Reliance Securities
Somany Ceramics (Buy)
CMP: ₹325.5
Target: ₹380
Somany Ceramics is a manufacturer and marketer of tiles and offers a range of sanitary ware and bath fittings. The company is engaged in manufacturing ceramic/vitrified wall and floor tiles.
Somany Ceramics is expected to report decent improvement in its profitability from ongoing quarters mainly due to recent price hikes taken by the company in across products segment and impact of reduction in gas prices.
We note that persistent cost pressure and subdued realisation have been the major drags on Soamny’s performance for the last one year. However, led by recent decline in gas prices (prevailing price is ₹37.5/ scm versus 3QFY19 average price of ₹40/scm) along with price hikes undertaken in 3QFY18 across segments, Somany expects operating margin to improve in subsequent quarters.
Somany Ceramics has been able to reduce its receivable days to 84 days in 3QFY19 from 105days in 3QFY18 mainly due to tightened measures for receivables control.
Following sharp correction in stock price in the last 12 months, current valuation at 15x of FY21 earnings appears to be attractive. f We have fundamental ‘buy’ rating on the stock with a target price of ₹380.