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ICICI Securities Report
Systemic corrections initiated by Somany Ceramics Ltd. over the past four to six quarters, namely
- unwinding of treasury operations (majority of the inter-corporate deposits being recovered);
- systems and processes falling in place (post the employee fraud and broker default); and,
- sharp curtailment in receivables, particularly, post Covid-19 outbreak, are likely to boost investor confidence.
Besides these corrections, our checks suggest that recovery in volumes has been much faster than anticipated (August 2020 is registering a growth over August 2019).
Improving operating leverage, benign gas costs and stable industry pricing are also likely to drive double-digit Ebitda margin for the company going forward.
With steadily improving balance sheet quality and earnings visibility, we expect the valuation gap between the Somany Ceramics and the market leader (Kajaria Ceramics Ltd.) to narrow (which has widened sharply over the last one year) going forward.
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