Somany Ceramics Cut To 'Add' As HDFC Securities Sees Limited Upside After Recent Rally

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HDFC Securities Institutional Equities

In our view, the unorganized Morbi tile manufacturers have disrupted the industry by flooding the domestic market with low-priced products. Given the ongoing geopolitical tensions, Indian tile exports are expected to remain volatile. While strong real estate sales have provided some impetus to the tile sector, much of this potential growth has been offset by Morbi's aggressive pricing, in our view.

Somany Ceramics Ltd.'s new largesized tiles Max plant in Gujarat, with a 4.5 MSM capacity commissioned at the end of January 2024, is expected to boost the company’s volume growth, enhance the product mix, and improve margin. We project a 6% tile volume CAGR from FY25 to FY27E.

We forecast a 7%, 11%, and 39% CAGR for revenue, Ebitda, and adjusted profit after tax, respectively, over FY25-27E. We maintain our estimates for FY25-27E.

We like Somany due to its robust retail distribution, improving product mix, and focus on working capital management. We downgrade Somany, however, to Add, owing to stock price rally in the past month. We maintain our target price at Rs 550/share (20x Mar-27E consolidated EPS).

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