Hold Somany Ceramics; target of Rs 900: ICICI Direct

ICICI Direct's research report on Somany Ceramics

Somany Ceramics (Somany) reported revenue de-growth 3.5% YoY to Rs 431.8 crore (our expectation: Rs 461.2 crore) on account of GST transformation related issues. However, on a like-to-like basis, revenues grew 5.2% YoY EBITDA margins remained flat YoY at 8.8% (our estimate: 8.5%) on account of higher advertisement and promotion expenses The bottomline de-grew 11.4% YoY to Rs 21.3 crore (our estimate: Rs 24.6 crore). However, it included an exceptional item worth Rs 1.4 crore. Even baring that, PAT de-grew 5.5% YoY to Rs 22.7 crore due to topline de-growth.

Outlook
In our view, in the long term, Somany would be a key beneficiary of GST implementation as it would reduce the pricing differential between organised & unorganised tiles. Further, with demand in the real estate sector set to pick up with the government’s focus on affordable housing, Somany would be well placed to capture this opportunity. However, near term demand headwinds and current valuation of 24.1x FY20E EPS limits upside. We have also introduced FY20E estimates and rolled over our valuation to FY20E. We continue to maintain our HOLD recommendation on the stock with a revised target price of Rs 900 (~25x FY20E EPS).

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