Somany Ceramics Ltd.|Q2FY15 Result Update | We value the company at 20x its FY16E earnings to arrive at target price of Rs 332 per share. We maintain our positive stance on the company with HOLD rating :: 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 from Rs 3283 mn in
Q2FY15 (INPSL est: Rs 3673 mn). This growth was driven by 8.6% yoy volume growth
and 11.1% yoy 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%). This is on account of higher share of low margin JV products than own
products, resulting in pressure at EBITDA level. The share of JV products increased
to 36.4% in Q2FY15 from 33.2% in Q1FY15 and 17.4% in Q2FY14. The share of own
capacity has reduced to 41.1% in Q2FY15 against 47.9% in Q2FY14.

 Despite EBITDA margin pressure, 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. This was driven by 12.2% yoy volume growth and 9.8% average
realisation growth. 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 is 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. Reported PAT stood at Rs 186 mn in H1FY15 against Rs 121 mn in
H1FY14.

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