Somany Ceramics (NSE:SOMANYCERA) Q1 2026 Earnings Call

0:01 Good afternoon, ladies and gentlemen. Welcome to the Somany Ceramics Limited Q1 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Nagarwal, Head Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir. Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of Somany Ceramics and SKP Securities to this financial results conference call.

0:46 We have with us Mr. Vishik Somany, MD and CEO Mr. Srivastava Somany, Head, Bathware Mr. Meyer Somany, DGM and Mr. Saleh Rajkidawat, CFO. We'll have the opening remarks from Mr. Somany followed by a Q and A session. Thank you, and over to you, Mr. Somany. Yes. Good afternoon, ladies and gentlemen. Welcome to the earnings call of FY 'twenty six, 'twenty seven Q1. As you can see, our sales have grown moderately by about 3%, whereas the value has grown by 24%. The sales growing only at 3% is due to April, we did not get a certain segment, which we were generally buying from Modi.

1:32 As you all know, that Modi was shut for the entire one months. Point So we missed a couple of percent of sales, but it would be made up this quarter very handsomely. As a result of capacity utilization, our EBITDA margins have gone up on operational efficiencies, both on capacity utilization in our plants and also on the JV performances. So EBITDA margins go up by 3.6% to 11.6% for the quarter. Capacity utilization in the JVs and very, very significantly in our own plants have gone up. The gas price has been extremely volatile. We I had mentioned that in the earnings call for the FY 'twenty six, but the gas price since then has been extremely volatile.

2:18 Every month, there's been a small increase in gas price. Fortunately, we've been able to pass on all the gas price increase until now. So the current price increase has been between 1618%. Other than that, the demand of May and June has been pretty decent. July also has been not bad considering that there's been rains in many parts of the country. Morbi operations have completely started. They have resumed 100% production on very expensive gas, which is on which is being supplied by GEL, formerly known as GSBCL. The price is significantly higher, and they have also priced it in as far as their pricing is concerned.

3:07 The only negative in the quarter has been from a Mobi perspective is exports have been down due to geopolitical reasons. The export is down a good 50%, 60% from the peak. That's been a little bit of a downer for the quarter, and this will continue probably for this quarter until it starts settling until the freight starts settling. We have been heavily growing in our sanitary ware, bath fitting and the Building Materials division also. Again, there's been a large expansion, which we've taken place in the Building Materials sorry, in the Construction Chemical space. We have added capacity in South and also we've added a very large capacity in the North, which has gone on stream only last month. So effects of that will be seen partly in this quarter and mostly next quarter.

4:03 Advertising spends are in line. Receivables are in line. We've only bettered our receivables. Stocks, we've been able to reduce our stock fairly significantly due to Morbi not being running. That's been a big booster for clearing out old stock and also reducing a large amount of inventory, which we were carrying from the past. Our better days, inventory days, creditor days are all healthy. Working capital days also have come down from seventeen to twelve days. Overall, we are extremely bullish of the future outlook. Because of that, we have announced setting up a 9,000,000 square meter plant nine plus million square meter plant in the South, which would be up and ready by the next twelve to fifteen months.

4:59 This would give us a potential revenue of about INR $3.50 crore. Other than that, we are taking many more steps, which are all work in progress to augment further capacity by about 4,000,000 to 5,000,000 in our existing lines in Bhagavad, which is in Haryana and in Gujarat and in Morbi and also in the South. All put together, we will be adding another 4,000,000 to $5,000,000 for the mid this will be ready from mid quarter three and would be completely in place in quarter four. This would add not only capacity but also will add value added mix. I have been maintaining that our JVs were not performing to our expectation last year. This year, they have all started performing, and they will only perform better going forward.

5:46 Again, one of the JVs we've taken up fairly significant capacity increase sorry, not capacity increase, we've taken a significant value add increase by balancing equipment. It doesn't come at a large cost, but that way further value add our products. So from a product point of view and volume point of view, we are looking good for the future. And we maintain that the EBITDA margins delivered in this quarter would be maintained, and we are trying to better our EBITDA margins, which we have delivered in last quarter and on this quarter. So on EBITDA and on value volume, things are looking very, very positive going forward. I would stop here, and I would take any Q and As going forward. Thank you so much.

