Batlivala & Karani

VISIT NOTE
MID CAP

Somany Ceramics
Price: Rs 445

Share Data

BSE Index: 28,879

Not Rated
13 April 2015

Reuters code

SOCE.BO

Focus on asset light model

Bloomberg code

SOMC IN

Somany Ceramics (SCL) with an installed capacity of ~52 million square meters

Market cap. (US$ mn)

278

(including JVs and outsourcing) is the third largest tile manufacturer in India.

6M avg. daily turnover (US$ mn)

0.2

The company has manufacturing plants in Kadi, Gujarat and Kassar, Haryana

Issued shares (mn)

39

Performance (%) 1M

3M

12M

Absolute

17

43

156

Relative

17

36

102

and other joint venture plants in Morbi, Gujarat. We recently met the
management of Somany Ceramics to understand the business dynamics and
future prospects for the company.

Following are the key takeaways of the meeting:

Valuation ratios
Yr to 31 Mar

Indian tile industry has grown at a CAGR of 14% over CY09-14 and expected to grow at
CAGR of ~17% over the next five years. Key drivers would be pick up in housing

FY 13

FY 14

EPS (Rs)

9.3

7.4

+/- (%)

27.1

(20.0)

PER (x)

7.1

21.8

Dividend/Yield (%)

1.8

0.9

EV/Sales (x)

0.3

0.6

company believes this trend would continue on sustainable basis given rising cost of

EV/EBITDA (x)

4.2

8.9

production for unorganised players (post ban on usage of coal gassifier in Gujarat), higher

activity and government initiatives like Swach Bharat Abhiyan, development of 100
smart cities, development of industrial corridors, housing for all by 2022 programme.

which contribution from organised players is at 40% and rest is from unorganised players.
During the last two years, organised players have managed to grow higher than industry
growth primarily driven by gaining the market share from unorganised players. The

preference to branded products and implementation of GST.

Major shareholders (%)

Promoters

56

FIIs

MFs

Public & Others

Indian tile industry is about Rs 22.5 bn in value terms and 748 msm in volume terms, in

35

SCL is the third largest player with current capacity of 52 msm (Own 21 msm, JV 21
msm and Outsource 9 msm). The company is in the process to increase its capacity to 55
msm through JV and brownfield expansion of Kassar (Haryana) plant.

SCL has market share of ~13% by revenue in the organised segment and have grown at
a CAGR of 23.4% over FY10-14. The company expects the growth momentum to

Relative performance

continue on sustainable basis given expected strong growth of industry, incremental

capacity and improving brand awareness.

500
400

300

The company as a business strategy is giving more emphasis on JV model for future
growth given quicker access to capacity at lower cost. This model will help the company

200

to drive robust revenue growth without putting undue pressure on its balance sheet (JV

100

is an asset light model). Though margins could be lower in JV but return on capital
Apr-07
Dec-07
Sep-08
Jun-09
Mar-10
Nov-10
Aug-11
Apr-12
Jan-13
Oct-13
Jul-14
Mar-15

Somany Ceramics (Actual)

Sens ex

employed is higher.

Major operating cost for the company is power & fuel and stores and spares. The company
has entered into long-term contract for natural gas supply agreements with GAIL, IOCL
and Sabarmati Gas is based on long-term average. Hence, despite correction in spot gas
prices, SCL would not witness sharp correction in its input cost. However, the company
expects gradual moderation in operating cost with higher utilisation, higher sales of valueadded product and benefit of lower gas price.

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B&K RESEARCH

APRIL 2015

The companys sanitary ware and bath fittings are mostly sold through the same dealer
network. Recently, Somany has acquired equity stake in M/s Sonec Sanitaryware Pvt. Ltd.
to produce 0.3 mn pieces of sanitary ware per annum and also exploring opportunities
for joint venture in this segment.

During the last two years, the companys profitability adversely impacted (PBT margin
declined from 5.6% in FY10 to 3.5% in FY14) primarily due to high power and fuel costs,
higher marketing spend and increase in overall cost of production due to higher inflation.
Going ahead, the company expect improvement in PBT margin to ~5% over the next two
years.

SCL has passed a resolution to raise Rs 1.5 bn through QIP primarily to fund the
brownfield expansion of Kassar (Haryana) having capex of Rs 750 mn, investment in JV
of ~Rs 150 mn and capex worth of Rs 250 mn for sanitary ware segment.

The companys debt position would remain same of around Rs 1.8 bn during FY16
which has average interest cost of 11.5%.

SCL is currently trading at PER of 20.5x and EV/EBITDA of 11.6x on FY17 consensus
estimates.

