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November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 1 of 33
Before reading this report, you must refer to the disclaimer on the last page.
Somany Ceramics Initiating Coverage
Improving product mix to drive
gradual margin expansion
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102)
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 2 of 33
Before reading this report, you must refer to the disclaimer on the last page.
Somany Ceramics Absolute : ADD
Relative : Benchmark
Initiating Note Regular Coverage 5% ATR in 16months
Improving product mix to drive gradual margin expansion - initiate with ADD on rich valuations Building Materials
© 2017 Equirus All rights reserved.
Rating Information
Price (Rs) 858
Target Price (Rs) 910
Target Date 31st Mar'19
Target Set On 28th Nov'17
Implied yrs of growth (DCF) 15
Fair Value (DCF) 698
Fair Value (DDM) 343
Ind Benchmark BSETCD
Model Portfolio Position NA
Stock Information
Market Cap (Rs Mn) 36,378
Free Float (%) 48.47 %
52 Wk H/L (Rs) 915/470.05
Avg Daily Volume (1yr) 56,317
Avg Daily Value (Rs Mn) 40
Equity Cap (Rs Mn) 85
Face Value (Rs) 2
Bloomberg Code SOMC IN
Ownership Recent 3M 12M
Promoters 51.5 % 0.0 % 0.0 %
DII 20.5 % 1.0 % 10.6 %
FII 7.4 % 0.2 % -9.0 %
Public 20.5 % -1.1 % -1.6 %
Price % 1M 3M 12M
Absolute 3.7 % 6.8 % 62.1 %
Vs Industry -0.3 % -3.8 % 23.6 %
Kajaria 6.4 % 4.3 % 40.3 %
Asian Granito 3.9 % 13.3 % 154.8 %
Standalone Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
EPS (17A) 4.3 5.6 4.8 6.6
EPS (18E) 1.8 5.3 5.9 7.8
Somany Ceramics Limited (SOMC), India’s second largest tiles player with a 7% market
share (14% in organized tile industry) has substantially transformed its product mix
from commoditized ceramic tiles to high-margin vitrified tiles and value-added
products over the last four years, leading to continued improvement in its revenues
and EBITDA margins. Volume growth ahead would be supported by production
ramp-ups at own/JV capacities and a favorable GST rate of 18%. Margin improvement
would continue with focus on product innovation, a higher share of value-added
products, rising contribution from the sanitary-ware & faucet-ware (S&F) segment,
and increased retail penetration among brand-conscious customers. We expect SOMC
to post a 13%/18% revenue/EBITDA CAGR and a 129bps expansion in consolidated
EBITDA margins over FY17-FY20E. Initiate coverage with ADD and Mar’19 TP of Rs 910
set at a 30x TTM EPS of Rs 30.32.
High-margin tiles to drive revenue growth, margin improvement: SOMC’s tiles
business posted a 15% revenue CAGR over FY12-FY17 as it moved away from low-
margin and commoditized ceramic tiles (39% of FY17 revenues vs. 67% in FY12) and
increased the share of higher-margin value-added products, including vitrified tiles
(53% in FY17 vs. 30% in FY12). It also ramped up its manufacturing capacity from
24.5msm to 49.5msm via expansion and JVs over the last five years. Going forward,
we expect SOMC to post a tile volume/revenue CAGR of 12%/11% over FY17-FY20E
with contribution from vitrified tiles increasing from 53% to 59% during this period.
Contribution from sanitary-ware & faucet-ware to increase gradually: While SOMC
has been present in S&F since FY08, it contributed 8% to FY17 revenues (34%
revenue CAGR over FY10-FY17) as the company increased focus on this segment only
over the last 3-4 years. The company has recently expanded its sanitary-ware JV
capacity from 0.3mn to 1.15mn pieces/annum. It is also considering setting up a JV
for manufacturing bath fittings given similar operational dynamics as sanitary-ware,
with an opportunity to capitalize on the Somany brand. We expect the S&F segment
to deliver 24% revenue CAGR over FY17-FY20E and contribute 10% to FY20E revenues
with margins improving due to a better margin profile of products.
ROIC improvement to be led by better product mix, JV capacity addition: SOMC will
continue to add capacity via JVs and taking up majority stakes in them as (a) the
capital commitment is normally 1/5th of that required for setting up an own unit, and
(b) there is excess capacity available in Morbi. Also, EBITDA margins are expected to
improve by 129bps as the product mix turns in favor of high-end vitrified tiles and
value-added products. Due to these factors, we expect core ROIC to improve gradually
over FY17-FY20E. Key risks include slower-than-expected pick-up in real estate
demand and higher competition from unorganized and new branded players.
Consolidated Financials
Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Sales 18,110 18,908 22,432 26,293
EBITDA 1,915 1,930 2,540 3,118
Depreciation 350 379 428 481
Interest Expense 233 257 276 293
Other Income 151 160 96 98
Reported PAT 931 936 1,286 1,627
Recurring PAT 971 967 1,286 1,627
Total Equity 5,212 5,975 7,005 8,326
Gross Debt 2,744 2,922 3,211 2,816
Cash 1,290 915 716 554
Rs Per Share FY17A FY18E FY19E FY20E
Earnings 22.9 22.8 30.3 38.4
Book Value 123 141 165 196
Dividends 2.7 3.4 5.0 6.0
FCFF 2.6 -5.5 -4.5 16.5
P/E (x) 37.5 37.6 28.3 22.4
P/B (x) 7.0 6.1 5.2 4.4
EV/EBITDA (x) 20.1 20.2 15.6 12.6
ROE (%) 20% 17% 20% 21%
Core ROIC (%) 15% 13% 15% 16%
EBITDA Margin (%) 11% 10% 11% 12%
Net Margin (%) 5% 5% 6% 6%
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 3 of 33
Company Snapshot
How we differ from Consensus
- Equirus Consensus % Diff Comment
EPS FY18E 22.8 22.8 0 %
FY19E 30.3 31.8 -5 %
Sales FY18E 18,908 18,550 2 %
FY19E 22,432 21,899 2 %
PAT FY18E 936 935 0 %
FY19E 1,286 1,347 -5 %
Our Key Investment arguments:
1. Higher contribution from GVT & value-added products to improve margins over
FY17-FY20E: SOMC’s revenue mix is changing towards high-margin GVT and value-
added products, which is likely to improve its margins by 129bps over FY17-FY20E.
2. 18% GST rate, E-way bill implementation to be a game changer for organized
players: GST rate revision to 18% is expected to boost consumer sentiments as
purchase costs will come down. Additionally, a gradual shift from unbranded to
branded players, due to lower price differential, would lead to better volume growth
for players like SOMC. Besides, E-way Bill implementation would increase compliance
costs for unorganized players.
3. Expect EBITDA/PAT CAGR of 18%/20% over FY17-FY20E due to a changing product
mix and increased contribution from higher-margin products.
Risk to Our View:
1. Lower level of GST compliance by Morbi-based players
2. Slower recovery in real estate demand
3. Any strain in relationship with JV partners
Key Triggers
Growth of the real estate sector and affordable housing
GST leading to higher compliance costs for unorganized players
Sensitivity to Key Variables % Change % Impact on EPS
Revenues -1 % -3 %
EBITDA -1 % -8 %
- - -
DCF Valuations & Assumptions
Rf Beta Ke Term. Growth Debt/IC in Term. Yr
6.8 % 0.8 11.6 % 3.0 % 6.0 %
- FY18E FY19E FY20-22E FY23-27E FY28-32E
Sales Growth 4 % 19 % 13 % 12 % 4 %
NOPAT Margin 6 % 6 % 7 % 8 % 8 %
IC Turnover 2.22 2.18 2.30 2.30 2.30
RoIC 13.0 % 15.1 % 18.8 % 19.7 % 19.0 %
Years of strong growth 1 2 5 10 15
Valuation as on date (Rs) 211 261 429 562 603
Valuation as of Mar'19 245 302 496 651 698
Based on DCF, assuming 15 years of 4% CAGR growth and 19% average ROIC, we derive
our current fair value of Rs 603 and a Mar’19 fair value of Rs 698.
Company Description:
SOMC was incorporated in 1968 and is currently India’s third largest tiles player in value
terms. It has a tile manufacturing capacity of ~50msm (own capacity ~24msm and JV
capacity ~26msm) while it has outsourced capacity of 9msm. Its own plants are located in
Gujarat and Haryana. The company’s retail segment contributes ~65% to its total
revenues and it has ~1,720 dealers and ~10,000 touch points. SOMC is also present in
sanitary-ware (JV capacity: 1.15mn pieces/year) and bath fittings (100% outsourced).
Comparable valuation Mkt Cap
Rs. Mn.
Price
Target
Target
Date
EPS P/E BPS P/B RoE Div Yield
Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY16A FY18E FY17A FY18E FY19E FY17A FY18E
Somany Ceramics ADD 858 36,378 910 31st Mar'19 22.9 22.8 30.3 37.5 37.6 28.3 122.9 6.1 20 % 17 % 20 % 0.3 % 0.4 %
Kajaria Tiles REDUCE 729 115,786 647 31st Mar'19 15.9 16.1 21.6 45.8 45.3 33.8 73.9 9.0 24 % 21 % 25 % 0.4 % 0.8 %
Asian Granito NR 504 15,154 NR NR 13.0 17.6 23.8 38.7 28.6 21.2 133.3 3.8 10 % 10 % 12 % 0.1 % 0.1 %
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 4 of 33
Investment Rationale
Continues to move up the value chain on higher vitrified tile revenues
The glazed vitrified tiles (GVT) segment is currently the fastest-growing segment in
India’s tile industry. In volume terms, the segment grew from 20msm to 80msm over
CY10-CY16 (26% CAGR), while from Rs 10bn to Rs 42bn (27% CAGR) in value terms.
Polished vitrified tiles (PVT) is the second fastest growing segment after GVT; in volume
terms, the segment grew from 170msm to 275msm over CY10-CY16 (8% CAGR), and from
55bn to 115bn (13% CAGR) in value terms. For SOMC, revenue contribution from vitrified
tiles (both PVT and GVT) jumped from ~19% in FY10 to ~53% in FY17. The company’s
ceramic/PVT/GVT revenues have grown at 7%/33%/65% CAGR over FY10-FY17 due to (a)
consistent focus on improving the sales mix and (b) more value-added product launches,
in line with the industry leader Kajaria Ceramics (KJC), to meet changing consumer
preferences. As a result, SOMC’s blended realizations grew at 7% CAGR over FY10-FY17.
Currently, most of SOMC’s new capacity expansion is in the vitrified segment as it aims to
move up the value chain. With production ramp-up at its 4mnsqmGVT line at Kassar
which become operational in FY17, and higher contribution from JVs over the next three
years, we expect SOMC’s vitrified segment to see a 16% CAGR over FY17-FY20E. We
expect PVT/GVT revenues to constitute 36%/23% of total revenues by FY20E vs. 33%/20%
in FY17, leading to a margin improvement. However, revenue growth would mostly be
volume-driven with realization growth likely at 1% CAGR over FY17-FY20E.