6:37 Thank you very much. We will now begin with the question and answer session. Tone phone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Again, to register for a question, please press star and then 1 now. Your first question comes from the line of Sneha from Nuwama. Please go ahead.

7:26 Hi. Congratulations on great set of numbers. Coming to your margins itself, which is pretty surprising, we generally see a strong quarter on quarter drop when it comes to q one. This time, we've seen strong improvement in margins. What's really leading to this change? And how structural of a change it is in terms of, you know, these numbers remaining from q two? That's the first one. Sanyat, I think this is because of capacity utilization being much, much better than last quarter. So if you see same time last quarter, which is Q1 last year, it was 72%. We're at 83%, and that's an 11% increase in sorry? Stand Yes. On a stand alone basis from 72% capacity utilization to 83%, which is a major, major increase, and that has led to margin.

8:20 On the other front, I think our JVs, which gave us last year on the same quarter, which is Q1 last year, gave us a loss of INR 10 crores, this time is in a profit of INR 3 crores, and this would only get better going forward. So very, very confident of maintaining this margin and only bettering this. Well, that's a strong commentary. Secondly, with respect to demand, while we understand, I think April was slow for us and, you know, May and June saw a pickup. How has July been for us if it all, you know, you could quantify some numbers here? And, also, we keep hearing very mixed thing about Morbi. At times, it is shut. At times, it is opening up. What is the situation, and how are even exports doing? So so first of all, ex... April was not slow. April was slow because there was no material available in Mobi.

9:11 There was only that much material available. And even our plants about because there was a restriction of 60% and then 80%, so some of our lines were also shut. And a lot of the material has already gotten out in March. Therefore, we were also at lower capacity utilization from that point of view, considering that we didn't have enough gas, which normalized in May. And Morbi, there is no ambiguity there. It is not shut or closed. It has been open since May. Of course, they took twenty days to completely normalize because of labor unavailability. But May and onwards, they've been absolutely at 100% capacity. 15% to 17% of Morby, which has not started, is never going to start. That never started even in May, and that's not started even today.

9:57 The the situation, as far as demand is concerned, of July, July with the rains, obviously, it is a tough month, but, frankly, we've been able to push ourselves. Got that, sir. And, just thirdly, I just wanted to understand the gas pricing. What would be the pricing in Morbi versus your North... Versus your North and South plus? Yes. So our blended price comes in at about 68%. And South, we are still buying partly in spot. So South is South and Morbi are pretty much at the same level, which is close to mid-seventy And in the North, it is slightly lower, which is around the $68.69 level.

10:48 Understood, sir. That was pretty helpful. Thanks thanks a lot, team. Worries. This is for natural gas. This is the pricing for natural gas. But is that your blended fuel cost? Because you you also use biofuel. We would like to get your blended fuel cost or for the one that No. No. What we have reported is the blended natural gas cost. Could you help us with your blended cost for quarter one versus probably a quarter four blended cost? I don't have that off the cuff because we do use a reasonable amount for our. Yeah. Please. Sure. Thanks, sir. All the best, sir. Thank you. Thank you. Thank you. Next question comes from the line of Gunit Singh with Counter Cyclical PMS. Please go ahead. Hi. Thank you for this opportunity. Sir, what kind of a price hike did we take in Q1?

11:40 We took a price hike of you can take an average of about 16%, 17%. Got it. So how much of a premium do we have over the players in Morby in terms of realizations Because of the higher input costs, I believe that Morbi also took price hikes, and our premiums to them narrowed over the previous quarters. So how does it look like now? I don't understand. When you mean higher input costs, what do you mean by that? Higher gas prices? We don't have higher gas prices. Gas prices are same as what the other people in the country are getting. No. What I'm saying is Morby guys took a price hike, right, because of higher gas prices and our premium Okay. So so our price increase was about 16, 17%.

