs) 189.42 205.69 210.67 268.23 354.1 494.13 592.81 610.31 365.67 84.11 376.31 315.08 1348.35 2238.13 2207.08 450.35 435.5 931.86 Capacity Sanitaryware (in M.T.) 15000 15000 15000 15000 16500 24000 24000 24000 Capacity - Wind Power (in MW) 1 1.225 1.225 3.725 3.725 4.975 4.975 4.975

Cera Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Average

Average capex per year from Mar-03 to Mar-10 has been Rs. 932 lakhs. But during this time revenues increased by 24.4%. I dont know a reliable way to bifurcate this capex into maintenance and growth capex.

Page 5 of 7

Sanghavi Priyank J.

Cera Sanitaryware Ltd.

8. Working capital intensity of the business:

Working Capital (in Rs. Net Sales (in Rs. Working Capital / Net Cera Cr.) Cr.) Sales Mar-03 12.37 41.5 29.8% Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 12.01 12.84 15.66 26.76 33.63 45.23 58.1 71.04 50.62 60.94 79.95 106.67 128.05 159.52 191.36 242.95 23.7% 21.1% 19.6% 25.1% 26.3% 28.4% 30.4% 29.2%

Working capital as a percentage of Net Sales has remained constant from Mar-03 to Mar-11. However, it has an increasing trend from Mar-06 to Mar-11.

9. Ownership structure: Promoter Holding (No. of shares in Lakhs) Promoter Holding % 31.38 58.38 31.38 31.38 32.88 33.98 33.98 33.98 69.6 58.38 58.38 54.12 54.94 54.71 54.02 55

Cera Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

Promoters have never sold their shares. Their stake decreased in percentage terms due to issue of new shares as a part of private placement to an investor in Mauritius in the year 200607 as well as ESOP to employees. During the year 2006-07, 6 lakh preferential warrants were issued to the promoters. Till the end of the year they had been allotted 1.5 lakh shares on conversion of preferential warrants. Company also issued 5.5 lakh equity shares to a Mauritius based strategic investor. Page 6 of 7

Sanghavi Priyank J.

Cera Sanitaryware Ltd.

During the year, 2007-08, 1.1 lakh shares were allotted to the promoters in pursuance to 6 lakh preferential warrants granted to them. Balance preferential warrants of 3.4 lakhs had not been subscribed by the promoters. Additional 10 lakh warrants issued to the promoters on preferential basis had also not been subscribed by them. Between Dec 2010 and Mar 2011, promoters increased their stake by 1.70% in the company.

10. Earnings retained vs. Change in Market Cap. Networth (in Rs. Market Cap. (in Rs. Cera Cr.) Cr.) 31-Mar-06 28.26 22.39 31-Mar-11 111.56 202 Change 83.3 179.6 For every Rupee 1 retained, Cera created Rs. 2.15 in shareholder value.

11. Acquisition value: Roca bought 50% stake in Parryware in March 2006 for Rs. 270 Cr. valuing the company at Rs. 540 Cr. At that time, turnover of Parryware was Rs. 195 Cr. Thus the value assigned to Parryware was 2.77 times revenues. Roca bought 47% stake in Parryware in April 2008 for Rs. 725 Cr. valuing the company at Rs. 1540 Cr. Turnover of Parryware was Rs. 360 Cr. in 2007-08 and growth was 25%. Thus the value assigned to Parryware was 4.28 times revenues. Parryware had 46% market share at that time. Roca bought the remaining 3% stake in Parryware in March 2011 for Rs. 22.2 Cr. valuing the company at Rs. 740 Cr. Assuming that Hindware and Parryware still have a 40% market share each, we can approximate that the sales of Parryware must be around that of Hindware in FY11 i.e. Rs. 497 cr. This gives the recent Roca deal at 1.48 times sales. Applying this valuation to Cera's FY11 sales of Rs. 242.95 Cr., gives Cera's value as Rs. 360 cr. Of course, Parryware has double the market share of Cera, which has to be taken into consideration.

Page 7 of 7