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Result Synopsis

SOMC tile volumes remained flattish YoY (2-year CAGR stood at 4%) while tile revenue declined marginally by 3%YoY on account of 2% reduction in realizations. Operating margins were under-pressure at 8.5% Vs 10.8% in previous quarter and 8.6% in Q1FY24 due to lower utilizations which came in at 81% as compared to 89%/70% in Q4FY24/Q1FY24 respectively. Hence absolute EBITDA declined by 3%YoY & 38%QoQ. Though July was tough, it was still better than June’24 & with improvement in demand on m/m basis, management remains up-beat on growth and retains FY25E topline growth guidance of double digit. Consequently, with expected improvement in utilizations, operating margins are likely to improve by 1-1.5% Vs FY24. Management expects a robust growth in H2FY25E and aims to maintain a double-digit growth for coming 2-3years. The new Max-plant is operating at 35-37% utilization, which will improve gradually from hereon.

Owing to strong industry tailwinds & company’s wide presence across geographies, we reckon SOMC will outperform industry growth rate. Hence, we reckon Tile volumes/value to grow by 9%/9% respectively over FY24-FY26E and we have maintained our annual operating margin estimate at ~10%. With tile industry likely to witness improvement in demand on the back of strong real-estate and infra-activities, we believe SOMC will be one of the key beneficiaries and with new Max plant ready along with industry preference for GVT, we expect overall product mix to improve. Hence margins are set to expand gradually. Given the healthy outlook, we have revalued the company at P/E(x) of 25x (steep discount Vs peer) on FY26E EPS of Rs41. Hence, we retain our BUY rating on the stock with an upgraded target price of Rs896.

Result Highlights

* Revenue stood at Rs5.76Bn (7% below est), flattish YoY & a decline of 22%QoQ.

* EBITDA for the quarter stood at Rs490Mn, a decrease of 3%YoY & 38%QoQ. EBITDA margin came in at 8.5% (Vs our est of 10.3%) Vs 8.6%/10.8% in Q1FY24/Q4FY24 respectively.

* Net profit for Q1FY25 stood at Rs123Mn, a decline of 2%YoY & 64%QoQ.

* The capacity of the sanitaryware plant is restated to 0.48mn pieces/annum from 0.78mn pieces/annum on account of change in product mix.

Segmental Highlights for Q1FY25

Tiles

* Overall tile volumes stood at 15.6msm, flattish YoY & a decline of 18%QoQ (2- year CAGR 4%). Own volumes (36% of total) stood at 5.5msm, degrew by 15% YoY & 17%QoQ. JVs (39% of total) registered a growth of 17%YoY & a decline of 9% QoQ to 6.1msm. Lastly, outsourced vols (25% of total), stood at 3.9msm, a decrease of 2%YoY & 29%QoQ.

* Revenue of tiles stood at Rs5.0Bn, a decline of 3% YoY & 19%QoQ. Own tile revenue (35% of revenue) stood at Rs1.7Bn, a degrowth of 18%YoY & QoQ. JVs sales (41% of tile revenue) increased by 16%YoY & decreased by 9%QoQ to Rs2.0Bn, and Outsourced sales (24% of tile revenue) stood at Rs1.2Bn, a degrowth of 4%YoY & 32%QoQ.

* Blended ASP came in at Rs320/sqm Vs Rs326/Rs324 in Q1FY24/Q4FY24, respectively. Own manufacturing’s ASP stood at Rs312/sqm Vs Rs325/Rs314 in Q1FY24/Q4FY24, respectively. JVs realization came in at Rs334/sqm, flattish on YoY & QoQ basis. Outsourced ASP contracted from Rs315/Rs325 in Q1FY24/Q4FY24, respectively to Rs309/sqm in Q1FY25.

Others

* Bathware segment recorded a revenue of Rs605Mn, a growth of 5%YoY & a degrowth of 24%QoQ.

* Other biz (Epoxy, Adhesives etc.) reported a growth of 28%YoY & remained flattish sequentially to Rs181Mn.

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