Buy Somany Ceramics; target of Rs 900: Edelweiss
Edelweiss’ research report on Somany Ceramics
Somany Ceramics (SOMC) posted weak Q2FY18 numbers with adjusted revenue growing mere 5% YoY (9% estimate). Further, EBITDA and PAT at INR409mn and INR202mn came below our INR460mn and INR249mn estimates, respectively. The subdued performance was a result of tepid sales volumes (up 4% YoY) impacted by significant non-compliance by unorganised players, deep discounting by SOMC to push volumes, pressure on GVT prices, high gas cost for Haryana plant, increase in ad spends and INR14.1mn exceptional loss. Management has guided for single digit revenue growth in FY18 (impacted by SAP implementation in Q1FY18) and double digit from FY19 with steady 60-70bps margin expansion each year.
We remain confident that anchored by demand shift to the organised sector driven by GST and opportunity to gain market share & margin expansion, SOMC’s earnings are likely to pick up in ensuing quarters. Maintain ‘BUY’ with target price of INR900.
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