12:35 Morby was just double of that because they were selling that much cheaper than us. So obviously, when they have increased prices by more than double of what they were selling, the price gap between us and Morbi has reduced. Plus, do not forget that Morbi was buying propane and LPG earlier and not natural gas, and they were buying that in various different ways, which were not the cleanest of ways. So now that they're buying Gujarat gas, then they have to rectify their books. So that also narrows our landed pricing to the dealer versus Morbi. Got it. So our premium has basically narrowed despite the price hike? That's right. Okay. And currently, in Q2, have we seen a fall in gas prices or blended gas costs?

13:25 No. The prices of June and July, in fact July is a little higher, marginally higher, but a little higher than what it was in May and June. And so is August. August is again slightly more marginally higher. Got it. And how does the demand scenario look like for the rest of the year given that the prices are also highest, but still demand is holding up. I think it was 2% higher in this quarter. I mean, Demand what kind is looking good. Let's not forget that in the last thirty months, prices had reduced also by 15%, 16%. So that's been the price increase. So from that point of view, because of that scenario, it's been well accepted in the market. And demand seems to be absolutely good. Of course, there are these months of the rain, which has nothing to do with demand. It's more of an issue with the weather. But other than that, the demand is perfectly fine.

14:31 Got it. So if we look at the current cycle or maybe the last five years, how would you compare our prices currently? I mean, they mid cycle or are they high? I don't understand your question. So you mentioned that prices earlier were higher and they were reduced. Right? So I want to understand if today with the higher prices, with the price hike, do we still We're still lower we're still lower than what we were five years ago. Okay. Okay. Got it. Cost of time five years ago was more than what it is today, inflation adjusted. Got it. Sir, so despite, I mean, giving... Despite our business growing over the previous five years, our company has developed...

15:22 Hello? Yeah. Yep. I'm I'm saying despite our business growing over the previous five years, our company currently is trading at a market cap of 2,100 crores and around an EV EBITDA of eight to nine, which is 50% lower than our own historical PE, as well as maybe half of the valuation of our peers. So... And our stock price has given a negative 5% CAGR over the last last five years despite Somany building a household band. So I would just request the management to consider... Seriously consider share buyback because it could not only be in case accretive.

16:08 Thank you. Thank you for your suggestion. Good night, sir. For the further questions, if I can request you to rejoin the queue for follow ups, please. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, we Our next question comes from the line of Keshav Lahoti with HDFC Securities. Please go ahead. Hi. Thank you for the opportunity. Sir, we have seen the, you know, the demand was slightly muted in March and April because of production shut and all. So we're expecting the pent up demand to hit by June last quarter.

16:59 Having to be seen where is it? Sorry? I didn't get your question. So my question is, in last call, you said March was slow, April has been slow because of, you know, supply issue. Possibly the expectation was once the supply issue will get normalized, we'll see a pent up demand. So have we seen that or where are we on that front? Because Modi has been shut, still volume growth is low single digit. So when should we expect high single digit volume growth? No, we're getting high single digit volume growth. In fact, now We're getting not high single digit, but we're getting mid single digit volume growth, and this is looking good.

17:44 Beyond the point, the biggest positive is that the price has been pushed into the market, and we're looking at very decent volume and value growth. Got it. And sir, it's really heartening to hear you saying the margin, what you have shown in last two quarters will continue. But just to playing devil's advocate, what we have seen, you know, Modi was shut. There was a supply crunch in the market, which will get normalized now because Modi has started operation. Export is weak. So possibly, you know, the price cut and all these things possibly can play out in upcoming months, which can, you know, put a pressure on our margin. What are your thoughts on that? So my margin really has not gone up because of pricing. My margins have gone up because of operation efficiencies that we are producing 100% in our own plants and also our JV losses have come down. So due to that, the margins have gone up and not so much of pricing. Pricing has only been a pass through. I'm not earning anything from the pricing.

18:46 So if it goes down, so be it. As long as I'm producing 100% and my JVs are profitable, my my... This this margin will sustain. So that's why I'm so confident. Got it. That is good to hear. Last question from my side. What has been the... Somany has been a bit positive this quarter? How exactly? Yes. So SOMANYCERA, last year, same quarter, we had a 7 crore minus. And this time, we have a INR 1 point something crore minus. And going forward, even this would be controlled. So if you remember, I had said that Somany, we will be in a situation which will be INR 10 crore loss or less, and we are very, very confident of achieving that. Got it. Understood.

