Good afternoon, ladies and gentlemen. Welcome to Somany Ceramics Limited Q1 FY 2027 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. It is my pleasure to welcome you on behalf of Somany Ceramics and SKP Securities to this financial results conference call. We have with us Mr. Abhishek Somany, MD and CEO, Mr. Shrivatsa Somany, Head, Bathware, Mr. Ameya Somany , DGM, and Mr. Sailesh Raj Kedawat, CFO. We will have the opening remarks from Mr. Somany, followed by a Q&A session. Thank you, and over to you, Mr. Somany.
Good afternoon, ladies and gentlemen. Welcome to the earnings call of FY 2026, 2027 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 Morbi. As you all know that Morbi was shut for the entire month and a half. So we missed a couple of percent of sales, but it would be made up this quarter very sensibly. 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 significantly in our own plants have gone up.
The gas price has been extremely volatile. I had mentioned that in the earnings call for the FY 2026, but the gas price since then has been extremely volatile. Every month there has been small increases in gas price. Fortunately, we have been able to pass on all the gas price increase until now. So the current price increase has been between 16% and 18%. Other than that, the demand of May and June has been pretty decent. July also has been not bad considering that there has been rains in many parts of the country. Morbi operations have completely started. They have resumed 100% production on very expensive gas, which is being supplied by GEL, formerly known as GSPCL. The price is significantly higher, and they have also priced it in as far as their pricing is concerned.
The only negative in the quarter has been from a Morbi 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 would continue probably for this quarter until the freight starts settling. We have been healthily growing in our sanitaryware, bath fittings, and the building materials division also. There's been a large expansion which has taken place 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. 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 debtor days, inventory days, creditor days are all healthy. Working capital days also have come down from 17 to 12 days. Overall, we are extremely bullish of the future outlook. Because of that, we have announced setting up a 9+ million square meter plant in the South, which would be up and ready in the next 12-15 months. This would give us a potential revenue of about INR 350 crores.
Other than that, we are taking many more steps which are all work in progress to augment further capacity by about 4 million-5 million in our existing lines in Bahadurgarh, which is in Haryana and in Gujarat and in Morbi and also in the South. All put together, we will be adding another 4 million-5 million. This would 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. One of the JVs we've taken up fairly significant capacity increase. I'm 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 will further value add our product. 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 positive going forward. I would stop here and I would take any Q&A going forward. Thank you so much.
Thank you very much. We will now begin with the question- and- answer session. Anyone who wishes to ask a question may press star and then one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and then two. 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 one now. Your first question comes from the line of Sneha from Nuvama. Please go ahead.
Hi, congratulations and 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 Q1. This time we have seen strong improvement in margins. What's really leading to this change? How structural of a change it is in terms of these numbers remaining from Q2? That's the first one.
Sneha, I think this is because of capacity utilization being much, much better than last quarter. 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. Sorry. Standalone, yeah. On a standalone basis from 72% capacity utilization to 83%, which is a major increase. That has led to margin. 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 confident of maintaining this margin and only bettering this.
Wow, that's a strong commentary. Secondly, with respect to demand, while we understand, I think April was slow for us and May and June saw a pickup. How has July been for us? If at all you could quantify some numbers here. 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?
First of all, April was not slow. April was slow because there was no material available in Morbi. There was only that much material available, and even our plant, because there was a restriction of 60% and then 80%, some of our lines were also shut. A lot of the material had already gotten out in March. Therefore, we were also at lower capacity utilization from that point of view, considering that we did not have enough gas which normalized in May. Morbi, there is no ambiguity there. It is not shut or closed. It has been open since May.
Of course, they took 20 days to completely normalize because of labor unavailability. But May end onwards, they have been absolutely at 100% capacity. 15% to 17% of Morbi, which has not started, is never going to start. That never started even in May, and that has not started even today. The situation as far as demand is concerned of July with the rains, obviously it is a tough month, but frankly, we have been able to push our sales.
Got that, sir. Thirdly, just wanted to understand the gas pricing. What would be the pricing in Morbi versus your north and south plants?
Yes. Our blended price comes in at about INR 68 and south we are still buying partly in spots. So south and Morbi are pretty much at the same level, which is close to mid INR 70s and in the north it is slightly lower, which is around the INR 68-INR 69 level.
Understood, sir. That was pretty helpful. Thanks a lot.
This is for natural gas. This is the pricing for natural gas.
But is that your blended fuel cost because you also use biofuel. We would like to get your blended fuel cost for Morbi on that.
No, what we have reported is the blended natural gas cost.
Could you help us with your blended cost for quarter one versus probably your quarter four blended cost?
I don't have that off the cuff because we do use-
We'll take it offline.
...a good amount of bio product. Yeah, please.
Sure. Thanks, sir. All the best to you.
Thank you.
Thank you. The 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?
We took a price hike of, you can take an average of about 16%, 17%.
Got it. How much of a premium do we have over the players in Morbi 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. How does it look like now?
I do not understand. When you mean higher input costs, what do you mean by that?
Higher gas prices.
We don't have high gas prices. Our gas prices are same as what the other people in the country are getting.
No, what I'm saying is, Morbi guys took a price hike, right? Because of higher gas prices.
Oh, that way. Okay.
And higher premiums.
Okay. Our price increase was about 16%, 17%. Morbi was just double of that because they were selling that much cheaper than us. 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. Now that they are buying Gujarat Gas, then they have to rectify their books. So that also narrows our landed price into the dealer versus Morbi price.
Got it. So our premium has basically narrowed despite the price hike.