Exhibit 1:Revenue mix shifts from ceramic towards vitrified tiles over FY10-FY17
Source: Equirus Securities, Company
Exhibit 2:Realizations on an uptrend with rising sales contribution from vitrified tiles
Source: Equirus Securities, Company
Exhibit 3:Revenue mix - SOMC & KKC
A. Ceramic tiles – Moving away from commoditized, low-margin products
Source: Equirus Securities, Company
4.2 4.7 5.4 5.8 6.4 7.0 7.1 6.9 7.0 7.6 8.2
0.9 1.9
2.4 2.7 3.7
5.2 6.1 6.6 6.6 8.0
9.5
0.1 0.3
0.6 1.6 1.9
2.3 2.9
3.4 3.8
4.8
6.0
0
5
10
15
20
25
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Ceramic (Rs bn) PVT (Rs bn) GVT (Rs bn)
0
50
100
150
200
250
300
350
400
450
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Blended Realizations (Rs/sqm)
79%
72% 67%
58%
51% 46%
41% 39%
61%
50% 46% 44% 44%
40% 37% 37%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Somany Kajaria
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 5 of 33
B. PVT - Sharply higher contribution post formation of JVs, expansion of own capacity
Source: Equirus Securities, Company
C. GVT – SOMC’s fastest-growing segment but still some catching up to do with KJC
Source: Equirus Securities, Company
In tiles, Ceramic wall/floor tiles generate margins of11-12%, while PVT generates around
10% due to stiff competition and the product’s commoditized nature. GVT generates
around 13-14% margins. Apart from these, value-added products like polished ceramic
tiles, unique designer tiles and larger-sized tiles also generate higher margins. Over the
years, customer aspirations for a better lifestyle have evolved due to increased
urbanization, brand consciousness and rising disposable incomes; this has led branded tile
companies to change their product mix towards higher-margin vitrified and value-added
tiles. We expect this trend to intensify in the mid-to-long term, with larger tile
companies focusing more on innovation and value-added products.
Currently, the percentage contribution of value-added tiles to revenues is 43-45% for
SOMC vs. KJC’s 60%. We expect contribution from value-added products to reach ~60%
over the next 3-4 years, thereby boosting margins for SOMC.
Value-added products, higher own manufacturing/JVs to drive margins
SOMC has historically seen lower margins vs. KJC on account of the following reasons:
Reason for margin
difference
KJC SOMC
Brand perception KJC enjoys strong recall value among
customers due to its continuous focus
on higher A&P spends
SOMC too has been increasing focus on
stepping up its A&P spends, but still has
some catching up to do for creating the
kind of consumer recall enjoyed by KJC
Pricing differential Strong retail presence due to higher
A&P and brand positioning has
ensured a slight premium
Current pricing differential: 5-7% lower
than KJC
Product innovation &
first-mover
advantage
KJC’s product innovativeness and
first-mover strategy has always led to
market disruption and creation of
new markets, helping it clock better
realizations
SOMC has typically been more reactive to
changing customer preferences. That
said, it has the largest collection of tiles
in the market.
Revenue mix As a product innovator, KJC has
historically had a higher proportion of
value-added and higher-margin
products in its revenue mix
SOMC has seen higher contribution from
ceramic tiles in its revenue mix though
contribution from value added products
has improved over last 3-4 years
Share of own
manufacturing
Higher share of own manufacturing Equal contribution from JVs and own
manufacturing
Stake in JVs KJC owns majority stakes (51%) in all
its JVs, and is able to book the entire
margin in its P&L
Since SOMC has a 26% stake in most of its
JVs, it is able to retain only trading
margins on its books, leading to lower
margins
Source: Equirus Securities, Company
17%
21% 23% 23%
29%
33% 35% 33% 33%
35% 37%
39% 38% 37% 36%
33%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Somany Kajaria
2% 4%
7%
15% 15% 15% 17%
20%
6%
14% 15% 15%
17%
22% 23%
25%
0%
5%
10%
15%
20%
25%
30%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Somany Kajaria
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 6 of 33
Over the last five years, SOMC has been aggressively closing the gap with KJC in terms of
revenue contribution from value-added tiles. Before FY11, contribution from third-party
outsourcing in SOMC’s tile volumes was very high as it sourced most of its ceramic and
low-end vitrified product requirements from Morbi-based players. As against this, KJC has
focused on higher contribution from own manufacturing, though the share of JVs has also
increased in its overall production mix post FY12.
Since FY11, SOMC has increased focus on sourcing from JVs, due to which the share of
outsourcing has gradually declined; the percentage of volume/revenue contribution from
outsourcing in the tiles segment has come down to 12%/15%in FY17 from 41%in FY11.
Going forward, we expect the outsourcing volume/value share to decline further to
8%/10% with higher contribution from own manufacturing and JVs. We expect the share
of own manufacturing volumes/revenues to increase from 44%/39% in FY17 to 45%/41% by
FY20 while JV volume/revenues to increase from 44%/47% in FY17 to 45%/47% by FY20.
We expect SOMC’s production mix to remain skewed towards JVs as the company is
setting up a plant in Andhra Pradesh (AP) with a local partner.
Exhibit 4:Production mix: Own manufacturing and JVs to continue to contribute
equally for SOMC
Source: Equirus Securities, Company
Exhibit 5:KJC’s production mix historically dominated by own manufacturing; trend
to continue ahead
Source: Equirus Securities, Company
Higher utilization, upgrades to improve operating leverage/product mix
Over the last eight years, SOMC has increased available capacity by 3.6x via a mix of own
manufacturing and JVs, or outsourcing from Morbi-based players. The company’s first JV
was formed in FY12, and it currently has six JVs with a combined production capacity of
25.7msm as against its own manufacturing capacity of~23.8msm. SOMC has recently
expanded its value-added PVT (double-charge) capacity from 2.99msm to 4.80msm.
Additionally, the company has undertaken de-bottlenecking and a minor brownfield
expansion at its own manufacturing units at Kassar and Kadi respectively.
At the Kassar plant, de-bottlenecking would lead to ~10% additional manufacturing
capacity; the company is also replacing some of its existing lines with new equipment for
manufacturing value-added wall tiles. These new products would increase costs by 10% but
realizations from these products would by ~20-25% higher than existing products. At the
Kadi plant, SOMC is replacing one of its existing lines (~20% of capacity) from manufacturing
commodity products to high value-added products (ceramic polished large tiles).
The de-bottlenecking and expansion projects will together cost around Rs300mn-350mn
vs. Rs 500mn-550mn for any similar greenfield project, as land and other necessary
infrastructure is already in place. The first phase of upgrade has been completed in
early-2Q18 while the second phase would be completed by 3Q18. This upgrade would
57% 51% 51% 44% 43% 44% 43% 44% 45%
1% 9% 17% 34% 41%
44% 43% 45% 45%
42% 40% 32%
22% 17% 12% 13% 11% 10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Own Manufacturing JVs Outsourcing
68% 59% 54% 51% 51% 55% 58% 58% 59%
6% 18% 26% 31%
37% 33% 31% 32% 31%
26% 23% 19% 18% 12% 12% 12% 11% 10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Own Manufacturing JVs Outsourcing
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 7 of 33
enhance the ratio of value-added products and increase SOMC’s operational capacity by
~7%.
SOMC has also increased its stake in Vintage Tiles, an associate company, to 50% from
26% earlier to capitalize on the latter’s recent expansion in value-added PVT tiles.
Besides, SOMC intends to set up a 5msm/annum vitrified tile plant in Andhra Pradesh (AP)
through its associate company, Sudha Somany Ceramics Pvt. Ltd. (51% stake),for a total
capex of ~Rs 1bn. The plant, likely to be commercialized by FY19-end, would have a peak
turnover of Rs 1.8bn-2bn. The end product mix is yet to be finalized by the company.
SOMC has a rolling capex of Rs 1.5-1.7bn planned over the next three years, most of
which would be funded through internal accruals. We expect revenue contribution from
own manufacturing and JVs to remain at these levels going forward, with the ratio tilting
slightly in favor of JVs post commissioning of the new AP plant.
Exhibit 6:Own/JV capacities have grown at CAGR of 6%/37% over FY12-FY17
Source: Equirus Securities, Company
Exhibit 7:JV contribution to overall capacity has steadily increased over the years
Source: Equirus Securities, Company
Brand investments, higher retail penetration to continue yielding results
Over the past five years, SOMC has nearly doubled its advertisement and brand promotion
spends, from 1.3% (as a percentage of sales) in FY12 to 2.6% in FY17.The company’s
marketing efforts include: (a) increasing visibility through print, electronic and other
advertising media, (b) participation in exhibitions and outdoor promotions, (c)training
sessions for masons under ‘Tile Master’ program– a first in the industry - and recognizing
them with certificates post completion, and (d) creation of a wide network of exclusive
franchisee showrooms and display centers to gain more traction in the retail segment. It
has recently launched its new TV commercial as well.
As a result of these efforts, the brand Somany now competes for the no. 2 slot (after
brand Kajaria) along with HR Johnson in the tiles industry. However, due to delivery
issues and lower focus from HR Johnson, the Somany brand has gained more consumer
mindshare over the past 2-3 years. The company’s marketing expenses as percentage of
sales are likely to increase to 2.9-3% over the next three years. Historically, SOMC has
been perceived more of a project brand vs. a retail brand; however, it is now focusing on
creating brand awareness in the retail chain by opening more large-format stores and
giving a complete customer experience. Currently, the retail segment contributes ~65%
to SOMC’s topline, higher than the industry average of 50% but lower than KJC’s 75%.
19.2 19.2 19.2 19.2 21.6 25.6 25.6 23.8
2.7 5.3 5.3
15.5
21.0
25.7 25.7 25.7
0
10
20
30
40
50
60
FY11 FY12 FY13 FY14 FY15 FY16 FY17 2Q18
Own Manufacturing JV
88% 78% 78%
55% 51% 50% 50% 48%
12% 22% 22%
45% 49% 50% 50% 52%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 2Q18
Own Manufacturing JV
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 8 of 33
With SOMC’s improving product mix and increased focus on branding and advertisements,
the retail contribution should increase going forward, leading to improved realizations
and higher margins. However, the company is not looking at any celebrity tie-ups and will
focus more on other advertising mediums. Over the next 4-5 years, SOMC targets to take
its retail contribution to 75% (from ~65% currently). A higher proportion of retail sales
along with a better product mix would enhance pricing power and brand visibility.
Exhibit 8:Brand spends (% of A&P) to increase amid focus on improving retail visibility
Source: Equirus Securities, Company
Allied products complement existing business, to aid revenue and margins
Though SOMC has been present in the sanitary-ware business since FY08 and bath fittings
since FY10, both businesses picked up significantly only over the last three years with
improved focus on developing these brands. The sanitary-ware and faucet-ware (S&F)
division contributed 8% to total revenues in FY17. As both sanity-ware and faucet-ware
products are also sold through the tiles dealer network, this leads to savings on branding
& promotion and thus better margins. Initially, the company tested the market for both
products by way of importing/outsourcing from domestic/international suppliers, but is
now looking at a JV model or a Greenfield project.
The S&F segment posted a robust 37% CAGR over the last five years. Total revenue from
sanitary-ware/faucet-ware stood at Rs 802mn/Rs 573mn in FY17 vs. Rs 189mn/Rs 96mn in
FY12, with outsourcing contributing around 65-70%/100%. The company has historically
focused on penetrating the mid-end market with comparatively higher share of
institutional sales and lower presence in the premium category. Though SOMC offered
products ranging from Rs 350-18,000/unit in this segment, we believe average
realizations would have been on the lower side vs. other established players like Jaguar,
HSIL or Cera due to lower management focus and limited consumer awareness. On the
pricing front, SOMC’s products are priced at par with Cera and HSIL.
To cater to high-end premium consumers, SOMC has recently launched the ‘French
Collection’ range of sanitary-ware (smart and intelligent toilet market), which is the
company’s most premium offering till date. This collection has 28+ products including
water closets, urinals, and wash basins, under 11 different series (Jazz, Dior and Ace). Each
series follows a particular theme with different patterns of technology integration. Ace
series is the star of the French Collection, having the first high-IQ toilet designed to ensure
minimum pressure points and enhance overall comfort. The price range starts from
Rs 7,990/unit for the Quest Art Basin to Rs 165,000/unit for the Ace Automatic Toilet.