19:33 Thank you. Thank Our next question comes from Saket, an individual investor. Sir, my question was, like, sir, as you say, let's see the EBITDA money being maintained at this level. So, like, sir, as your prices are increased and the price of has increased, we're higher. So because of this difference between the two getting narrowed, that is why the margins are being maintained or like like why you're seeing that the margins will be maintained going forward? Because of operation efficiency, I just mentioned earlier. It's because of operation efficiencies. So, sir, these are efficiency can come to once suppose the more we come to... Suppose in future the prices of gas goes down and the more we again reduces the price of the products. So in that case, what is risk of If gas goes down, even we will reduce the prices of the products.

20:34 Obviously, if I pass it through, we will pass on the benefit also, but that does not take away my operation efficiencies of my JVs, which I've worked so hard last year to make sure that they are efficient in terms of producing material and on. And the biggest part is that our own plants are producing at the fullest. So for this year, sir, what kind of volume do you see? Mid single digits. Mid single digits. So sir, in the last quarter, don't know... Sorry to interrupt, sir. May we request you to return to the queue for further follow ups, please, as there are several participants waiting for their turn? Thank you. Participants, please limit yourselves to two questions each, and rejoin the queue for further follow ups.

21:22 Our next question comes from Viraj Kacharya with SIMPL. Please go ahead. Yeah. Hi. Thanks for the opportunity, and congratulation on good numbers in challenging environment. Three questions. One is the... I understand for the quarter, you had a low single digit volume because the supply side, you were impacted because of. But at the same time, you had a channel which was completely... You know, the inventory for the channel was very lean. Right? Now supply is back to normal for you. How would you... And if you were to give some color in terms of the channel inventory, is it back to normal now or, you know, any color you can give? And similarly on the corporate side, you know, project side, you know, how how is the overall trend or, you know, any color you can give on that side?

22:14 What is the last question? On the project side. So I think earlier comment, thoughts with that project itself will also be a lever for growth in addition to retail. Okay. Understood. So as far as the channel inventory is concerned, they had stocked up a lot in March considering that they knew that April, there will be no production. But otherwise, since May, the channel inventory has come back to normal. In fact, the channel inventory is again fairly lean because they're quite careful because of the volatility in the gas pricing. They are presuming that the gas price will come down overnight and then there may be a price reduction. So channel people are not taking the inventory they should be taking. So from that point of view, channel inventory is still not very lean like it was in April because there was no production, but it's not they're not full to their brain.

23:09 The second question on project is that, yes, project is going to go up. Our total project was about 7%, 8% in retail and about 10%, 11% in government. This in totality will go up by about 3% to 4%. Sir, then if you understand, see, if you look at Q1 also, and I'm just doing a relative comparison in terms of volume growth. Say, the leader had a 6% volume growth. The other smaller players had a very high double digit volume growth or single digit... High single digit volume growth. So incrementally with supply coming normal for you and, you know, you also focusing on the project side, why the conservatism in terms of mid single volume growth guidance? I mean, just trying to understand the disconnect.

23:56 There is no disconnect. Industry leader has an advantage where they had higher in house production. There's a particular category, which is polypatricide, which we are completely exposed to Morbi. They have a small production of their own. Therefore, we were able to push that extra to 2.5% growth. Other than that, the guidance for us is single digit mid single digit growth is what we think would be absolutely achievable. Various people have promised, including us in the past, that we'll have high single digit growth, low single low double digit growth, but never has been delivered. So we are being very, very cautious in what we're saying, something which we will deliver for sure is our EBITDA margin and also our single digit growth. As far as the smaller players are concerned, the base is very small, and I'm pretty sure it's not sustainable, and you will see that playing out from the next quarter onwards.

24:58 Got it. And any color you can give in terms of margin profile and bathware and the construction equipment? Obviously, it's a very low base right now. But any color in terms of profitability and... It's about 1% better than our normal tile margins. Earlier, it used to be better because tile was underperforming. Now the tile is also performing with the capacity utilization going up. It's almost the same, but slightly better. The next question comes from the line of with Marine Research. I'm sorry. I can't hear you.

