'Buy' Somany Ceramics Maintains HDFC Securities On Robust Retail Distribution, Improved Product Mix

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HDFC Securities Institutional Equities

We recently engaged with Somany Ceramics Ltd.'s management. The management reported stable tile prices but noted continued sluggish demand. However, they observed early signs of demand recovery and expressed optimism for strong tile demand in the coming quarters, citing robust recent real estate sales.

They emphasized a strong focus on the balance sheet and working capital management, prioritizing financial stability at the expense of potential growth. The company has no tile segment expansion plans for the next 18 months.

We anticipate that the persistent issue of Morbi dumping will continue to hinder tile player volume growth and margins. Somany's newly commissioned large-sized tiles Max plant in Gujarat, with a 4.5 MSM capacity, is expected to drive volume growth and improve its product mix. We project a 7% tile volume growth for Somany from FY24 to FY27.

Our forecasts indicate a 7%, 6%, and 11% CAGR for revenue, Ebitda, and adjusted profit after tax, respectively, during FY24-27E. While we maintain our current estimates, our topline and bottom-line projections are ~2% and ~8% below consensus for FY25-27E.

We remain positive on Somany due to its robust retail distribution, improved product mix, and efficient working capital management. We reiterate our Buy rating on Somany Ceramics with an unchanged target price of Rs 660/share (22x Sep-26E consolidated EPS).

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