For the sanitary-ware division, SOMC procures products either from its JV Somany
Sanitaryware Private Limited (SSWPL, 51% stake) in Morbi, Gujarat, or procures them
directly from third-party suppliers. It also imports premium-end sanitary-ware products.
To capitalize on a growing market and increase the proportion of JV manufacturing,
SOMC has recently expanded its sanitary-ware capacity in SSWPL from 0.3mn to 1.15mn
pieces/annum. At peak capacity, the new plant would generate revenues of Rs650mn-
700mn/annum.
For faucets & other bath fittings, SOMC has outsourced its requirements from Morbi-
based players till now; however, it intends to actively explore opportunities for forming a
JV with some existing player or setting up a Greenfield project. The quantum and mode
of investment has yet to be decided by management.
SOMC aims to double its S&F revenues over the next 3-4 years. We expect the division to
register 24% revenue CAGR over FY17-FY20E with sanitary-ware/faucet-ware revenues
growing at 27%/20% over this period and their overall contribution to revenues increasing
from 8% to 10%. Sanitary-ware growth would mainly be led by higher utilization of the
recently-expanded capacity at the JV, while faucets and other bath fittings would also
continue to see strong growth led by higher management focus and increased visibility
among customers.
58 125 111 152 196 289 344 481 529 651 789
1.1%
1.7%
1.3% 1.4% 1.6%
1.9% 2.0%
2.7% 2.8%
2.9% 3.0%
0%
1%
1%
2%
2%
3%
3%
4%
0
100
200
300
400
500
600
700
800
900
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
A&P Expenses (Rs mn) A&P as % of Sales
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 9 of 33
Exhibit 9: S&F segment sees strong growth over last 3 years; revenue contribution to
increase to ~10% by FY20E
Source :Equirus Securities, Company
Distribution channel rationalized to improve revenue per dealer, market visibility
SOMC’s transformation from a manufacturing-driven company to a customer-driven brand
has been influenced by a change in its distribution strategy – from a conventional make-
and-sell approach to a relatively de-risked seed-to-sell strategy. SOMC’s current
customer mix consists of 65% retail and 35% institutional clients. It has 1,720 dealers
(1,600 active dealers as on 1H18) and a total of 10,000 touch-points (avg. of 3 retail
touch points/dealer) which is one of the highest in the tiles industry. The company added
223 net dealers in FY17 and 150 in 1H18.
Currently, SOMC has 19 sales depots and 18 display centers. Total sales generation from
depots has been declining over the years due to SOMC’s strong focus on increasing
revenue generation from retailers due to better margins and lower working capital
requirements vs. projects. The company plans to add 100-150 dealers every year over the
foreseeable future. We think SOMC has significant scope for improving its revenue
generation per dealer, which stands at merely ~40% of KJC’s.
Exhibit 10:Scope to improve revenue/dealer with distribution channel rationalization
Source: Equirus Securities, Company
SOMC has more number of dealers vs. KJC, and has been facing issues of price
undercutting among dealers. To address this, the company has started streamlining its
dealer network and is focusing on dealers who have not been active in the past few
years. At the same time, it is adding more dealers in tier III & IV cities and towns in order
to strengthen its distribution network.
176 189 285 350
496
792
1,121
1,375 1,418
1,907
2,629
3.2% 2.6%
3.2% 3.3% 3.9%
5.1%
6.5%
7.6% 7.5%
8.5% 10.0%
0%
2%
4%
6%
8%
10%
12%
0
500
1,000
1,500
2,000
2,500
3,000
2010 2011 2012 2013 2014 2015 2016 2017 FY18E FY19E FY20E
Sanitaryware + Faucetware Revenues % of Sales
4.8 5.4 5.9 6.0 7.0
12.1 11.5 10.5
11.8
14.4
18.8
21.0 22.4
25.3 24.6 26.0
0
5
10
15
20
25
30
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Somany (Rs mn/dealer) Kajaria (Rs mn/dealer)
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 10 of 33
Exhibit 11:SOMC, with historically higher dealers than KJC, is now rationalizing its
channel to make more dealers active in pushing products
Source: Equirus Securities, Company
As of 1H18, SOMC has 300showrooms of which 282 showrooms are franchisee-managed.
During 1H18, 62 new showrooms were added. Management targets to increase the
number of showrooms to325+ in FY18, 450 in FY19 and 575 in FY20.In FY17, it also
commissioned the high-end Worli store, showcasing GVT to address the needs of South
Mumbai corporates, interior designers and HNIs.
SOMC’s showrooms can broadly be classified into following categories - Grande, Exclusive
and Studio.
Exhibit 12:SOMC’s showroom product portfolio
Exclusive showrooms Products Dedicated area
Somany Grande Entire range of products including S&F 2,500+ sq.ft.
Somany Exclusive Different mix of GVT, PVT, ceramic tiles and
allied products
1,500–2,500 sq.ft.
Somany Studio Ceramic wall & floor tiles 1,500 sq.ft
Duragres Studio Glaze vitrified tiles 1,000 sq.ft
Somany Vitro Studio Polished vitrified tiles 225-250 sq.ft
Somany Bath Studio Sanitary-ware, faucet-ware & bath fittings 400 sq.ft
SOMC believes there is a large difference in the national appetite for tiles; since only a
few brands service this need, nearly 80% of the market remains underpenetrated,
particularly in tier II/III cities & towns. In contrast, metros and tier I cities have been hit
due to a lull in the real estate industry. With tier II/III cities and towns emerging as new
consumption centers, the company has been aggressively focusing on increasing its
distribution reach and brand visibility in these markets over the past five years.
Consequently, sales from these cities increased to 76% in FY17 from 70% in FY10; we
expect the momentum to continue ahead due to higher disposable income and
aspirations, as well as increasing brand awareness among tier II/III consumers.
Exhibit 13:Revenues led by strong growth in tier II/III cities & towns over last 3-4 years
Source: Equirus Securities, Company
Focus on asset-light model to continue, to shore up ROE & ROIC
Tiles, being a commodity, are essentially a volume play, due to which players need to
keep expanding their capacities. However, due to a downturn in real estate demand
over the last 3-4 years, capacity utilization has fallen, particularly for Morbi-based SMEs
who only compete on prices; this has enabled larger players to tie up with Morbi-based
SMEs for product supply, while they concentrate on marketing and branding. Therefore,
most companies have slowed down on adding own capacities and are forming JVs with
smaller unorganized players. Such tie-ups have several benefits. Organized players get
readily available capacity at one-fifth or one-fourth of the cost of setting up new, own
1,125
1,334
1,490
1,768 1,800
1,272
1,497
1,720
650 700 750 825
900 950
1,100 1,100
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Somany Kajaria
27% 26% 25% 24% 21% 21% 20% 19%
70% 72% 73% 72% 75% 75% 76% 76%
3% 2% 2% 4% 4% 4% 4% 5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016 2017
Tier I Tier II & III Others
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 11 of 33
capacity with revenue contribution flowing in immediately, thus lowering the payback
period. Unorganized players, on the other hand, get a guarantee on offtake of nearly
100% of their production, while learning best production practices and technology
knowhow from organized players.
Till 2011, SOMC was completely focused on either own manufacturing or plain vanilla
outsourcing and did not enter into any JVs. In fact, around 41% of its sales volumes and
revenues, from mainly low-value commoditized products, were being outsourced from
Morbi-based players. Post 2011, the company shifted focus on increasing revenue
contribution from vitrified tiles (both PVT & GVT) due to higher demand vis-à-vis
commoditized ceramic tiles. However, instead of making high capital commitments in
its own manufacturing capacity, SOMC made investments in JVs with established Morbi-
based players who were lacking their own brand but had requisite production capacities
and capabilities. The agreement gave SOMC rights to buy the entire annual production
from JVs and resell under its own brand name. As a result, the company has been able
to quickly ramp up production capability and product mix, as per changing consumer
preferences. Over FY12-FY17, core ROIC improved by 290bps as the company effectively
utilized its JV capacities to improve EBITDA margins and profitability.
Exhibit 14:Expect return ratios to improve 100bps by FY20E due to increased
volumes & higher contribution from better margin products
Source: Equirus Securities, Company
SOMC started off by taking minority stakes of 26% in JVs; however, since the last three
years, it has also acquired a 51% stake in some JVs. The company’s production capacity
has increased to 49.5msm from 21.8msm over FY12-1H18, with JV/own capacity
growing at a 37%/6% CAGR. Currently, SOMC owns a 26% stake in three JVs with a
combined capacity of 13.8msm, 51% in two JVs with a combined capacity of 8.9msm,
and 50% in one JV with a capacity of 4.8msm.Of the total JV capacity of 27.5msm,
around 69% is high-margin vitrified tile capacity. The total investment in all JVs is Rs
295mn while avg. capacity utilization in the tile segment stood at ~83% in FY17.
SOMC also recently expanded its sanitary-ware JV capacity (stake 51%) from 0.3mn
pieces per annum to 1.15mn pieces per annum by incurring a capex of Rs 350mn, of
which SOMC’s contribution was limited to 51% with a revenue generating potential of
1.5x investment. It also expanded its capacity at its Vintage tiles JV by 1.8msm via
debottlenecking. Moreover, the company has finalized the process of setting up a
vitrified tile plant with a capacity of 5msm in Andhra Pradesh in a JV with a local player
(company stake 51%); the plant, to be set up for a total capex of Rs 1bn,is expected to
generate revenues of Rs 1.8bn-2bn.
SOMC has been successful in keeping the impact of cost/msm of incremental capacity
addition via JVs on cash flows to 1/5thof a Greenfield capacity addition, while reporting
revenue growth and improving profitability (vs. pure outsourcing) at the same time. The
company believes this to be a better option for incremental capacity addition as it
requires lower capital investment, leading to faster payback and quicker access to
capacity. Going forward, we expect the company to take on a 51% stake in future JVs
instead of 26% earlier so as to maintain better operational, quality and technological
control and increase profitability. We expect ROIC/ROE to improve by
153bps/77bpsfrom 14.8%/20.5% in FY17 to 16.3%/21.2% by FY20E.
Product innovation focus to enhance brand recall among retail consumers
SOMC is among the few tile companies in India which continues to focus on R&D and
introduce niche value-added products. It is currently the only tile company accredited
with the first patent in the Indian tile industry for its ‘VC Shield’ tiles (launched in
2008).It then launched the ‘Slip Shield’ tile, which has a unique coating giving anti-skid
properties to ceramic tiles, again a first in the industry. It was also the first Indian
company to launch 80x120cm double-charge vitrified tiles.
13% 12% 12% 13%
10%
13% 14% 15%
13% 15%
16.3%
28% 26%
22% 23%
15%
19% 20% 20%
17%
20% 21.2%
0%
5%
10%
15%
20%
25%
30%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
ROIC (%) ROE (%)
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 12 of 33
Since the last 2-3 years, SOMC has become very aggressive in launching larger-format
tiles along with new designs to compete with KJC and other branded players. The
company has one of the largest product portfolios in the country and has recently
launched a high-end ‘French Collection’ under the premium segment of its sanitary-ware
products which would compete with foreign brands in domestic market. SOMC has also
launched Duragres Planks, a range of faux wooden tiles that are exceptionally durable.
The main advantage these tiles enjoy over real wooden planks is ease of installation,
higher durability, resistance against natural wear & tear and low susceptibility to
chemicals.
All these launches have helped SOMC generate consumer interest and gain brand
visibility. Additionally, as the share of such value-added tiles increases in the overall
product mix, SOMC’s margins would also improve.