25:47 Hello? All questions are clear. Best of luck to you. You. Thank you. The next question comes from the line of with Monomer Capital. Please go ahead. Sir, congratulations for a good set of numbers. Sir, I just missed your initial commentary. Will be the total capacity at the end of this year? At the end of this year, you mean 26, 27? Yeah. Yeah. At 2627, there is no increase in capacity. Whatever increase we're increasing, the three, 4,000,000 square meters, which is due to some balancing equipments to increase productivity within our own concerns. So there's no new line which we are booking.

26:36 Okay. Sir, any major CapEx plan? Yes, the major CapEx plan is the 9,000,000 plus square meter plant in the South, which is approximately $2.20 crore outlay, which is for Next year. So next year will be operational at the end of next year, like INR 28 Yes. Yes. End of the quarter three beginning quarter four of next year, it will be operational. Okay. 9,000,000 and CapEx is INR $2.20 crore? More or less. Yeah. And most of that will be funded by internal approvals, if I'm not wrong. Yes? About 60% with internal approval. Okay.

27:23 Perfect, sir. Thank you. Thank you, sir. Thank you. Thank you. Your next question comes from the line of Kalpesh with Valantis Advisors. Please go ahead. Yes. Hi. Congratulations for the days around number, sir. My question is related to the Mobi. So Mobi's export is down. So is there any chance that they can dump domestically or the product category is different, so they can't dump here? No. Morbi's export is down. There's an independent situation over there. So that will also... The bright side of that is there will be a pent up demand when the export opens. Okay. But they can't put a pressure over here in domestic market because they are not able to sell in export?

28:10 No. Unfortunately, at these kind of gas prices, there's not much they can do. Understood. Understood. And you have been consistently showing the 11 plus curve margin back to back. So is it sustainable or can up the guidance to like 12%? Yes, absolutely. That's the target that we achieve 12% and more. But currently, we are very confident of showing the 11 plus percent margins, which we showed last quarter and this quarter. So that is something which is we were confident, and we do believe that we are doing everything possible to go beyond 12%.

28:57 Your next question comes from the line of Shruti Mulchandani with Ikigai Asset Management. Hi, sir. I hope I'm audible. Yes, Am I audible? Yes. Thank you, sir, and congratulations on great set of numbers. So then first question I have is that, you know, I understand that the industry currently, in Q1 especially, faced more supply constraints than demand problems. The demand was there. And having said that the outsourcing partners we had in, they were not able to supply to us. And, you know, that's the reason why despite growing the capacity or the volume in our own facilities at a very impressive rate.

29:45 But because of the growth in the outsourcing part, the overall volume growth came to be around two to 3%. So I just wanted to understand from q two onwards, will we see the support coming from the outsourcing tier test, because, you know, because more we have started to kind of start the production again. And with that, our capacity utilizations will remain at the same level? Or do we see that the outsourcing supply coming in that will be impacted? No, our capacity utilization will be high, and I think we're not getting enough material enough today, but that's nothing to do with the supply side of Morbi. Geographically, we have plants in the South, North and West. So there's only so much we can buy from the West. Therefore, in the North and in the South, we have more demand than what we can procure.

30:33 Procuring from Morby beyond the point becomes counterproductive because of freight. So from that point of view, we're looking very good as far as demand is concerned. And therefore, we are extremely confident of keeping our production our own production at 100% capacity utilization, which is a major, major kicker to the EBITDA, and therefore, we are extremely confident of the EBITDA. Last year, we had a loss of about INR $24.25 crores in our JV. This year, we will be on a net profit. So the swing will be more than INR 30 crores from last year. So we that's something which we are very confident on for terms of the volume. And I've already answered as to why we are seeing that we will not be able to we will not be in a position to reduce our capacity, which is our own capacity.

31:20 Understood, sir. This was helpful. And sir, having said this, with the EBITDA margin sustaining at these levels, and I believe the guidance for FY 'twenty '7 was one hundred and one hundred and fifty basis points higher than FY 'twenty six. So are we in a position to increase the guidance on that front? Yes, absolutely. It all depends on capacity utilization and product mix change. The big kicker, like I said, was production capacity utilization. So as long as that is happening, EBITDA margins are sustainable and will only become better. Like I said, our JVs are also coming to a situation where it's in a profit, but there's a lot more which we can do within the JVs to increase their profit, and that's exactly what I mentioned earlier in the call that we are doing some balancing equipment to increase capacity in the JV and in our wholly owned subs to further augment capacity. And when we augment that capacity, everything there goes to the bottom line. So very confident of maintaining this EBITDA margin for now and then increasing it as and when the quarters unfold in '3 and four.

32:25 Understood. And sir, just on the balance in the equipment, so the that capacity will also come in FY 'twenty eight along with the 9,000,000 square meter plant or that will be reflecting in FY 'twenty seven? No, 9,000,000 square meters will only come in towards third quarter of next year. That is that is a virtually greenfield plant. So everything needs to be made from the land building capital. So sorry, land we have, but the building and capital is all that. That happen only in fifteen months. The balance in equipment, the debottlenecking? That is happening now, which... Most of which will be concluded by end of quarter three. Got it. Got it. And because they are value added, the margins will be higher than what we have today.

33:15 Correct. So in in quarter four, you will get the effect of all those efforts which we have taken, and you will demonstrate that. Until then, we will lower this margin or maybe slightly better. Understood. And sir, just lastly, what would be the CapEx, the absolute amount for FY 'twenty seven and 'twenty eight with these plans that we have? So from now to '27 end, we have already looked at approximately a INR $2.75 crore outlay, which includes the INR $2.20 crore plant plus balancing equipment in various other plants and some more balancing equipment in the Bathurst and Energywear plant. So all put together, we are at about a $2.75 crores, and we will be funding about 65, 70% of this through interval approval.

34:08 So again, we're not putting pressure on the balance sheet at all. And the loan which will be taken, the small loan which will be taken in the joint venture with no corporate guarantee from Somany's side. And the joint venture is a sixty-forty. So therefore, that's going to be in that joint venture. Understood, sir. This was helpful. Thank you for the answers. Thank you. Your next follow-up question comes from the line of Saket, an individual investor. Sir, I wanted to know like last quarter, you could stand alone rate 83%.

34:54 Going forward, do you see depreciation further increasing, sir? You mean capacity utilization? Yes, yes, sir. Capacity utilization will further improve. So from what level it can go like next year? In the first quarter in April, we had some lines which were shut. A couple of lines were in maintenance. This quarter also, we had two lines under maintenance. So but it will improve slowly and steadily because we are doing a lot of balancing equipment to augment capacity, which is only going to lead to better EBITDA margins in the future. But I think the current scenario would be that we'll be slightly better in this quarter in capacity utilization. So like this current capacity we have, sir, and at current prices of one for tiles, what was the maximum revenue we can have with JV and our own capacity?

35:48 Approximately 300 INR 3,700 crores. 3,000, yes, more or less, give or take 50 crores. At today's price. And with the bottleneck we are doing, by year end, it likely increase INR 300 crores more? Yes. Partly, yes. Okay. Okay. Thank you, sir. Thank you. Participants, if you wish to ask a question, you may press star and 1. Sir, we have one more follow-up question. Should we take that?

36:53 Sure. Thank you. We have a next follow-up question from, an individual investor. Please go ahead. Sir, I just have one further query. Like, we see that industry leader is having margins close to 80, 19%, and we are having close to 11% as of now. So what is the reason that we have a strong difference between the top and second player? It's I mean, there's many, many areas of discussion, so maybe it's best we take it off line. Ladies and gentlemen, that was the last question in the queue. As there are no further questions, I would now like to hand the conference over to Mr. Somany for closing remarks. Thank you, ladies and gentlemen, for being patient and joining us for the Q1 earnings call for FY 'twenty six'twenty seven. We remain positive for the entire year for both the single digit margin single digit volume growth and also a double digit margin or the margins which we've given today will only better that going forward. And all efforts the company is doing to make sure that we increase even on the volume front.

38:04 Look forward to meeting you all in the quarter near quarter two earnings call. Thank you so much. Thank you. Thank you very much. On behalf of SKP Securities Limited, that concludes the conference call. Thank you, everyone, for joining us. Ladies and gentlemen, and you may now disconnect your lines. Thank you.