Somany Ceramics Ltd.|Q2FY15 First Cut Analysis | Meets Expectations:: IndiaNivesh

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 Somany Ceramics Ltd declared Q2FY15 results that were in-line with our
expectations. Net sales grew by 21.9% yoy to reach Rs 3702 mn against our
expectation of Rs 3673 mn. This was driven by 12% volume growth and balance
by average realisation growth. EBITDA grew by 11.6% yoy to reach Rs 197 mn
against Rs 177 mn in Q2FY14 (INPL est: Rs 240 mn) . EBITDA margin stood at
5.3% in Q2FY15 against 5.8% in Q2FY14, contraction of 49 bps yoy (INSPL est:
6.5%). In our opinion, the share of JV products would have been higher than
own products, resulting in pressure at EBITDA level. However, PAT margin
increased 78 bps yoy to reach 2.8% in Q2FY15 against 2.1% in Q2FY14, increase
of 78 bps yoy (INSPL est: 2.8%). As expected, lower interest cost and lower
than proportionate growth in depreciation have led to PAT margin expansion.
Also, other operating income and other income growth of 124.7% yoy and
646.2% yoy have aided this margin expansion. In our opinion, effective tax
rate has been higher at 35.8% in Q2FY15 against 33.9% in Q2FY14 due to
higher other operating income and higher other income. Adjusting for other
operating income and other income, adj. PAT stood at Rs 47 mn in Q2FY15
against Rs 42 mn in Q2FY14, growing by 9.4% yoy.
 For H1FY15, net sales grew 24.3% yoy to reach Rs 6985 mn against Rs 5618
mn in H1FY14. EBITDA grew 4.3% yoy to reach Rs 365 mn against Rs 350 mn
in H1FY14. EBITDA margin contracted 101 bps yoy to reach 5.2% in H1FY15
against 6.2% in H1FY14. This may be because of higher share of lower margin
JV sales in revenue mix. PAT grew 53.9% yoy to reach Rs 186 mn in H1FY15
against Rs 121 mn in H1FY14. PAT margin expanded 51 bps to reach 2.7% in
H1FY15 from 2.1% in FY14. Adjusting for other operating income and other
income, adj. PAT stood at Rs 84 mn in H1FY15 against Rs 88 mn in H1FY14,
de-growth of 4.3% yoy.
Valuation
At CMP of Rs 333, the stock trades at PE of 28.7x and 20x its FY15E and FY16E
earnings of Rs 11.6 and Rs 16.6 per share respectively. The company is likely to be
one of the beneficiaries of Swachh Bharat Mission of the government, which
increases its revenue visibility. Its asset light strategy of investing joint venture
companies is likely to improve the bottomline, which is visible in the H1FY15 results.
We expect the company ROE to improve going forward due to improving profitability.
We expect net sales of the company to grow at a CAGR of 27.9% iver FY14-FY16E
with PAT growth of 51.9% CAGR over the same period. We value the company at
20x against 16x its FY16E earnings earlier, to arrive at target price of Rs 332 per
share. We maintain our positive stance on the company with HOLD rating. We will
come out with detailed analysis on the result after the conference call with
management, which is scheduled for next week.


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