Buy Somany Ceramics; target of Rs 615: ICICI Direct

ICICI Direct's research report on Somany Ceramics

Somany Ceramics reported strong growth on a benign base (~31% decline in Q4FY20). Tiles sales volumes were up 52% YoY at 16.9 MSM with realisations up 4% YoY at Rs 293/SCM. Tiles revenues were up 57.8% YoY at Rs 491.1 crore while bathware revenues were up 58% YoY at Rs 57 crore. EBITDA, at Rs 88.9 crore, was up 5.4x YoY, driven by operating leverage and lower other costs. Margins at 15.8%, were up 12 percentage points on a depressed base. PAT was at Rs 30.3 crore. PAT would have been higher but for a write-off of investments in NCDs of Rs 18.5 crore in Srei Infra.

Outlook

Somany’s working capital management and net debt reduction (down from ~Rs 444 crore in FY20 to Rs 173 crore in FY21) has been the key positive. Given the robust demand traction, improved margins trajectory and balance sheet repair, we raise our target P/E multiple to 22x (vs. 17x). We maintain BUY rating with a revised target price of Rs 615/share (earlier Rs 500/share).

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