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Beat on all front, stock available at lucrative valuations - maintain BUY!

Result Synopsis

Somany Ceramics Ltd (SOMC) displayed a strong performance in Q4FY24 Vs our expectations reporting a healthy revenue growth of 8.6%YoY & 20.5%QoQ. Tiles revenue (86% of sales) grew by 5%YoY & 18%QoQ (2-year CAGR stood at 7%), largely driven by volume growth of 7%YoY & 20%QoQ (2-year CAGR came in at 8%). However, on account of higher incentives & extra-discounts to push volumes, ASP declined by 2%YoY & 1%QoQ. Consequently, Gross margins declined to 52% in Q4FY24 Vs 54%/55% in Q4FY23/Q3FY24 respectively. However, with cost optimization & reduction in gas cost, operating margins improved to 11% as compared to 9%/9.6% in Q4FY23/Q3FY24 respectively. Bathware biz revenue came in at Rs796Mn, a growth of 7%YoY & 22%QoQ and Other biz revenue increased by 71%YoY & 20%QoQ. In Tile volumes, Own/JV/outsourced constituted 35%/36%/29% Vs 38%/36%/26% in Q4FY24 respectively. Ceramics/PVT/GVT contribution came in at 35%/29%/36% respectively in Q4FY24. Management aims to grow in high single digit-to-low double digit (9-10%) in FY25E, which will largely be driven by volumes, and also stated that operating margins should grow by 100-150bps on account of better utilization & higher contribution from GVT. Though demand in Q1FY25E continues to remain muted, the overall scenario is expected to improve from H2FY25E onwards. Hence, we believe SOMC should report tile volume growth of 10%CAGR over FY24-FY26E. Though higher competition from Morbi manufacturers will keep pricing under-pressure, with better product mix we reckon overall ASP to remain steady from hereon, therefore tiles revenue should also grow by 10%CAGR over FY24-FY26E. We expect EBITDA margins to come in at ~10% for next 2-years, translating into an EBITDA growth of 12% over similar period. At CMP, the stock trades at lucrative P/E(x) of 19x/15x on FY25E/FY26E EPS of Rs33/41, respectively. We continue to value the company at P/E(x) of 20x on FY26E EPS, arriving at a target price of Rs817. Hence, we maintain our BUY rating on the stock.

Result Highlights

*  Revenue stood at Rs7.4Bn, a growth of 8.6%YoY & 20.5%QoQ. FY24 revenue stood at Rs25.9Bn a growth of 4.6%YoY.

*  EBITDA for the quarter stood at Rs795Mn and margin came in at 10.8% Vs 9.0%/9.6% in Q4FY23/Q3FY24 respectively. FY24 EBITDA stood at Rs2.5Bn, a steep growth of 34%YoY with margin coming in 9.8%.

*  Net profit for Q4FY24 stood at Rs339Mn, a massive increase of 39%YoY & 45%QoQ. FY24 PAT stood at Rs994Mn, a growth of 48.6%YoY.

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