Buy Somany Ceramics Ltd For Target Rs. 635 By Choice Institutional Equities
Multiple Levers in Place
We maintain our BUY rating on Somany Ceramics (SOMC) with a target price of INR 635/share. We factor in: 1) Volume CAGR of 9% over FY25–28E driven by market share gains from unorganised players in the Tiles segment, 2) Bathware segment revenue CAGR of 12% over FY25–28E, 3) Revenue contribution of 17%/11% from Projects/Bathware segments, respectively. Strong launches and sales of Real Estate sector between FY22 and FY25 would help drive volume growth for SOMC over FY26–28E as these projects near completion, 4) EBITDA margin expansion of ~347bps over FY25–28E.
We forecast SOMC EBITDA/EPS CAGR of 23/48% over FY25–28E on the basis of our volume/realisation CAGR assumption of 9%/0.4% over the same period
We arrive at a 1-year forward TP of INR 635/share for SOMC. We value SOMC on our PEG ratio-based framework – we assign a PEG ratio of 0.9x on FY25–28E core EPS CAGR of 48%, which, we believe, is a conservative multiple. This valuation framework gives us the flexibility to assign a commensurate valuation multiple based on quantifiable earnings growth.
We do a sanity check of our PEG ratio-based TP using implied EV/EBITDA, P/BV and P/E multiples. On our TP of INR 635, FY27E implied EVEBITDA/PB/PE multiples are 7.8x/2.6x/17.4x all of which are reasonable in our view. Potential increased dumping from Morbi into the domestic market, slowdown in Real Estate project execution and home improvement activities are risks to our BUY rating
Q2FY26: Consol EBITDA below CIE estimate
Tiles: Q2FY26 volume came in at 17.8MSM (flat YoY, +11.2% QoQ). Realisation at INR 321 per SQM remained flat YoY/QoQ. Revenue increased 0.4/11.6% YoY/QoQ to INR 5,706Mn marginally below CIE est of INR 5,891Mn.
Bathware: Q2FY26 Bathware segment revenue grew 9.0/21.4% YoY/QoQ to INR 764Mn vs CIE est of INR 771Mn.
Revenue/EBITDA came in at INR 6,852Mn (+2.8/+13.4% YoY/QoQ) / INR 535Mn (-4.4% YoY, +11.1% QoQ) vs CIE estimates of INR 6,952Mn/INR 598Mn, respectively. Core PAT came in at INR 150Mn (-12.5% YoY, +44.6% QoQ) vs. CIE est of INR 163Mn.
Tiles segment FY26 guidance: Volume growth at mid–high single digits and EBITDA margin expansion of 100–150bps YoY
Management is targeting mid–high single–digit volume growth and a 100–150bps EBITDA margin improvement in FY26, supported by a strategic shift towards higher-margin project sales. Project sales are expected to increase to 17% of revenue mix in FY26. This shift will be driven by Real Estate projects launched during FY22–FY25, expected to be completed in FY26E–FY28E, Following strong launch and booking activity seen in FY22–FY25. Management would pursue an aggressive approach in the project segment, which has margins higher than select channel sales.
Bathware segment FY26 guidance: Revenue growth at low teens
Management is aiming for lower double-digit growth in FY26 (albeit, on a low base), supported by strong real estate demand and a differentiated product portfolio – a target we believe is achievable.
Construction chemicals JV with Dura Build Care Private Limited: SOMC acquired a 51% equity stake in Dura Build Care Private Limited (DBCPL) by purchasing 11,04,886 shares for INR 103Mn, making DBCPL its subsidiary. DBCPL is an Indian manufacturer specialising in construction chemicals and building material, including waterproofing compounds and repair systems, with manufacturing facilities in Haryana and Karnataka. This joint venture marks SOMC’s entry into the high-margin construction chemicals segment, which has a total addressable market of INR 110–120Bn across waterproofing and admixtures. DBCPL contributes a portfolio of 150 intellectual properties and includes a roadmap for full acquisition over the next 3–4 years.
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