Broker's call: Somany Ceramics (Hold)

| Updated on August 06, 2019 Published on August 07, 2019

Reliance Securities

Somany Ceramics (Hold)

CMP: ₹318.75

Target: ₹335

Mainly marred by lower-than-expected realisation and higher operating expenses, Somany Ceramics (SOMC) has reported weak performance in 1QFY19. While sales volume grew by 8 per cent y-o-y (-23 per cent q-o-q) to 11.9 msm, average realisation declined by 1.4 per cent y-o-y and 0.6 per cent q-o-q to ₹288/sm versus our estimate of ₹293/sm. EBITDA growth of 7 per cent y-o-y to ₹20.9 crore was significantly below of our estimate of ₹35.5 crore, while EBITDA margin stood at mere 5.4 per cent as against 5.44 per cent in Q1 FY19 and 10 per cent in 4Q FY19.

Considering a likely pick-up in consumption and capex revival in 2HFY20E, SOMC is expected to witness a decent traction mainly led by new capacity addition, gradual benefits for the organised players after the NGT ban at Morbi, favourable products-mix and persistent higher growth in sanitaryware & faucets segment. However, we trim our earnings estimate by 15 per cent/10 per cent for FY20/FY21, mainly to factor in lower realisation and higher opex, following which even we do not envisage any meaningful upside from the current level. Notably, stock has corrected over about 12 per cent since we downgraded our recommendation to ‘hold’. Further, in the absence of any significant recovery in return ratio, we do not find any scope for the stock to get re-rated.

Published on August 07, 2019
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