Company profile
Somany Ceramics was incorporated in 1968 and is a part of the HL Somany Group. The
company initially started operations in collaboration with UK-based Pilkington Tiles (registered
as Somany Pilkington Ltd.). Later it was renamed as Somany Ceramics in 2007. Somany is
headquartered in Noida, Uttar Pradesh with two own manufacturing units in Kassar, Haryana
(~13 msm) and Kadi, Gujarat (~8 msm) and five JV-based manufacturing facilities in Morbi,
Gujarat (~20 msm). Somany also has outsourcing tie-ups for capacity of ~9 msm. SCLs
product offerings include ceramic wall and floor tiles, glazed and polished vitrified tiles,
internationally-branded tiles, sanitary ware and bathware fittings. It markets its products
though its robust pan-India distribution network consisting of 1,200+ active dealers, 10,000+
sub-dealers, 6,500+ touch points including 223 showrooms, 19 stock points and 31 marketing
offices. The company earns 70% of revenues from the northern and southern markets. It
earns ~2% of revenues from the sanitary ware business.
Key events
Established by
Shri Hiralal
Somany

Collaboration
with Pilkingtons
Tie Holding

First
manufacturing
unit at Kassar

Established
second unit at
Kadi, Gujarat

Indian promoter
bought equity shares
held by Pilkingtons

Changed the logo

from SPL Ltd. to
Somany Tiles

1968

1971

1972

1981

1996

1998

Changed name
from SPL Ltd. to
Somany
Ceramics Ltd.

Ventured into the

sanitary ware
brand
Somany Aquaware

Received patent
for VC shield

Acquired 26%
stake in Vintage
Tiles and
Commander

Acquired 26%
stake in Vicon and
Acer and 51%
stake in Aroma

JV for production

2007

2007

2009

2012

2013

2013

Source: Company, B&K Research

SOMANY CERAMICS
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B&K RESEARCH

APRIL 2015
Capacity break-up

Vintage Tiles Pvt ltd (2.55

msm)
Commander Vitrified Pvt
Ltd (4.76 msm)
Amora Tiles Pvt. Ltd. (4.5
msm)
Vicon Ceramic Pvt. Ltd.
(3.98 msm)
Acer Granito Pvt. Ltd (5.1
msm)
Somany Fine Vitrified
Tiles Pvt. Ltd.(9msm)
Source: Company, B&K Research

Market share of tile companies

33%

Segment-wise break-up
4%

20%

1%

15%

H&R Johns on

Ceramic Tiles

Kajaria Ceramics

Polis hed vitrified tiles

Somany Ceramics

Glazed virtrified tiles

Nitco Tiles
As ian Granito
19%

7%
8%

Others

Sanitaryware & Fittings

29%

51%

Others

13%

Source: Company, B&K Research

India tiles market

Source: Company, B&K Research

SOMANY CERAMICS
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B&K RESEARCH

APRIL 2015
GDP and tiles growth Avg multiplier is 1.5x with a range of
(1.3x-2.6x)

Increasing share of outsourced and JV sales in overall sales

25
43

20

49

%
20

15
10

57

32

0
FY11

FY06

FY14

Own manufacturing

JV

Others

FY07

FY08

FY09

FY10

FY11

FY12

FY13

GDP growth (%)

Tile Indus try volume growth (%)

CY09

CY10

CY11

CY12

CY13

CAGR (%)

China

3,600

4,200

4,800

5,200

5,700

12.2

Brazil

715

754

844

866

871

5.1

India

490

550

617

691

750

11.2

Iran

350

400

475

500

500

9.3

Spain

324

366

392

404

420

6.7

Indonesia

278

287

320

360

390

8.8

Italy

368

387

400

367

363

(0.3)

Turkey

205

245

260

280

340

13.5

Vietnam

295

375

380

290

300

0.4

Mexico

204

210

219

229

228

2.8

Source: Company, B&K Research

Global tiles market

Total production of 10 top countries
(Million sq mtr)

25
20

2,000
0

12,629

10

10,539

4,000
8,790

15
7,199

6,000

FY11

FY12

FY13

FY14

Net s ales (Rs mn)

Growth (%)

5
0

8.4

10
8.1
6.4

8
6

19.8

9.4

4
814

19.9

12

857

8,000

10.2

741

22.1

10,000

900
800
700
600
500
400
300
200
100
0

678

30

Rs mn

12,000

Rs mn

35

32.8

14,000

EBITDA growth trend

553

Revenue growth trend

FY10

FY11

FY12

FY13

FY14

EBITDA (Rs mn)

2
0

EBITDA MARGIN (%)

Source: Company, B&K Research

SOMANY CERAMICS
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B&K RESEARCH

APRIL 2015

Income Statement

Cash Flow Statement

Period end (Rs mn) Mar 11 Mar 12 Mar 13 Mar 14

Period end (Rs mn) Mar 11 Mar 12 Mar 13 Mar 14

Net sales

7,199

8,790

10,539

12,629

Profit before tax

Growth (%)

32.8

22.1

19.9

19.8

Operating expenses

Depreciation
Change in working capital

345

363

478

435

175

183

205

224

(846)

149

(28)

118

(114)

(144)

(148)

(6,521)

(8,049)

(9,682)

(11,815)

Operating profit

678

741

857

814

Total tax paid

(80)

EBITDA

678

741

857

814

Others

171

207

200

185

788

710

815

148

(338)

(344)

(684)

(42)

(35)

(461)

Cash flow from inv. (b)