Exhibit 15:Key innovations in tiles over the years
Key innovation Year of
launch Remark
Product description
VC Shield tiles 2008 Patented Veil Craft technology for abrasion-resistant tiles
Slip Shield tiles 2014 Anti-skid properties
Glosstra tiles 2014 Ultra gloss technology for extra glossy surface
Optimatte tiles NA Tiles having matt finish
Stone16 NA 16mm thick tiles for meeting outdoor requirements
Antibacterial tiles 2011 Eliminates the risk of growth of microbial organisms
Active tiles 2012 Tiles which purify the air, leading to healthier floors
Source: Equirus Securities, Company
Expect power & fuel costs to increase in FY18, but remain stable in medium
term
For tile companies, power & fuel costs are the second-largest cost component after raw
materials. At the standalone level, FY17 power & fuel costs (as a percentage of revenues)
stood at 8%/10% for SOMC/KJC and at11%/17% at the consolidated level; power & fuel
costs were higher for SOMC since it does not consolidate these costs for~50% of its JV
capacity (as in case of KJC) as it holds 26% stake in these JVs. For its own manufacturing
capacity, SOMC consumes ~50mn cbm of gas annually, which it procures on fixed-contract
basis (10% APM, balance from GAIL/Sabarmati Gas/IOCL for its Kassar and Kadi facilities).
Currently, APM gas costs around ~Rs 9/scm while the rest around Rs 25/scm. However,
the recent increase in crude prices suggests a likely jump in RLNG prices for 2HFY18.
Natural Gas prices are already up 10% in last 3 months. Additionally, Haryana govt. has
not yet decided on providing any VAT subsidy on Gas (which other state governments
have done) due to which SOMC’s Kassar plant is still paying 13.2%-15% vs. 4.2% earlier
thereby increasing company’s gas costs by Rs 8mn/month. So we expect higher gas prices
to partially offset the margin improvement (due to a changing product mix) in FY18.
Exhibit 16:Natural gas procurement breakup
Supplier Name % procured
GAIL 65%
Sabarmati Gas (GSPC) 19%
IOC 6%
APM Gas 10%
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 13 of 33
Financial profile to improve; expect gradual re-rating of stock
Margins to improve on higher capacity utilization, improving product mix
For FY17, SOMC’s EBITDA margins came in at 10.6% vs. 19.5% for KJC. One key reason for
this, apart from higher operating leverage, strong brand recall and premium pricing
enjoyed by KJC, was that SOMC was able to retain only trading margins from its JVs due
to a minority (26%) stake. In comparison, KJC owns a majority stake in most of its JVs and
was thus able to book the entire margin in its P&L. Most other branded tile companies
have also invested for =>50% stake in their JVs, facilitating higher EBITDA margins.
Currently, SOMC has a 26% stake in three of its JVs which form 26% of its entire existing
capacity and 50% of its JV capacity. Additionally, close to 100% of its PVT and 34% of its
GVT capacity comes from JV partners; in contrast, KJC’s 71% PVT capacity is from JV
partners while GVT is completely from own manufacturing. Vitrified tile manufacturing
involves higher costs and controlling them becomes difficult in case of outsourcing vs.
own manufacturing, leading to lower margins from JVs.
We believe increased contribution from JVs will lead to margin improvement for SOMC, in
line with that of KJC, once it increases stake in its three JVs from 26% currently to 50%+,
the timeline for which however is yet to be disclosed. Note that SOMC has increased its
stake from 26% to 50% in Vintage Tiles JV during FY17. Therefore, we expect consolidated
EBITDA margins to improve from 10.6% in FY17 to 11.9% by FY20E on higher capacity
utilization and an improving product mix.
Exhibit 17:Margins moving in tandem with higher contribution from vitrified tiles
Source: Equirus Securities, Company
Expect 13%/18% revenue/EBITDA CAGR over FY17-FY20E
SOMC posted revenue & EBITDA CAGR of 19% over FY10-FY17 led by higher utilization of
incremental JV capacity and product mix changes towards higher-margin vitrified tiles.
The company’s revenue growth has easily outperformed industry CAGR of 12-13% over the
same period. However, over FY15-FY17, SOMC’s revenue CAGR moderated to 8% due to a
slowdown in the real estate market and the impact of demonetization in 2HFY17.
Though 1H18 has been hit due to demand disruption and a transitional shift post GST
implementation, we think that 2HFY18E might see dealer-level re-stocking returning due
the downward revision in the GST rate to 18%. However, overall consumer demand still
remains muted and growth should start improving in housing sector by 4Q18.We expect
revenue CAGR of 13% over FY17-FY20E though EBITDA would grow at an 18% CAGR over
this period led by higher revenue contribution from value added products and increased
contribution from the sanitary-ware & bath fittings division.
Exhibit 18:Expect consolidated revenue/EBITDA CAGR of 13%/18% over FY17-FY20E
Source: Equirus Securities, Company
40.4%
33.2%
29.7% 28.6%
25.1% 26.0% 29.0%
34.7% 34.8% 35.1% 35.1%
10.3% 9.4%
8.4% 8.1%
6.4% 7.0%
8.3%
10.6% 10.2%
11.3% 11.9%
0%
2%
4%
6%
8%
10%
12%
14%
10%
20%
30%
40%
50%
60%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
GM (%) EBITDAM (%) - RHS
5.4 7.2 8.8 10.5 12.6 15.4 17.2 18.1 18.9 22.4 26.3
10% 9%
8% 8%
6% 7%
8%
11% 10%
11% 12%
0%
2%
4%
6%
8%
10%
12%
14%
0
5
10
15
20
25
30
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Revenues (Rs bn) EBITDAM (%)
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 14 of 33
Working capital cycle to remain steady
SOMC’s receivable days have increased sharply in the last two years, with FY17 seeing a
big jump from 67 to 83 days. We believe this increase was led by a general slowdown in
real estate demand over the last two years and demand disruption in 2HFY17 post
demonetization; note that KJC has also seen a sharp increase in receivable days for the
last two years. Even in FY18E, we expect receivable days to remain slightly stretched due
to GST-related issues at the dealer level, and believe an improvement in working capital
days would start reflecting from FY19 onwards. Overall cash conversion cycle is expected
to improve by four days by FY20E with a reduction in receivable days.
Exhibit 19:WC days to start improving from FY19E once industry demand stabilizes
Source: Equirus Securities, Company
Return ratios to improve fromFY19E, CFO to pick up with rise in profitability
SOMC’s cash flows are set to gradually improve over FY18E-FY20E due to higher
utilization at both owned and JV plants. We expect a 20% PAT CAGR over FY17-FY20E as
margins and profitability improve due to a better product mix. The company’s D/E will
continue to improve from current levels of 0.53 to 0.34 inFY20E due to strong cash flow
generation and enough cash availability on its books. Core ROIC is expected to improve
by 153bps over FY17-20Edue to focus on value added tiles& increased contribution from
sanitary-ware & faucet-ware.
Exhibit 20:Core ROIC to improve once major capex is over, MDF unit stabilizes (FY19E)
Source: Equirus Securities, Company
Exhibit 21:CFO to improve gradually on better profitability from changing product mix
Source: Equirus Securities, Company
58 61 62 61 67 83 84 82 80
42 42 26 32 29
30 32 32 31
46 56
52 49 43
46 46 47 46
54
46
37 44
54
66 70 67
65
0
10
20
30
40
50
60
70
0
20
40
60
80
100
120
140
160
180
200
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Receivable Days Inventory Days Payable Days Working Capital Cycle 0.3 0.3 0.3 0.5 0.7 1.0 1.0 1.3 1.6
22% 23%
15%
19% 20% 20%
17%
20% 21%
12% 13%
10%
13% 14% 15%
13% 15%
16%
0%
5%
10%
15%
20%
25%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
PAT (Rs bn) ROE (%) Core ROIC (%)
576 447
-187
11
-1,168
112
-234 -192
702 786 707 738
248
596
946 1,007 1,156
1,494
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
FCF (Rs mn) CFO (Rs mn)
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 15 of 33
Exhibit 22:D/E expected to improve going forward
Source: Equirus Securities, Company
Forecast: Key Assumptions & Sensitivity
Revenue Contribution FY16 FY17 FY18E FY19E FY20E FY21E
Ceramic 41% 39% 37% 34% 31% 29%
PVT 35% 33% 35% 36% 36% 36%
GVT 17% 20% 20% 22% 23% 24%
Sanitary-ware 4% 4% 5% 5% 6% 6%
Faucet & Other Fittings 3% 3% 3% 4% 4% 5%
Valuation
SOMC has been changing its product mix towards more value-added and higher margin
PVT/GVT products. It remains well-positioned to capture the demand shift from
unorganized to the organized sector aided by favorable GST rates of 18% and
implementation of the E-way Bill from Apr’18. We expect tiles segment to contribute to
volume and revenue growth over FY17-FY20E, while value-added tiles, sanitary-ware and
faucet-ware divisions would drive some margin improvement over this period. We expect
SOMC to post revenue/EBITDA CAGR of 13%/18% over FY17-20E. The stock is currently
trading at 28x FY19E EPS of 30.3 and 22x FY20E EPS 38.4 respectively. We arrive at a TP
of Rs 910 by assigning a target multiple 30x on our Mar’19 TTM EPS. We expect ROIC to
improve by 153bps over FY17-FY20E and expect EPS CAGR of 20% over FY17-FY20E.
Exhibit 23:TTM P/E vs. two-year forward EPS growth
Source: Equirus Securities, Company
Exhibit 24:TTM EV/EBITDA vs. two-year forward EBITDA growth
Source: Equirus Securities, Company
Exhibit 25:TTM P/B vs. two-year forward RoE
Source: Equirus Securities, Company
1.72
1.32
1.06
0.76 0.74
0.57 0.53 0.49 0.46 0.34
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
0%
20%
40%
60%
0200400600800
10001200
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40xEPS Growth
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0100002000030000400005000060000
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Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 16 of 33
Investment risks & concerns
Demand slowdown in tier/III cities: SOMC has focussed aggressively on increasing
revenue contribution from tier II & III cities/towns over the past 3-4 years as metros and
tier I cities are seeing a demand slowdown post demonetization, a situation further
exacerbated by GST implementation. If demand recovery takes longer than anticipated,
the company’s sales may get hit, leading to lower profitability and dampening the overall
financial profile.
Any strain in relationships with JV/outsourcing partners to increase cost of operations
and capital investments: Since FY11, SOMC has forged strong relationships with mid-
sized Morbi-based players leading to a win-win situation for all parties involved.
However, maintaining this relationship is very challenging, particularly when the second
line of branded players are emerging from Morbi itself. If relationship with any JV partner
is strained due to some reasons, SOMC may have to immediately look for another partner
with a similar capacity or set up its own plant - which would take both, time and money,
thereby impacting company’s operations.
Competition from unorganised/second-tier organized players: Historically, the tile
industry in India has been dominated by unorganized players since majority of the market
is price-sensitive due to which it becomes a low-price, high-volume play. While the share
of organized players has increased in the recent years, unorganized players continue to
remain a formidable threat. Additionally, second tier companies like Varmora, Simpolo
and Sunheart have become national players and are continuously strengthening their
brand visibility and distribution reach. Thus, unorganized players and second tier national
players can seriously impact growth of bigger companies like SOMC or KJC.
Unfavourable price movement in natural gas: Power & fuel form the second largest cost
component for tiles companies after raw materials. For the last two years, NG prices
have corrected largely in line with that of global crude prices. However, crude prices
have bounced back over the last six months due to which NG prices might also increase
going forward. Any unfavourable change in RLNG prices will severely impact margins of
tile manufacturers, particularly of branded players like SOMC.
Dumping from Chinese manufacturers: Though the Indian government had recently
imposed an anti-dumping duty of US$ 1.87/sqm on tile imports from China, it was lower
than industry expectations and kept out of its ambit four Chinese manufacturers with a
large capacity base. Consequently, Chinese imports may restart once the domestic
demand scenario stabilizes, hitting sales of branded companies like SOMC and KJC.
