Somany Ceramics Ltd. | Q3FY15 Result Update | Operating leverage to continue its play; Maintain HOLD with revised target price of Rs 344 :: IndiaNivesh

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Operating leverage to continue its play; Maintain HOLD with revised target price of Rs 344 Somany Ceramics Ltd declared Q3FY15 standalone results that beat our estimates on bottomline front. However, sales and EBITDA performance was below our estimates. Net sales grew by 30.9% yoy to reach Rs 3712 mn in Q3FY15 against our expectation of Rs 3991 mn. This was driven by 19.2% volume growth and balance by average realisation growth. Volume sales for stood at 10.2 msm in Q3FY15 against 8.5 msm in Q3FY14. This is lower than our expectations of 25.3% yoy volume growth which may be on account of marginal weakness in demand. Share of Joint venture companies in the revenue mix increased to 42.7% from 19% in Q3FY14. This sharp increase is on account of partial operation of these companies in Q3FY14 due to strike in Morbi (where all these companies are located) and increased capacities post Q3FY14. Capacity of JV segment increased 10.58 msm over Q3FY14 to reach 18.53 msm

EBITDA grew by 28.3% yoy to reach Rs 206 mn against Rs 160 mn in Q3FY14 (INPL est: Rs 240 mn). EBITDA margin stood at 5.5% in Q3FY15 against 5.7% in Q3FY14, contraction of 11 bps yoy (INSPL est: 6%). In our opinion, this is on account of higher share of JV products in revenue mix. However, PAT margin increased 128 bps yoy to reach 3% in Q3FY15 against 1.7% in Q3FY14, increase of 128 bps yoy (INSPL est: 2.6%). This is mainly on account of financial and operating leverage arising from asset light model of adding capacities through joint venture companies. 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 301.1% yoy and 425% yoy have aided this margin expansion. In our opinion, effective tax rate has been higher at 35.2% in Q3FY15 against 32.9% in Q3FY14 due to higher other operating income and higher other income. Adjusting for other operating income and other income, adj. PAT stood at Rs 48 mn in Q3FY15 against Rs 34 mn in Q3FY14, growing by 42.3% yoy.

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