148

(380)

(379)

(1,145)

Free cash flow (a+b)

(88)

407

331

(330)

485

Debt raised/(repaid)

163

(120)

(42)

83

Dividend (incl. tax)

(28)

(32)

(48)

(68)

Others

(44)

(191)

(206)

(83)

Cash flow from fin. (c)

91

(343)

(296)

417

Net chg in cash (a+b+c)

65

36

87

Growth (%)

22.6

9.3

15.7

(5.1)

Cash flow from oper. (a) (236)

Depreciation

(175)

(183)

(205)

(224)

Capital expenditure

12

12

26

31

516

569

678

620

Other income
EBIT
Finance cost

(171)

(207)

(200)

(185)

Profit before tax

345

363

478

435

Tax (current + deferred)

(105)

(111)

(152)

(170)

P/(L) for the period

239

252

326

265

(6)

23

239

252

320

289

Adjusted net profit

239

252

320

289

Growth (%)

20.5

5.2

27.1

(9.8)

P/L of Associates, Min Int,

Pref Div
Reported Profit/(Loss)

Change in investments

Equity raised/(repaid)

Key Ratios
Period end (%)

Mar 11 Mar 12 Mar 13 Mar 14

Balance Sheet

Adjusted EPS (Rs)

Period end (Rs mn) Mar 11 Mar 12 Mar 13 Mar 14

Growth

20.5

CEPS (Rs)

12.0

Book NAV/share (Rs)

30.1
0.7

Share capital

6.9

7.3

9.3

7.4

5.2

27.1

(20.0)

12.6

15.2

13.2

36.5

44.4

57.5

0.8

1.2

1.5

11.7

12.7

15.1

23.6

9.4

8.4

8.1

6.4

69

69

69

78

970

1,190

1,461

2,157

1,039

1,259

1,530

2,234

44

1,086

1,092

1,045

1,201

7.2

6.5

6.4

4.9

Long-term borrowings

682

672

616

708

Tax rate

30.5

30.6

31.9

39.1

Other non-current liabilities

404

419

429

493

RoCE

Reserves & surplus

Shareholders' funds
Minority Interest and others
Non-current liabilities

Current liabilities

2,692

2,943

3,636

3,991

ST borrowings, Curr maturity 1,103

993

1,008

999

Other current liabilities

Dividend/share (Rs)
Dividend payout ratio
EBITDA margin
EBIT margin

17.5

17.3

19.6

15.4

Total debt/Equity (x)

1.7

1.3

1.1

0.7

Net debt/Equity (x)

1.6

1.1

0.9

0.4

Net margin

3.3

2.9

3.0

2.3

Asset turnover (x)

1.6

1.7

1.8

1.8

Leverage factor (x)

4.8

4.4

4.1

3.6

25.7

21.9

22.9

15.3

Du Pont Analysis - ROE

1,589

1,950

2,628

2,992

Total (Equity and Liab.) 4,817

5,294

6,211

7,470

Non-current assets

1,849

2,046

2,221

2,770

1,766

1,944

2,092

2,435

10

52

87

177

Long-term loans and advances 74

50

41

159

2,969

3,247

3,990

4,701

158

222

258

717

2,810

3,025

3,732

3,984

4,818

5,294

6,211

7,471

Total debt

1,785

1,666

1,624

1,707

Yield (%)

1.7

2.1

1.8

0.9

Capital employed

3,228

3,344

3,583

4,479

EV/EBITDA

4.5

3.7

4.2

8.9

Fixed assets (Net block)

Non-current Investments
Current assets
Cash & current investment
Other current assets
Total (Assets)

Return on equity

Valuations
Period end (x)
PER

Mar 11 Mar 12 Mar 13 Mar 14

5.9

5.2

7.1

21.8

PCE

3.4

3.0

4.3

12.3

Price/Book

1.4

1.0

1.5

2.8

SOMANY CERAMICS
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B&K RESEARCH

APRIL 2015

B&K Research
research.equities@bksec.com
+91-22-4031 7000

B&K Universe Profile

200
180
160
140
120
100
80
60
40
20
0

By Recommendation
160

179

131

140
no. of companies

no. of companies

By Market Cap (US$ mn)

99

33

120
89

100
80

64

60
40

23

20

NR

UR

0
> $1bn

$200mn - $1bn

<$200mn

Buy

OP

UP

Sell

B&K Securities is the trading name of Batlivala & Karani Securities India Pvt. Ltd.

B&K Investment Ratings.

LARGE CAP
(Market Cap > USD 2 bn)

MID CAP
(Market Cap of USD 200 mn to USD 2 bn)

SMALL CAP
(Market Cap <USD 200 mn)

BUY

>+20% (absolute returns)

>+25% (absolute returns)

>+30% (absolute returns)

OUTPERFORMER

+10% to +20%

+15% to +25%

+20% to +30%

UNDERPERFORMER

+10% to -10%

+15% to -15%

+20% to -20%

SELL

<-10% (absolute returns)

<-15% (absolute returns)

<-20% (absolute returns)

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