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Result Synopsis

Somany Ceramics Ltd (SOMC), registered a muted performance in Q2FY25. Company’s tile volumes grew by 3%YoY (2-year CAGR stood at 6%) while tile revenue remained flattish YoY on account of 3% reduction in realizations. Operating margins remained under pressure at 8.4% Vs 9.8% in Q2FY24 & 8.5% in the previous quarter due to one of the lowest capacity utilizations which came in at 77% as compared to 88%/81% in Q2FY24/Q1FY25 respectively largely due to sluggish demand in domestic markets. Hence, absolute EBITDA declined by 13%YoY & increased by 14%QoQ. However, margin pressure was cushioned by better product-mix wherein Ceramic/PVT/GVT mix stood at 34%/28%/38% in Q2FY24 from 36%/30%/34% in the corresponding period last year. Maxx plant operated at a utilization of 36% that was lower than management’s target of ~50% by Q2FY25. Sanitaryware & faucet contributed 54% & 46% to total bathware revenue of Rs701Mn respectively.

Management Guidance

Management expects a volume growth of high single digit to low double digit for H2FY25. Consequently, the growth for FY25 should be 5-6.5%. Management expects an increase in EBITDA margin by 1-1.5% from current level to 9-10% for FY25 (similar to FY24).

Our View

Owing to muted demand, H1FY25 volumes remained flattish on YoY basis at 33.4msqm. Given the softness in first half, we have revised our FY25E EPS downwards by 16%. We expect H2FY25 to be better Vs H1FY25, with exports increasing and pick-up in retail demand. Therefore, we reckon volumes to grow by 4.5%YoY for FY25E. With improving utilization and better product-mix, margins should also improve in H2YF25 hence, we factor-in operating margins of 9.8% for FY25E. Overall, we expect Revenue/EBITDA/PAT to grow by 7.7%/9.3%/21.6% respectively over FY24-FY27E. At CMP, the stock trades at P/E(x) of 17.7x/15x on FY26E/FY27E revised EPS estimates of Rs37 (lower by 9% Vs previous est) /Rs43.6 respectively. We have valued the company at P/E(x) of 20x on FY27E EPS, arriving at a target price of Rs873. Hence, we assign a BUY rating to the stock.

Result Highlights

* Revenue stood at Rs6.66Bn (7% above est), up by 2%YoY & 15%QoQ.

* EBITDA for the quarter stood at Rs560Mn, a decrease of 13%YoY & an increase of 14%QoQ. EBITDA margin came in at 8.4% (Vs est of 8.2%) Vs 9.8%/8.5% in Q2FY24/Q1FY25 respectively.

* Net profit for Q2FY25 stood at Rs173Mn, a decline of 41%YoY & a growth of 41%QoQ.

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