Corporate Governance
• SOMC has paid a dividend of Rs 2.7/sh for FY17. Its dividend pay-out ratio is at 12%
currently, and the seven-year average dividend pay-out ratio of 13%.
• As on Mar’17,the Board of Directors comprised nine directors. Of these, five are
independent directors while the remaining non-independent directors. Mr. Shreekant
Somany, Chairman & Managing Director of the Company is the spouse of Mrs. Anjana
Somany, whole time director, and father of Mr. Abhishek Somany, Managing Director.
• 50% of Directors have attended all four board meetings held during the year. Three
out of five independent directors had attended all the four board meetings.
• Till Mar’17, M/s. Lodha & Co., Chartered Accountants were the company’s statutory
auditors. They have not made any adverse comments in SOMC’s FY17 annual report.
M/s. Singhi & Co. has now been appointed as Statutory Auditors for five years.
Century Plyboards, Ramkrishna Forgings, Chambal Fertilizers, Gillander Arbuthnot,
Aegon Life Insurance, Skipper Ltd. are some other companies audited by Singhi& Co.
• At FY17-end, SOMC had contingent liabilities and commitments of Rs. 465mn (vs.
Rs 467mn in FY16). Majority of this is on account of capital commitments.
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 17 of 33
Annexure 1: Industry overview
Global tile industry
Global tile production has grown at a 6.2% CAGR over CY09-CY16 with China, India and
Brazil being the top three producers currently accounting for ~63% of the global output.
Tile consumption has grown at a 6% over this period, again led by China, Brazil and India.
India’s production/consumption has grown at a 10%/6.8% CAGR over CY09-16. China
accounts for nearly 48% of global production while India’s share is 7%.
Exhibit 26:China, Brazil & India contributed ~63% of world’s tile production in CY16
Source: Equirus Securities, Company
Exhibit 27:China, Brazil and India contributed ~54% of world tile consumption in CY16
Source: Equirus Securities, Company
India’s exports have grown at a 29% over CY09-CY15 as unorganized Morbi-based players
have increased their focus on export business with Brazil, SE Asia and Middle Eastern
countries imposing steep anti-dumping duty on Chinese imports. This has made Indian
tiles, especially high-volume, lower quality tiles, very competitive. Bigger branded
players in India are therefore focusing on developing their domestic business instead of
going abroad.
Domestic tile industry
The Indian tile industry, the third largest in the world, is currently estimated to be
around 785mn sqm/annum in volume terms and Rs270bn-280bn in value terms. The
industry has been growing at an8-9% CAGR over the last 4-5 years; however, growth has
moderated over the last two years due to subdued real estate demand and impact of
demonetization with FY17 seeing a growth of just 3%.Historically, the tile industry has
been fragmented with about 650-700 units operating in the country, most of them based
in Morbi, Gujarat. The unorganized segment occupies nearly 60% market share in volume
terms and 50% market share in value terms; that said, their share has been declining over
the years as organized players continue to push through by introducing value-added
products and focusing on brand promotion.
National brands, including second-tier players operating out of Morbi, currently account
for nearly 50% of the industry value-wise, with top-10 players accounting for 44% market
share as of FY17. Bigger players like KJC and SOMC have successfully increased their
market share in the overall industry revenue pie from ~11% in FY10 to nearly 18% in
FY17;in the organized segment, their market share has risen from ~22% to 36% over the
same time period. Market share gains have been led by intense focus on manufacturing
premium and value-added tiles in both PVT and GVT segments, while over the years,
Morbi has become an outsourcing hub for these players.
39% 39% 40% 42% 44% 45% 46% 48% 48% 48% 50%
8% 8% 8% 8% 8% 8% 8% 7% 7% 7% 6% 4% 5% 5% 6% 6% 6% 6% 6% 7% 7% 7%
49% 49% 47% 44% 43% 41% 40% 39% 38% 38% 37%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
China Brazil India ROW
33% 33% 34% 36% 37% 38% 39% 39% 41% 40% 43%
6% 7% 7% 8% 7% 7% 7% 7% 7% 7% 6% 5% 5% 5% 6% 6% 6% 6% 6% 6% 6% 6%
56% 55% 54% 51% 50% 48% 48% 47% 46% 47% 46%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
China Brazil India ROW
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 18 of 33
Exhibit 28:SOMC has increased its share from 5% to 7% in overall market over FY12-17
Source: Equirus Securities, Company
Exhibit 29:SOMC has increased its market share in the organized space by 300bps
over FY12-FY17and is currently the third largest player in the industry
Source: Equirus Securities, Company
States such as UP, West Bengal, Andhra Pradesh, Tamil Nadu, Gujarat and Rajasthan are
the main production centers, with Morbi alone contributing 70% of India’s total tile
production. The installed capacity of Morbi (which houses close to 600-650 units) stands
at 700mn-sqm per annum, with nearly 15-20% of it being idle at any point in time.
In FY17, ceramic wall and floor tiles contributed~55% of industry volumes and 42% of
total value, while PVT (including soluble salt vitrified tiles and double-charged vitrified
tiles) accounted for 35% of industry volumes and 43% of industry value. GVT accounts for
10% of industry volumes but 16% of industry value as it remains one of the fastest-growing
segments in the tile market. Revenue growth for the top-ten listed players in the
organized tile industry was only 1% in FY17 vs. 10% CAGR over FY12-FY17 due to
slowdown in the real estate market and demand disruption due to demonetization.
Going forward, we believe organized players would continue to grow faster than the
industry due to their strong brand equity, better marketing and distribution capabilities,
focus on product innovation and reducing pricing differential vs. unorganized players post
GST. Also, there is a strong structural shift in consumer preferences to better value
proposition (vitrified tiles), which would improve profitability of the entire sector, and
branded players in particular.
8% 9% 9% 10% 10% 11%
10% 9% 9% 9% 9% 7%
5% 6% 6% 7% 7% 7%
3% 3% 3% 3% 3% 3%
4% 4% 3% 3% 3% 3%
2% 2% 2% 3% 2% 3%
5% 4% 3% 3% 3% 3%
3% 3% 3% 3% 3% 3%
2% 2% 2% 3% 3%
3%
1% 1% 1% 1%
1% 2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FY12 FY13 FY14 FY15 FY16 FY17
Kajaria H&R Johnson Somany Asian Granito RAK
Simpolo Nitco Orient Bell Varmora Sun Heart
17% 18% 19% 20% 21% 21%
20% 19% 18% 19% 17% 14%
11% 11% 12% 13% 14% 14%
6% 6% 6% 6% 6% 7%
7% 7% 6% 7% 6% 6%
4% 4% 5% 5% 5% 6%
9% 8% 7% 7% 7% 5%
7% 6% 6% 6% 6% 5%
4% 4% 4% 5% 5%
5%
2% 2% 2% 3% 3% 3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY12 FY13 FY14 FY15 FY16 FY17
Kajaria H&R Johnson Somany Asian Granito RAK
Simpolo Nitco Orient Bell Varmora Sun Heart
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 19 of 33
Exhibit 30:Domestic tile consumption grew only 3% in FY17 on subdued real estate
demand and impact of demonetization
Source: Equirus Securities, Company
Exhibit 32: Volume & value growth in ceramic tiles has been muted over many years
as GVT & PVT have gained more traction in the Indian market
Ceramic Tiles CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Volume (msm) 334 367 400 415 430 440 425 430
Value (Rs bn) 64 75 90 96 100 105 110 113
PVT CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Volume (msm) 145 170 200 236 250 276 263 275
Value (Rs bn) 47 55 70 81 90 105 110 115
GVT CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Volume (msm) 15 20 25 30 38 40 75 80
Value (Rs bn) 9 10 10 18 25 30 40 42
Exhibit 31:Tile demand is driven by first-time purchasers and new housing demand,
while replacement demand is still very low
Source: Equirus Securities, Company
Exhibit 32:Volume-wise breakup of tiles: GVT has seen strong growth over last two
years while PVT volume growth has stabilized
Source: Equirus Securities, Company
490 550
617
691 750
825 850 901
494 557
625 681
718 756 763
785
26 28 30 33 51 92 122
159
0
100
200
300
400
500
600
700
800
900
1,000
CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Production (msm) Consumption (msm) Export (msm)
70%
15%
15%
Retail
Commercial
Replacement
68% 66% 64% 61% 60% 58% 56% 55%
29% 31% 32% 35% 35% 37% 34% 35%
3% 4% 4% 4% 5% 5% 10% 10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Ceramic Tiles PVT GVT
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 20 of 33
Exhibit 33:Value-wise breakup of tiles – GVT contribution showing strong growth in
line with volume growth
Source: Equirus Securities, Company
53% 54% 53% 49% 47% 44% 42% 42%
39% 39% 41% 42% 42% 44% 42% 43%
8% 7% 6% 9% 12% 13% 15% 16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Ceramic Tiles PVT GVT
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 21 of 33
Industry growth drivers
Tiles penetration in India a long way to go
Though the Indian tiles industry has witnessed decent consumption growth (7.5% over
CY09-CY16), per capita tile consumption in the country (0.61sqm) significantly lags other
comparable countries like Brazil (3.99sqm) and China (3.57sqm). As per the last
government census of 2011, only 11% of Indian households used mosaic and tiles as
flooring, while 47%/31% had mud/cement flooring. In urban India, tile penetration levels
are higher at around 26% due to better understanding of tiles and more awareness.
% of households by material of floor India Rural Urban
Material 1991 2001 2011 2001 2011 2001 2011
Mud 67% 57% 47% 72% 63% 18% 12%
Stone 0% 6% 8% 5% 6% 9% 12%
Cement 21% 27% 31% 18% 24% 48% 46%
Mosaic/Tiles 4% 7% 11% 2% 4% 21% 26%
Others 8% 3% 4% 3% 3% 4% 4%
Over the medium term, we believe tiles should see increased penetration, particularly in
rural India, compared to some other traditional flooring materials due to factors such as
higher durability, good thermal & shock resistance, ease of installation and replacement,
and increasing awareness and availability.
Exhibit 34:Per capita tile consumption in India one of the lowest in the world
Source: Equirus Securities, Company
Exhibit 35:Per capita tile consumption in India improving over the years
Source: Equirus Securities, Company
Over the past decade, increase in real estate prices (the cost to own a house) has far outstripped the increase in the retail price of tiles. Even the best quality tiles entail only 15-20% of the total cost of upgrading interiors. The average price of tiles in FY15 was ~Rs30 per square feet, while in urban India, the price per square feet of a house starts at Rs 2,500-3,000 and averages above Rs 5,000. This makes the cost of tiles less than 1% of the cost of a house compared with 2-3% two decades ago. We believe tile affordability would continue to improve, thus increasing the probability of consumers shifting from other flooring options to tiles.
Shortening home renovation cycle to push up replacement demand
India’s home renovation cycle has reduced from 15-17 years a decade back to 9-10 years
now. This should further reduce to 7-8 years due to rising disposable incomes and an
aspiring young population, leading to better demand generation for building materials
products like tiles. Currently, replacement demand in tiles is around 15% of the total tile
demand in India vs. 35-40% in developed countries. With nuclear families becoming a
norm, particularly in urban areas, people are increasingly opting to change their living
space more frequently to remain in sync with new designs and trends. Besides that our
channel checks indicate that the cost of labour in proportion of total cost of furniture has
gone up from 40% around 5 years back to 50% currently and is likely to increase to 60-65%
over the next 5 years. Therefore we expect replacement demand to improve to 20-22%
over next 5 years.
0.61
1.39 1.4
2.7
3.5 3.57 3.99 4.24
9.48
0
2
4
6
8
10
Per Capita tile consumption in sqm
India Indonesia World Egypt Iran China Brazil Vietnam Saudi Arabia
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Per capita Tile consumption India (sqm)
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 22 of 33
GST implementation, E-way Bill introduction to benefit organized players
Post GST implementation, the price gap between branded and unbranded tiles players is
set to reduce by 10-12%, which would further accelerate market share gains for organised
players. Pre-GST, the tile industry was facing 28-30% tax, including excise, VAT and
octroi. Unorganized players were able to evade excise duty and hence keep prices lower
than organized players, leading to a price differential of 25-30%, particularly for lower
category tiles.
Additionally, before GST, many unorganised players were able to avail SSI benefits by
keeping their turnover artificially below Rs 15mn (via under billing/no billing); this
enabled unorganised players to avoid tax payments. On the other hand, unorganised
players with turnover of less than Rs 50mn were exempt up to Rs 15mn, and paid taxes
on the rest. However, under the new GST law, the exemption limit has been bought down
to Rs 2mn, thereby bringing most of the unorganised players under the tax net which
would force them to increase prices and narrow the price differential.
Previously, no input tax credit was available to dealers for excise duty paid on products;
consequently, dealers preferred to push unbranded products wherein they earned higher
margins due to tax avoidance by manufacturers. However, under GST, dealers would be
able to claim input tax credit, which would reduce pricing for both dealers and consumers.
Post GST, the movement of goods has considerably eased for the entire industry as check
posts have been removed. However, this has also led to unorganized players dumping
most of their under-billed/no-bill goods in the trade channel, particularly in 1Q18. An
important part of stopping tax avoidance under GST is the introduction of E-way bill
which is expected to track the movement of goods right from the factory to the retailer’s
shop with every detail being filed online by the respective party. Once the E-way bill is
introduced, organized players are expected to benefit significantly as they would already
be complying with all inter/intra-state regulations while unorganized players would have
to move towards this new normal, reducing the quantum of their under-billed revenues.
‘Housing for All’ mission to push demand for low-to-medium category tiles
The Central Government’s ‘Housing for All’ mission launched in Jun’15 under Pradhan
Mantri Awas Yojana (PMAY) has the stated purpose of constructing 20mn houses for the
urban poor by FY22,implying a rate of 3mn houses per year. Financial assistance of
Rs 2trn (US$ 30bn) would be given by the central government for carrying out this
program. Most of these houses would be for the Economically Weaker section (EWS) and
Low Income Group (LIG). This is expected to drive demand for ceramic tiles and soluble
salt PVT tiles due to their affordability. Organized brands are expected to outsource most
of this demand from Morbi JVs/other players and concentrate on volume rather than
realizations as they would be competing directly with unorganized Morbi based players.
Revival in real estate sector, smart cities project to fuel demand further
The real estate sector is the second largest employment generator after agriculture, and
contributes about 6% to India’s GDP. In the last two years, several policy reforms &
initiatives such as relaxed FDI norms, implementation of REITs, and creation of Real
Estate Regulatory Authority (RERA) under Real Estate Regulation & Development bill have
received the central cabinet’s nod. This would pave the way for a more reformed,
regulated and transparent real estate market in the country. The urban/rural housing
shortage was estimated at 19mn/Rs 15mn in 2015. India’s real estate sector’s market size
is expected to grow from US$ 94bn in 2014 to US$ 180bn by 2020 and US$ 853bn by 2028.
Both the central and state governments are spending about US$ 5-6bn annually to
develop the housing sector of India. Residential sector forms nearly 80% of the real estate
sector and would be the main growth driver in medium-to-long term. Additionally, we
think interest subsidies available under Pradhan Mantri Awas Yojana would reduce the
cost of housing loans and help accelerate real estate demand revival, particularly in the
MIG & LIG housing.
Rapid urbanization is going to drive the Smart city growth story in India. The number of
Indians living in urban areas will increase from the 430mn in 2016 to about 642mn by
2031 and 843mn by 2050, in search of better livelihood and lifestyles. The government
has developed the 100 Smart City programme keeping this opportunity in mind. The
investment required for making this program a reality is pegged at US$ 16bn by the
government.
The tile industry will be one of the key beneficiaries of any revival in the real estate
sector. Currently the premium/luxury real estate segments are witnessing a slowdown
due to slower growth in top-end real estate segment. We aren’t building in any
significant numbers in terms of recovery in the segment over the next 2 years, but would
monitor is closely; branded players like KJC, SOMC and others would likely see higher
margins with any significant recovery in premium real estate segment, as they move
towards a more higher-margin value-added product mix.
Dominance of organized players set to grow
In last few years, the preference of tiles in the country has been hugely influenced by
newer designs, durability, strength, and brand positioning by bigger players. The
presence of cheaper low-quality domestic/Chinese products has influenced choices
towards branded and quality products. Branded players have been trying to tap on this
demand by tying up with influencers such as carpenters, designers and builders, and by
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 23 of 33
spending heavily on advertisements (similar to paint companies). The organized sector
has grown at a 12-13% CAGR over the last six years compared to an industry average of
8-10%. We believe with reduced pricing differential post GST and increasing brand
awareness created by industry leaders via higher ad spending, demand for branded
products would remain strong and only increase further. Additionally, organized players
offer product innovation, wider choice, better quality and warranty, which unorganized
sector cannot match.
Annexure 2: Competitor Analysis
Exhibit 36: Kajaria & HR Johnson remain the leaders in term of available capacities Capacity including JVs (msm) FY15 FY16 FY17
Kajaria 54 69 69
HR Johnson 54 58 61
Somany 43 51 50
Asian Granito 13 28 28
Orient Bell 20 24 24
Nitco 16 16 16
Exhibit 37: HR Johnson leads the pack
No. of Plants (including JVs) FY15 FY16 FY17
Kajaria 7 8 8
HR Johnson 9 10 11
Somany 8 8 8
Asian Granito 7 8 8
Orient Bell 3 3 4
Nitco 2 2 2
Exhibit 38: Most of the JV partners are based out of Morbi and use latest technology
in their plants
No. of JVs/Associate FY15 FY16 FY17
Kajaria 5 5 5
HR Johnson 5 6 7
Somany 5 6 6
Asian Granito 1 2 2
Orient Bell 0 0 1
Nitco 1 1 1
Exhibit 39: Focus on retail segment to remain high due to better margins
Retail Vs. Institutional FY15 FY16 FY17
Kajaria 70%-30% 70%-30% 70%-30%
HR Johnson 70%-30% 70%-30% 70%-30%
Somany 65%-35% 65%-35% 65%-35%
Asian Granito 35%-65% 35%-65% 37%-63%
Orient Bell Higher proportion from Retail Sales
Nitco Higher proportion from Retail Sales
Exhibit 40: Companies are focusing more on exclusive showrooms & display centers
Distribution Network FY15 FY16 FY17
Kajaria Dealers: 950 dealers;
Retail Touch Pts.:
10,000; Showrooms:
50 Kajaria Primas, 12
Kajaria Galaxy & 25
Kajaria Studio
Dealers: 1,100
dealers; Retail Touch
Pts.: 10,000
Dealers: 1,100
dealers; Retail Touch
Pts.: 10,000;
Showrooms: 161
Kajaria Primas & 41
Prima Plus
HR Johnson Dealers: 1,000; Retail
Touch Pts.: 10,000;
Showrooms: 28
Dealers: 1,000; Retail
Touch Pts.: 10,000;
Showrooms: 28
Dealers: 1,000; Retail
Touch Pts.: 10,000;
Showrooms: 28
Somany Dealers: 1,272; Retail
Touch Pts.: 10,000;
Showrooms: 179
Dealers: 1,497; Retail
Touch Pts.: 10,000;
Showrooms: 181
Dealers: 1,720; Retail
Touch Pts.: 10,000;
Showrooms: 225
Asian Granito Dealers: 500; Retail
Touch Pts.: 4,000;
Showrooms: 75
dealers
Dealers: 620; Retail
Touch Pts.: 4,500;
Showrooms: 85
dealers
Dealers: 970; Retail
Touch Pts.: 5,300;
Showrooms: 120
dealers
Orient Bell Dealers: 2,000; Retail
Touch Pts.: 2,500;
Showrooms: 120;
Depots: 25
Dealers: 2,000; Retail
Touch Pts.: 2,500;
Showrooms: 87;
Depots: 26
Dealers: 2,000; Retail
Touch Pts.: 2,500;
Showrooms: 95+;
Depots: 28
Nitco Dealers: 1,100; Retail
Touch Pts.: 5,000;
Showrooms:125;
Depots: 26
Dealers: 1,300; Retail
Touch Pts.: 5,000;
Showrooms:130;
Depots: 27
Dealers: 1,200; Retail
Touch Pts.: 5,000;
Showrooms:173;
Depots: 17
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 24 of 33
Exhibit 41: Contribution from Vitrified segment has been increasing for all the players
in line with changing industry trends
Revenue
Contribution
Ceramic PVT GVT Others
FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17
Kajaria 40% 37% 37% 37% 36% 33% 22% 23% 25% 2% 3% 5%
HR Johnson 50% NA NA 50% NA NA 0% NA NA 0% NA NA
Somany 46% 41% 39% 33% 35% 33% 15% 17% 20% 5% 7% 8%
Asian Granito 34% 33% 28% 40% 34% 41% 14% 16% 16% 12% 17% 15%
Orient Bell 70% 69% 68% 30% 31% 32% 0% 0% 0% 0% 0% 0%
Nitco 47% 43% 43% 38% 37% 37% 0% 0% 0% 15% 20% 20%
* Nitco gives Vitrified revenues (PVT+GVT)
Exhibit 42:Own manufacturing is mainly used for value added products by Kajaria
Revenue Contribution Own JV Outsourcing
FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17
Kajaria 51% 51% 55% 31% 37% 33% 18% 12% 12%
HR Johnson 35% NA 30% 65% NA 70% 0% 0% 0%
Somany 44% 43% 44% 34% 41% 44% 22% 17% 12%
Asian Granito 53% 50% 44% 0% 15% 21% 47% 35% 35%
Orient Bell 76% 71% 68% 0% 0% 15% 25% 29% 17%
Nitco NA NA NA NA NA NA NA NA NA
Exhibit 43: KJC’s ad spends are the highest in the industry while Somany has been
spending more over last 3 years
Ad Spends (as % of Sales) FY12 FY13 FY14 FY15 FY16 FY17
Kajaria 2.6% 2.7% 2.4% 3.4% 3.1% 3.9%
Somany 1.3% 1.4% 1.6% 1.9% 2.0% 2.7%
Asian Granito 1.1% 1.0% 0.7% 0.5% 0.9% 1.6%
Nitco 1.1% 1.3% 1.9% 1.9% 1.8% 2.5%
Orient Bell 1.3% 0.8% 0.9% 1.2% 1.6% 2.0%
Exhibit 44: P&F costs remain the 2nd largest costs for Tile manufacturers after RM
P&F (as % of Sales) FY12 FY13 FY14 FY15 FY16 FY17
Kajaria 16.0% 19.4% 20.2% 22.2% 19.9% 17.6%
Somany 12.5% 12.4% 13.1% 13.2% 11.9% 11.3%
Asian Granito 17.7% 17.4% 15.0% 15.5% 12.9% 13.3%
Nitco 4.5% 8.8% 16.6% 16.2% 11.9% 11.6%
Orient Bell 20.1% 21.4% 23.9% 24.0% 21.4% 15.0%
Exhibit 45: Bulky nature of Tiles and geographic proximity of the plants drive
Transportation costs
Transportation cost (as % of Sales) FY12 FY13 FY14 FY15 FY16 FY17
Kajaria 1.1% 0.9% 2.7% 2.9% 3.8% 3.4%
Somany 2.8% 2.7% 2.3% 2.2% 1.7% 1.5%
Asian Granito 4.8% 4.6% 3.4% 3.5% 3.0% 3.9%
Nitco 7.5% 10.2% 6.5% 5.5% 3.9% 3.4%
Orient Bell 4.6% 3.3% 2.9% 2.5% 2.5% 2.6%
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 25 of 33
Exhibit 46: Kajaria & Somany have seen similar Revenue CAGR over last 5 years; HR Johnson & Nitco have lost their market share to other branded players
Company Organized Revenue Mkt. Share Industry Revenue Mkt. Share Revenue CAGR (%) EBTIDAM (%) PATM (%)
FY15 FY16 FY17 FY15 FY16 FY17 5 Years 7 Years FY15 FY16 FY17 FY15 FY16 FY17
Kajaria 20% 21% 21% 10% 10% 11% 15.2% 20.6% 16.2% 18.9% 19.5% 8.0% 9.6% 9.9%
Somany 13% 14% 14% 7% 7% 7% 15.7% 19.0% 7.0% 8.3% 10.6% 3.0% 4.0% 5.4%
HR Johnson 19% 17% 14% 9% 9% 7% 2.0% 7.0% 3.5% 3.4% 0.4% -ve PAT -ve PAT -ve PAT
Asian Granito 6% 6% 7% 3% 3% 3% 10.3% 11.7% 7.0% 9.1% 11.6% 1.8% 2.5% 3.7%
Nitco 7% 7% 5% 3% 3% 3% -1.7% 9.6% 0.3% 2.3% 3.2% -14.2% -7.3% -4.6%
Orient Bell 6% 6% 5% 3% 3% 3% 3.8% 7.2% 6.6% 6.7% 8.0% 0.7% 0.9% 1.7%
Company Net Block (Rs Mn) D/E (in x) Core ROIC (%) Working Capital Days CFO (Rs mn)
FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17
Kajaria 8,546 11,100 11,667 0.3 0.3 0.1 19.1% 19.8% 18.6% 44 55 60 1,803 3,156 3,377
Somany 2,638 3,796 3,757 0.7 0.6 0.5 12.8% 14.2% 14.8% 44 54 66 248 596 946
HR Johnson NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA
Asian Granito 1,881 3,918 4,053 0.6 0.9 0.8 5.8% 7.1% 8.6% 60 70 58 1,042 207 652
Nitco 7,124 6,656 6,255 -ve -ve -ve -ve -ve -ve 147 160 186 112 86 289
Orient Bell 2,229 2,090 1,429 0.8 0.7 0.7 9.6% 10.2% 16.0% 49 48 59 469 416 522
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 26 of 33
Annexure 3: Company Overview
SOMC was initially established as Somany Pilkington Limited (SPL) by Hira Lal Somany in
1968 in collaboration with UK-based Pilkington Tiles. In 1994, Indian promoters bought
the entire stake held by Pilkington and subsequently changed the name to Somany
Ceramics in 2007.SOMC is currently the third-largest player in the Indian tiles industry in
terms of revenues. Its value-wise market share in the organized market is 14% and overall
market share of 7% as on FY17. The company’s product basket includes ceramic wall and
floor tiles, polished vitrified tiles (soluble salt and double charge) and glazed vitrified
tiles (digital glazed vitrified tiles).
