INSUBCONTINENT EXCLUSIVE:
IIFL has a buy call on Somany Ceramics with a target price of Rs 627.
The current market price of Somany Ceramics is Rs 482.
Time period
given by the brokerage is one year when Somany Ceramics price can reach the defined target
View of IIFL on the company:Increased competitive intensity: The management indicated that despite the e-way bill implementation, the
unorganized players have increased evasion of taxes and gained significant market share
While GVT prices, which were declining since 2HFY18, have been curbed, SCL indicated that further increase in gas prices would be difficult
to pass on given the competitive intensity
While there are no major expansions in vitrified tiles, Morbi players have announced that there are 30 new plants in ceramic wall tiles
which could cater to 11 per cent of total demand
upgradation.
Outlook on gas prices largely stable: Management opined that gas prices have substantially increased and unlikely to witness a
Average gas price per scm is Rs32 in Gujarat and Rs37 outside Gujarat
Gas being brought under GST would entail a Rs2 reduction in gas prices, as per SCL
Ebitda margins are likely to be higher than the 6 per cent witnessed in 1Q, led by the price hike, higher share of value added tiles and
higher share of sanitary ware revenues; management expects FY19 margins to be flat YoY.
Focus on distribution network: SCL is likely to add
around 60 dealers every quarter and aims to establish 80-90 exclusive showrooms by the end of FY19
Ad expenses are likely to be higher; the company also aims to expand its product portfolio in the kitchen and bathroom segment to leverage
its distribution network.
