IGI Logo

Decent quarter; guidance intact

Somany Ceramics’ (Somany) 4QFY23 print was above expectation as Revenue/EBITDA/ PAT was 7%/17%/15% above JMFe respectively (4%/13%/5% above consensus). Tile revenue grew 9% YoY/7% QoQ (+7% 4-year CAGR) mainly led by volume (+9% YoY/QoQ) while realisation was flat YoY/-1% QoQ. Tile volume performance was in line with the industry leader (9% / 8% YoY for Somany/ Kajaria respectively). As per the management, demand environment continues to be subdued. Reduction in blended gas cost by INR 4-5/scm QoQ to INR 50/scm led to gross margin expansion of 110bps QoQ (170bps YoY) to 31.5%. With softening in gas prices, the management expects blended gas cost to be ~INR 46-47/scm. EBITDA margin expanded 80bps YoY/ 250bps QoQ to 9.0%. Notwithstanding the current subdued demand, the company continues to be optimistic and has guided for mid-teen volume and value growth and operating margin guidance of 9.5%-10.0%. We have tweaked our FY24/25EPS estimates by 3%/2% respectively to reflect the current quarter performance and arrive at a Mar’24 TP of INR 860, basis 22xFY25EPS (earlier INR 890).

* 4QFY23 summary: Somany’s consolidated revenue grew by 10% YoY/9% QoQ (+7% 4- year CAGR, 7% above JMFe) as tile volume grew 9% YoY/ QoQ (5% 4-year CAGR, 7% above JMFe) while realisation was flat YoY (-1% QoQ, in line with JMFe). Bathware revenue grew 20% YoY/28% QoQ (+5% 4-year CAGR, 12% above JMFe). Power and fuel cost grew 7% YoY / -3% QoQ to INR 114/sqm (8% above JMFe). Gross margin (post P&F cost) expanded 170bps YoY / 110bps QoQ to 31.5% (220bps below JMFe). Blended fuel cost reduced by INR 4-5/scm QoQ to INR 50/scm, as per the management, and it expects blended cost to remain ~INR 45-46/scm. Reduction in gas cost will be largely passed on to the channel as discounts/ schemes, as competition from smaller and unorganised players may intensify with lower gas prices. Thus, the management has guided for operating margin of 9.5-10%. EBITDA margin expanded by 80bps YoY/250bps QoQ to 9.0% (70bps above JMFe). Adj. PAT came in at INR 244mn (+42% YoY; -7% 4-year CAGR; 15% above JMFe)

* Decent volume growth (+9% YoY/QoQ); guides for mid-teen volume growth in FY24: Somany’s tile volume performance (+9% YoY/ QoQ; +5% 4-year CAGR) in Q4FY23 was broadly in line with the industry leader (+8% YoY for Kajaria). As per the management, demand during the quarter was subdued. Further, demand continues to be sluggish in April-May’23. The management remains optimistic on business momentum on the back of a) recovery in demand in the coming quarters, b) aggressive distribution expansion in smaller cities (c.300 net dealer addition in FY23), c) Morbi players’ focus on exports (India’s export market is expected to grow given the favourable position of Indian exports in the global tiles market), and d) Somany’s new capacities coming on stream, which will also improve product mix and be margin-accretive. The management has guided for midteens volume and revenue growth in FY24.

* Tweak estimates, maintain BUY: We tweak our FY24/FY25 EPS estimates to arrive at a Mar’24 TP of INR 860, basis 22xFY25EPS (earlier INR 890). We maintain BUY as current

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

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