SOMC has two plants, one in Kadi (Gujarat) and another in Kassar (Haryana), while it has
five JVs with Morbi-based players. Additionally, it also outsources low-end ceramic and
vitrified tiles from some Morbi players who manufacture tiles in accordance with agreed
quality measures. The company markets its tiles under brand names like Somany,
Durastone, Stone, Duragres, VC Shield, Slip Shield, Somany Vitro and Somany
Sanitaryware. It also has a presence in the sanitary-ware and faucet segments through
the JV/outsourcing model. The current retail to institutional client mix is 65%:35% with
institutional base including corporates, government and builders.
Ceramic wall and floor tiles segment: This segment generated Rs 7.4bn and contributed
39% to FY17 topline. SOMC sources these tiles from its own manufacturing facilities as
well as from its JVs (Vicon Ceramics and Amora Tiles), but majority of the tiles are
outsourced from Morbi manufacturers.
PVT segment: This segment generated Rs 6.4bn and contributed 33% to SOMC’s FY17
topline. Though the company has a presence in PVT since 2001 via trading, it entered
into manufacturing of the same from FY11 when it set up a 2.45mnsqm/annum unit at
Kassar. SOMC has also acquired stakes in four Morbi-based companies, namely
Commander Vitrified, Vintage Tiles, Acer Granito and Somany Fine Vitrified which have
dedicated PVT manufacturing lines. Additionally, the company outsources any
incremental requirement of low-end PVT from other Morbi-based players. The company
has recently expanded its double charge PVT capacity from 2.99 msm/annum to 4.8
msm/annum. SOMC will also set up a ~5msm/annum vitrified tile plant in Andhra Pradesh
by its associate company, Sudha Somany Ceramics Pvt. Ltd.
GVT segment: This segment generated Rs 3.8bn and contributed 20% to FY17 topline.
SOMC manufactures GVT at the Kassar unit and at the Commander Vitrified JV. It had
increased its GVT capacity to 9.17mn-sqm per annum by commissioning a 4mn-sqm GVT
line at Kassar last year.
SOMC is also focusing on the export market though currently it forms a very small portion
of total revenues. The company exports to more than 60 countries, and in some countries
its brand has been gaining some traction in recent years. The percentage contribution of
exports to revenues has doubled from 2% in FY12 to 4% in FY17.
Allied products – sanitary-ware and Faucets: This segment generated Rs 1.4bn and
contributed 8% to SOMC’s FY17 topline. Sanitary-ware contributed Rs 802mn while
Faucets contributed Rs 573mnin FY17. The company outsourced sanitary-ware
manufacturing for many years till it acquired a stake in Somany Sanitaryware, a Morbi
based player which had an initial capacity of 0.3mn pieces/annum (subsequently
increased to 1.15mn pieces/annum).SOMC has gradually increased its stake to51% vs. 26%
earlier. In faucets, the company is looking for either doing a JV with some existing player
or putting up its own manufacturing unit. SOMC expects this segment to contribute 14%
of overall revenues over the next 4-5 years.
Exhibit 47:Details of manufacturing units
Plant Name (msm) Tile Type Stake FY15 FY16 FY17 1Q18
Kadi 8.4 8.4 8.4 6.7
Kassar Ceramic/GVT 13.1 17.1 17.1 17.1
Amora Tiles (51% stake) Ceramic 51% 4.6 4.6 4.6 4.6
Somany Fine Vitrified (51% stake) PVT 51% 4.3 4.3 4.3
Vintage Tiles (26% stake) PVT 26% 2.6 3.0 3.0 4.8
Commander Vitrified (26%stake) PVT/GVT 26% 4.8 4.8 4.8 4.8
Vicon Ceramic (26% stake) Ceramic/Industrial 26% 4.0 4.0 4.0 4.0
Acer Granito Pvt. Ltd (26% stake) PVT 26% 5.1 5.1 5.1 3.3
Total capacities 42.5 51.3 51.3 49.5
Somany Sanitaryware Pvt. Ltd. 51% 0.3 0.3 0.3 1.2
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 27 of 33
Exhibit 48:Company’s Journey
Source: Equirus Securities, Company AR
Board of Directors
Name Designation
Mr. Shreekant Somany Chairman& MD
Mr. Abhishek Somany Managing Director
Mrs. Anjana Somany Promoter Director
Mr. G.L. Sultania Non-Executive Non Independent
Mr. Salil Singhal Independent
Mr. Ravinder Nath Independent
Dr. Y.K. Alagh Independent
Mr. Siddharth Bindra Independent
Mr. R.K. Daga Independent
Source: Company, Equirus Securities
1965-90
•1st Plant in Kassar (Haryana) capacity - 0.52 MSM in collaboration with Pilkington's Tiles Holdings, UK
•Expanded Capacity by 1.55 MSM by 1974
•Set up 2nd unit in Kadi (Gujarat) with Ceramic Tiles capacity of 0.58 MSM in
•1983 and increased by 0.48 MSM by 1986
1990-2000
•Expanded Tiles capacity by further 7.93 MSM between 1992 & 1998
•Indian Promoter family bought stake of Pilkington's Tiles Holdings Ltd, UK
2001-10
•Expanded Tiles capacity by further 5.64 MSM between 2001 & 2007
•Received patent for its product VC Shield - India's highest abrasion resistant tiles, a 1st in the Indian Tiles Industry
•Expanded Own Capacity in GVT by 2.45 MSM
2011-16
•Received Power Brand Award for 2 years in Row
•Applied for patent for innovative anti skid tiles - SLIP SHIELD
•Received International Recognition for VC Shield Tiles from the American Ceramic •Society
•Expanded Capacity by 20.06 MSM through Asset Light Model in Morbi and 4.0 MSM
•through Own Capacity in Kassar
•Sanitaryware & Bath fittings became a Rs. 100cr + Brand
2017
•Company has accelerated product launches every two months
•The company graduated from number three in the tiles industry to number two
•The proportion of glazed vitrified tiles increased from 16.8 per cent to 19.9 per cent of revenues.
