IGI Logo

Strong all-round show…

Somany Ceramics reported strong growth on a benign base (~31% decline in Q4FY20). Tiles sales volumes were up 52% YoY at 16.9 MSM with realisations up 4% YoY at | 293/SCM. Tiles revenues were up 57.8% YoY at | 491.1 crore while bathware revenues were up 58% YoY at | 57 crore. EBITDA, at | 88.9 crore, was up 5.4x YoY, driven by operating leverage and lower other costs. Margins at 15.8%, were up 12 percentage points on a depressed base. PAT was at | 30.3 crore. PAT would have been higher but for a write-off of investments in NCDs of | 18.5 crore in Srei Infra.

Covid to impact Q1; mid teen growth guidance for FY22

Volume growth was led by strong traction in tier II, III and below cities, aiding capacity utilisation (at ~97% in Q4) and now contributes 75% to revenues. Furthermore, volume diversion towards exports by Morbi players (~40% Morbi volumes exported now vs. ~25% earlier), is also improving the demand and pricing scenario for organised player. Going forward, the company expects 60-70% of overall targeted sales during Q1FY22 owing to the second wave. April 2021 sales were at ~85% of the company’s internal target, May 2021: 32-33%, June 2021: 70%. Despite this, the company expects mid teen volume growth in tiles business in FY22E with sharp demand recovery expected during normalcy period. In bathware division, the management has guided for 35-40% YoY in FY22E. Going forward, the management expects margins to hover in the range of 12-13% in FY22.

Capex plans in place to meet anticipated demand

Somany’s entire product portfolio is spread across a) tiles: capacity of 63 MSM/annum (including dedicated outsourced tie ups), b) sanitaryware: 1.15mn pieces/annum (excluding outsource tie ups) and c) bath fitting: 0.65 mn pieces/annum (excluding outsource tie ups). Additionally, the company has announced capacity expansion plans worth ~| 160-170 crore to be spread across a) southern India plant: joint venture with total estimated capex of ~| 75 crore (60% to be spent by Somany), b) western region plant: estimated capex of ~| 90 crore and c) northern region plant: | 40 crore. The proposed capex is likely to increase Somany’s capacity to 70-71 MSM. The management expects commissioning of all plants by FY22-end. We expect overall revenues to grow at ~15% CAGR in FY21-23 to | 2168 crore.

Valuation & Outlook

Somany’s working capital management and net debt reduction (down from ~| 444 crore in FY20 to | 173 crore in FY21) has been the key positive. Given the robust demand traction, improved margins trajectory and balance sheet repair, we raise our target P/E multiple to 22x (vs. 17x). We maintain BUY rating with a revised target price of | 615/share (earlier | 500/share).

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer