Weak Quarter; Gradual recovery ahead…
About the stock: Somany Ceramics is the second largest tiles manufacturer in the domestic tiles market having ~80 MSM capacity along with bath fittings and sanitaryware capacity of 1.3 mn pieces and 0.78 mn pieces, respectively
• Riding on real estate strong cycle, the company has guided for high single/ low double digit tiles volumes ahead in FY26.
Q4FY25 Performance: Somany Ceramics tile volumes were up 3% YoY at 20.4 MSM with Tile revenues at ₹643.9 crore, up 1.9% YoY. The overall revenue was at ₹765.9 crore, up 4.7% YoY. EBITDA margins were subdued at 8.1%, down 270 bps YoY given the higher operating expenses. PAT was reported at ₹21.3 crore, down 30.7% YoY given the weak operating performance and subdued margins. For FY25, Tile volumes were up 2% YoY at 70.85 MSM. The overall revenue was at ₹2643 crore, up 2.6% YoY. EBITDA margins were subdued at 8.4%, down 140 bps YoY. PAT was reported at ₹60 crore, down 38% YoY
Investment Rationale
• Management expects recovery in FY26: The management has indicated that demand should witness recovery driven by the real estate completion upsurge, further backed by various government initiatives which should support industry growth going ahead. Given the positive indicators, it has reiterated its ambitions of high single to low double digits volume growth in FY26. We expect Tiles revenues CAGR of 11% over FY25-27 to ₹ 2789 crore, with volume CAGR of 9.7% over the same period to 85 MSM. Overall topline is expected to grow at 10.5% CAGR over FY25-27E to ₹3229 crore.
• Operating leverage led margins expansion ahead: Operating leverage is likely to improve going ahead on back of increased capacity utilization and gas prices coming down. Company also expects profitability to improve on account of product portfolio and strengthening of distribution network. The company has guided for margins to improve incrementally by 100-150 bps in FY26. Amid benign gas prices and operating leverage led benefits, we expect EBITDA margins of ~9.4/9.9% in FY26 and FY27, respectively vs 8.4% in FY25. We expect earnings CAGR of ~42.9% over FY25-27E, largely led by volumes recovery and margins improvement.
Rating and Target Price
• With demand expected to pick up driven by real estate completion cycle coupled with improving operational efficiency, we expect Somany growth trajectory to be back by FY26.
• We value Somany at ₹570, at 19x FY27 P/E (~40% discount Kajaria’s multiple of 32x) and assign a BUY rating