•Company strengthened its distribution network by adding 223 dealers (net)
•Total showrooms/ display centres reached to 225
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 28 of 33
Standalone Quarterly Earnings Forecast and Key Drivers
Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue 4,092 4,411 4,198 5,705 3,338 4,318 5,088 6,469 3,965 5,125 5,977 7,686 18,406 19,213 22,752 26,629
Cost of Materials consumed+Change in Inventories
431 438 369 803 175 537 611 841 416 564 657 922 2,041 2,164 2,560 2,980
Purchase of stock-in-trade 2,140 2,256 2,084 2,786 1,761 2,099 2,518 3,202 2,002 2,562 2,958 3,766 9,266 9,581 11,289 13,226
Employee Expense 331 365 351 360 378 409 356 420 297 384 478 615 1,407 1,564 1,775 1,997
Power and Fuel 329 365 368 378 370 384 407 453 337 436 508 615 1,440 1,614 1,896 2,221
Other Expenses(incl. Stores and spares)
532 579 637 863 493 479 738 970 535 692 807 1,076 2,611 2,680 3,110 3,648
EBITDA 329 408 389 515 162 409 458 582 377 487 568 692 1,641 1,611 2,123 2,558
Depreciation 48 49 66 90 56 64 70 77 77 76 75 76 253 268 304 343
EBIT 281 359 323 426 106 345 387 505 300 411 493 616 1,388 1,343 1,819 2,214
Interest 43 38 44 40 40 45 48 50 50 49 49 48 165 183 195 205
Other Income 40 46 36 30 44 42 36 37 27 25 22 22 151 160 96 98
PBT 277 367 315 415 110 342 376 492 277 387 466 590 1,374 1,320 1,720 2,107
Tax 96 129 113 134 33 115 124 162 91 128 154 195 472 435 568 695
Recurring PAT 181 238 202 281 77 227 252 330 186 259 312 395 902 885 1,153 1,412
Extraordinary 0 0 0 41 17 14 0 0 0 0 0 0 41 31 0 0
Reported PAT 181 238 202 241 60 213 252 330 186 259 312 395 861 854 1,153 1,412
EPS (Rs) 4.27 5.61 4.76 6.63 1.82 5.34 5.94 7.77 4.38 6.12 7.36 9.33 21.27 20.88 27.18 33.30
Key Drivers
Own Manufacturing Revenues 1,592 1,621 1,728 2,210 1,387 1,527 2,100 2,572 1,643 1,832 2,509 3,153 7,150 7,586 9,136 11,028
JV Revenues 2,039 1,899 2,127 2,550 1,550 1,768 2,514 2,910 1,804 2,208 3,003 3,567 8,615 8,742 10,582 12,569
Outsourcing Revenues 618 554 500 1,040 530 989 474 987 519 1,085 464 966 2,711 2,980 3,034 3,032
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue -21 % 8 % -5 % 36 % -41 % 29 % 18 % 27 % -39 % 29 % 17 % 29 % - - - -
Cost of Materials consumed+Change in Inventories
-37 % 2 % -16 % 117 % -78 % 207 % 14 % 38 % -50 % 35 % 17 % 40 % - - - -
EBITDA -21 % 24 % -5 % 32 % -69 % 153 % 12 % 27 % -35 % 29 % 17 % 22 % - - - -
EBIT -22 % 28 % -10 % 32 % -75 % 226 % 12 % 30 % -41 % 37 % 20 % 25 % - - - -
Recurring PAT -32 % 31 % -15 % 39 % -73 % 194 % 11 % 31 % -44 % 40 % 20 % 27 % - - - -
EPS -32 % 31 % -15 % 39 % -73 % 194 % 11 % 31 % -44 % 40 % 20 % 27 % - - - -
Yearly Growth (%)
Revenue 4 % 9 % 1 % 11 % -18 % -2 % 21 % 13 % 19 % 19 % 17 % 19 % 6 % 4 % 18 % 17 %
EBITDA 37 % 46 % 31 % 24 % -51 % 0 % 18 % 13 % 133 % 19 % 24 % 19 % 33 % -2 % 32 % 20 %
EBIT 46 % 55 % 32 % 19 % -62 % -4 % 20 % 19 % 184 % 19 % 27 % 22 % 36 % -3 % 35 % 22 %
Recurring PAT 73 % 81 % 46 % 5 % -57 % -5 % 25 % 17 % 141 % 14 % 24 % 20 % 38 % -2 % 30 % 23 %
EPS 73 % 81 % 46 % 5 % -57 % -5 % 25 % 17 % 141 % 14 % 24 % 20 % 38 % -2 % 30 % 23 %
Margin (%)
EBITDA 8 % 9 % 9 % 9 % 5 % 9 % 9 % 9 % 9 % 9 % 9 % 9 % 9 % 8 % 9 % 10 %
EBIT 7 % 8 % 8 % 7 % 3 % 8 % 8 % 8 % 8 % 8 % 8 % 8 % 8 % 7 % 8 % 8 %
PBT 7 % 8 % 8 % 7 % 3 % 8 % 7 % 8 % 7 % 8 % 8 % 8 % 7 % 7 % 8 % 8 %
PAT 4 % 5 % 5 % 5 % 2 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 %
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 29 of 33
Consolidated Financials
P&L (Rs Mn) FY17A FY18E FY19E FY20E
Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E
Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 18,110 18,908 22,432 26,293 Equity Capital 85 85 85 85 PBT 1,442 1,454 1,932 2,442
Op. Expenditure 16,195 16,978 19,892 23,175 Reserve 5,128 5,890 6,921 8,242 Depreciation 387 379 428 481
EBITDA 1,915 1,930 2,540 3,118 Networth 5,212 5,975 7,005 8,326 Others 90 -31 0 0
Depreciation 350 379 428 481 Long Term Debt 2,744 2,922 3,211 2,816 Taxes Paid 445 477 635 803
EBIT 1,565 1,551 2,112 2,637 Def Tax Liability 644 642 753 748 Change in WC -527 -318 -568 -626
Interest Expense 233 257 276 293 Minority Interest 271 310 354 406 Operating C/F 946 1,007 1,156 1,494
Other Income 151 160 96 98 Account Payables 2,301 2,383 2,889 3,314 Capex -710 -1,054 -1,534 -989
PBT 1,483 1,454 1,932 2,442 Other Curr Liabi 953 995 1,068 1,252 Change in Invest -365 -359 0 0
Tax 502 477 635 803 Total Liabilities & Equity 12,126 13,227 15,280 16,862 Others 86 0 0 0
PAT bef. MI & Assoc. 981 976 1,296 1,640 Net Fixed Assets 3,757 4,742 5,814 6,283 Investing C/F -989 -1,414 -1,534 -989
Minority Interest 37 38 44 52 Capital WIP 357 0 0 0 Change in Debt 310 178 288 -395
Profit from Assoc. 27 29 34 39 Others 584 990 1,024 1,064 Change in Equity 35 0 0 0
Recurring PAT 971 967 1,286 1,627
Inventory 1,497 1,658 1,967 2,233 Others -364 -147 -110 -272
Extraordinaires 41 31 0 0 Account Receivables 4,103 4,351 5,040 5,763 Financing C/F -19 32 179 -667
Reported PAT 931 936 1,286 1,627 Other Current Assets 538 570 720 965 Net change in cash -62 -375 -199 -162
FDEPS (Rs) 22.9 22.8 30.3 38.4 Cash 1,290 915 716 554 RoE (%) 20 % 17 % 20 % 21 %
DPS (Rs) 2.7 3.4 5.0 6.0 Total Assets 12,126 13,227 15,280 16,862
RoIC (%) 14 % 12 % 14 % 15 %
CEPS (Rs) 31.2 31.7 40.4 49.7 Non-cash Working Capital 2,884 3,201 3,770 4,395
Core RoIC (%) 15 % 13 % 15 % 16 %
FCFPS (Rs) 2.6 -5.5 -4.5 16.5 Cash Conv Cycle 58.1 61.8 61.3 61.0 Div Payout (%) 14 % 19 % 20 % 19 %
BVPS (Rs) 122.9 140.9 165.2 196.4 WC Turnover 6.3 5.9 6.0 6.0 P/E 37.5 37.6 28.3 22.4
EBITDAM (%) 11 % 10 % 11 % 12 % FA Turnover 4.4 4.0 3.9 4.2 P/B 7.0 6.1 5.2 4.4
PATM (%) 5 % 5 % 6 % 6 % Net D/E 0.3 0.3 0.4 0.3 P/FCFF 326.2 -155.5 -189.4 51.9
Tax Rate (%) 34 % 33 % 33 % 33 % Revenue/Capital Employed 2.2 2.0 2.1 2.2 EV/EBITDA 20.1 20.2 15.6 12.6
Sales Growth (%) 5 % 4 % 19 % 17 %
Capital Employed/Equity 1.7 1.7 1.6 1.5
EV/Sales 2.1 2.1 1.8 1.5
FDEPS Growth (%) 41 % 0 % 33 % 27 %
Dividend Yield (%) 0.3 % 0.4 % 0.6 % 0.7 %
TTM P/E vs. 2 yrs. forward EPS growth TTM EV/EBITDA vs. 2 yrs. forward EBITDA growth TTM P/B vs. 2 yrs. forward RoE
0%
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Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 30 of 33
Historical Consolidated Financials
P&L (Rs Mn) FY14A FY15A FY16A FY17A
Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A
Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 12,629 15,431 17,177 18,110 Equity Capital 78 78 85 85 PBT 435 681 968 1,442
Op. Expenditure 11,815 14,356 15,748 16,195 Reserve 2,157 2,502 4,197 5,128 Depreciation 224 266 283 387
EBITDA 814 1,076 1,429 1,915 Networth 2,235 2,580 4,282 5,212 Others 180 165 188 90
Depreciation 224 266 283 350 Long Term Debt 1,707 1,912 2,433 2,744 Taxes Paid 134 216 241 445
EBIT 590 810 1,146 1,565 Def Tax Liability 493 513 568 644 Change in WC 34 -648 -602 -527
Interest Expense 185 205 225 233 Minority Interest 44 53 200 271 Operating C/F 738 248 596 946
Other Income 31 77 91 151 Account Payables 1,783 2,079 2,008 2,301 Capex -589 -508 -1,364 -710
PBT 435 681 1,012 1,483 Other Curr Liabi 1,209 707 944 953 Change in Invest -444 105 -596 -365
Tax 170 222 312 502 Total Liabilities & Equity 7,471 7,844 10,435 12,126 Others -5 27 41 86
PAT bef. MI & Assoc. 265 459 700 981 Net Fixed Assets 2,405 2,638 3,796 3,757 Investing C/F -1,039 -376 -1,919 -989
Minority Interest -7 9 30 37 Capital WIP 29 8 63 357 Change in Debt 84 209 420 310
Profit from Assoc. 17 13 22 27 Others 177 402 416 584 Change in Equity 536 0 1,203 35
Recurring PAT 289 464 691 971 Inventory 906 1,364 1,387 1,497 Others -232 -272 -313 -364
Extraordinaires 0 0 44 41 Account Receivables 2,149 2,591 3,172 4,103 Financing C/F 388 -64 1,310 -19
Reported PAT 289 464 647 931 Other Current Assets 1,088 415 537 538 Net change in cash 88 -192 -13 -62
EPS (Rs) 6.8 10.9 16.3 22.9 Cash 717 425 1,064 1,290
RoE (%) 15 % 19 % 20 % 20 %
DPS (Rs) 1.5 2.0 2.3 2.7
Total Assets 7,471 7,844 10,435 12,126
RoIC (%) 10 % 13 % 14 % 14 %
CEPS (Rs) 12.1 17.2 23.0 31.2 Non-cash Working Capital 1,151 1,585 2,144 2,884 Core RoIC (%) 10 % 13 % 14 % 15 %
FCFPS (Rs) -4.4 0.2 -27.5 2.6 Cash Conv Cycle 33.3 37.5 45.6 58.1 Div Payout (%) 18 % 20 % 17 % 14 %
BVPS (Rs) 57.5 66.4 101.0 122.9 WC Turnover 11.0 9.7 8.0 6.3
P/E 126.0 78.4 52.7 0.0
EBITDAM (%) 6 % 7 % 8 % 11 % FA Turnover 5.2 5.8 4.5 4.4 P/B 14.9 12.9 8.5 0.0
PATM (%) 2 % 3 % 4 % 5 % Net D/E 0.4 0.6 0.3 0.3 P/FCFF -194.3 3,451.6 -31.2 326.2
Tax Rate (%) 39 % 33 % 31 % 34 % Revenue/Capital Employed 3.1 3.2 2.7 2.2 EV/EBITDA 47.1 36.2 27.2 0.0
Sales growth (%) 20 % 22 % 11 % 5 %
Capital Employed/Equity 2.1 2.0 1.8 1.7
EV/Sales 3.0 2.5 2.3 0.0
FDEPS growth (%) -10 % 61 % 49 % 41 %
Dividend Yield (%) 0.1 % 0.2 % 0.2 % 0.3 %
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 31 of 33
Equirus Securities
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Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.
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Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,
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Mumbai-400013.
Tel. No: +91 – (0)22 – 4332 0600
Fax No: +91- (0)22 – 4332 0601
Corporate Office:
3rd floor, House No. 9,
Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,
S.G. Highway Ahmedabad-380054
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Tel. No: +91 (0)79 - 6190 9550
Fax No: +91 (0)79 – 6190 9560
Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 32 of 33
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Analyst Certification
I, Pranav Mehta/Dhaval Dhama, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their
securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures
Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the
Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock
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Regulations, 1993 (Reg. No. INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No. IN-DP-324-2017). There are no disciplinary actions taken by any regulatory
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merchant banking services, private equity, mergers & acquisitions and structured finance.
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The Research Analyst engaged in preparation of this Report:-
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Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months
November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 33 of 33
A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and www.bseindia.com (Choose a company from the list on the browser and select the
“three years” period in the price chart).
Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest
Research Analyst’ or Relatives’ financial interest No
Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No
Research Analyst’ or Relatives’ material conflict of interest No
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ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a
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