Buy Somany Ceramics Ltd for the Target Rs. 720 by Choice Institutional Equities Ltd
Somany's Margin Story Gains Conviction
SOMC delivered a strong Q2FY27 performance, posting double-digit revenue growth across both, Tiles and Bathware, segments, despite intense competition. This growth was supported by a sharp realisation improvement (+20.1% YoY) for the Tiles segment coupled with 5.4% volume growth, while the Bathware segment posted double-digit revenue growth. EBITDA margin came in ahead of expectation at 11.6%, expanding ~378 bps YoY, driven by higher own-plant utilisation, operating leverage and a meaningful JV turnaround from loss to profit.
Q2FY27: Strong Performance, Revenue and EBITDA Beat Estimate
* Q2FY27 consolidated revenues came in at INR 8,607 Mn, up 25.6% YoY and 14.8% QoQ. (beating CIE est. by 5.0%). Yearly growth mainly supported by improved realisation and favourable product mix
* EBITDA grew by 15.7% QoQ to INR 997 Mn (beating CIE est. by 8.2%), with a margin of 11.6% (+378 bps YoY, +9 bps QoQ), driven by product mix improvement and continued focus on operational efficiency ? APAT grew 176.9/16.8% YoY/QoQ to INR 415 Mn (missing our est. by 5.9%); PAT margin was 4.8% (+263 bps YoY, +8 bps QoQ)
* Tiles: Volume grew by 5.4% YoY to 18.8 Mn sq. meters (beating CIE est. by 2.3%) and realisation was up 20.1% YoY to 385/sq. meters driving tiles revenue growth by 26.7%
* Bathware: Revenue up by 15.0% YoY to 878 Mn (beating CIE est. by 5.5%)
Capacity expansion to drive growth over the medium term:
SOMC plans to add ~5 Mn sq. meters of incremental Glazed Vitrified Tiles (GVT) capacity through debottlenecking and modernisation: 2.5 Mn sq. meters through ceramics capacity conversion and 2.5 Mn sq. meters through augmentation, requiring minimal capex. Additionally, SOMC plans a 9-Mn sq. meters greenfield GVT plant in southern India with an estimated capex of INR 2.2 Bn, taking the total incremental capacity addition to ~14–16 Mn sq. meters.
Valuation & View
We now project Revenue / EBITDA / PAT to expand at 11.7% / 23.7% / 41.9% CAGR, respectively, over FY26–29E factoring in a margin expansion of ~330 bps over the same period. We believe the company's sustained growth momentum in both the segments coupled with heightened realisation offer an attractive opportunity. We value SOMC on a PE-based framework and assign a multiple of 15.0x (maintained) on FY28E core EPS of INR 48.2. We, therefore, reiterate our 'BUY' rating on SOMC with a revised target price of INR 720/share (from INR 690/share earlier), implying an upside of 33.6% from CMP of INR 540.
Key Risks: Possible slowdown in real estate and home improvement activities and probable higher gas cost
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SEBI Registration no.: INZ 000160131
