Somany Ceramics Q2 Results Review - Expect Demand To Revive In H2, Retain 'Buy': Yes Securities

Yes Securities Report

Somany Ceramics Ltd. registered a steady volume growth of 6% YoY and 10% QoQ amidst the sluggish demand scenario in domestic markets. Own volumes declined by 13% YoY and 2%QoQ, while joint ventures volumes reported a growth of 5% YoY and 9% QoQ and outsourced volumes improved sharply by 48% YoY and 30% QoQ. Blended average selling price improved marginally to Rs 333/msm as against Rs 329/msm in previous quarter.

While Somany Ceramics' Ebitda margins expanded to 9.8% as compared to 6.8%/8.6% in Q2 FY23/Q1 FY24 respectively, largely owing to better operating utilisation which came in at 88% versus 70% in previous quarter. Bathware biz registered a growth of 18% YoY and 10% QoQ while others biz (Epoxy, Adhesives etc), reported a growth of 46% YoY and 23%QoQ. Utilisation of Sanitaryware & Faucets stood at 52% & 69% respectively.

Management stated that volume and value is expected to grow in high-single digit for FY24 and Ebitda margins are likely to remain at ~10%, provided that there is no major escalation in energy cost. Moreover, with better product-mix, margins can inch upwards.

Demand is expected to pick-up from hereon owing to strong ramp-up in new home constructions and infra projects. Hence, we believe Somany Ceramics should register a volume compound annual growth rate of 11% over FY23-FY25E.

Moreover, with improving product-mix and better operating leverage, Ebitda margins are expected to improve to 10.5% by FY25E. At current market price, the stock trades at price/earning of 24 times/17 times on FY24E/FY25E EPS of Rs 28.5/Rs 40 respectively.

We continue to value the company at price/E of 20 times on FY25E EPS, arriving at a target price of Rs 797. Hence, we maintain our 'Buy' rating on the stock.

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