That is right.
Okay. Currently in Q2, have we seen a fall in gas prices, our blended gas costs?
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, June. August is again slightly more and marginally higher.
Got it. How does the demand scenario look like for the rest of the year, given that the prices are also higher but still demand is holding up? I think it was 2% higher in this quarter. So, how is the demand scenario and what kind of-
Demand's looking good. Let's not forget that in the last 30 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 is nothing to do with demand. It's more of an issue with the weather. But other than that, the demand is perfectly fine.
Got it. So if we look at the current cycle or maybe the last five years, how would you compare our prices currently? Are they mid-cycle or are they high?
I do not understand your question.
You mentioned that prices earlier were higher and they were reduced, right? I want to understand if today, with the higher prices, with the price hike, do we still-
We are still lower than what we were five years ago.
Okay. Got it.
The cost of tile five years ago was more than what it is today, inflation-adjusted.
Got it. Despite the business growing over the previous five years, our company has developed. Hello?
Yeah.
I am saying despite our business growing over the previous five years, our company currently is trading at a market cap of INR 2,100 crores and around an EV/EBITDA of 8- 9, which is 50% lower than our own historical PE, as well as maybe half of the valuation of our peers. Our stock price has given a negative 5% CAGR over the last five years, despite Somany building a household brand. I would just request the management to seriously consider a share buyback, because it could not only be EPS accretive.
Thank you for your suggestion.
Gunit, Sir, 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 request you to limit to two questions each and rejoin the queue for any further follow-ups. 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 demand was slightly muted in March and April because of production shut and all. So we were expecting the pent-up demand to hit by June last quarter. Having we seen where is it?
Sorry, I didn't get your question.
My question is, sir, in last call you said March was slow, April has been slow because of 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 Morbi has been shut, still volume growth is low single digits. So when should we expect high single-digit volume growth?
No, we are getting high single-digit volume growth. In fact, now we are getting not high single digit, but we are getting mid-single digit volume growth, and this is looking good. Beyond the point, the biggest positive is that the price has been pushed into the market and we are looking at very decent volume and value growth.
Got it. And sir, it is really heartening to hear you saying the margin, what you have shown in last two quarters will continue. But just playing devil's advocate, what we have seen, Morbi was shut. There was a supply crunch in the market, which will get normalized now because Morbi has started operation. Export is weak. Possibly, the price cut and all these things possibly can play out in upcoming months. It can put a pressure on our margin. What are your thoughts on that?
My margins really have not gone up because of pricing. My margins have gone up because of operation efficiency, that we are producing 100% in our own plants and also our JV losses have come down. Due to that, the margins have gone up and not so much of pricing. Pricing has only been a pass-through. I am not earning anything from the pricing. If it goes down, so be it. As long as I am producing 100% and my JVs are profitable, this margin will sustain. That is why I am so confident.
Got it. That is good to hear. Last question from my side. What has been the Somany Mac has been a bit positive this quarter. How has that been?
Yeah. Somany Mac last year, same quarter, we had a INR 7 crore minus, and this time we have a INR 1 point something crore minus, and going forward even this would be controlled. If you remember, I had said that Somany Mac, we will be in a situation which will be INR 10 crore loss or less, and we are very confident of achieving that, only bettering that.
Got it. Understood. Thank you.
Thank you.
Thank you. Our next question comes from Saket, an individual investor. Please go ahead.
Sir, my question was, as you say, that we see the EBITDA margin being maintained at this level. Sir, as your prices have increased and the price of Morbi has increased way higher. So because of this difference between the two getting narrowed, that is why the margins are being maintained, or why you think that the margins will be maintained going forward?
Because of operation efficiency, I just mentioned earlier. It is because of operation efficiencies.
Sir, because efficiency can come down once, suppose Morbi comes up, suppose in future the prices of gas goes down and Morbi again reduces the price of the products. So in that case-
Of course they will.
...risk of-
If gas goes down, even we will reduce the prices of the products. Obviously, like we passed it through, we will pass on the benefits also, but that does not take away my operation efficiencies of my JVs, which I have worked so hard last year to make sure that they are efficient in terms of producing material, and the biggest part is that our own plants are producing at the fullest.
For this year, sir, what kind of volumes would you see?
Mid-single digits.
Mid-single digits. Sir, in the last quarter,
Sorry to interrupt, Saket. 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.
Sure.
Participants, please limit yourselves to two questions each and rejoin the queue for further follow-ups. Our next question comes from Viraj Kacharia with SiMPL. Please go ahead.
Yeah, hi. Thanks for the opportunity and congratulations on good numbers in a challenging environment. Three questions. One is, I understand for the quarter you had a low single-digit volume because supply side you were impacted because of Morbi. But at the same time, you had a channel which was completely, the inventory for the channel was very lean, right? Now supply is back to normal for you. If you were to give some color in terms of the channel inventory, is it back to normal now or any color you can give? Similarly on the corporate side, project side, how is the overall trend or any color you can give on that side?
What is the last question?
On the project side. Earlier you commented that project itself will also be a lever for growth in addition to retail.
Okay, understood. 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 are 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. Channel people are not taking the inventory they should be taking.
From that point of view, channel inventory is still not very lean like it was in April because there was no production, but they are not full to the brim. 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, which in totality will go up by about 3%- 4%.
Sir, if you I understand. If you look at Q1 also, I am just kind of 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 high single-digit volume growth. Incrementally with supply coming normal for you and you also focusing on the project side, why the conservatism in terms of mid-single volume growth guidance? I am just trying to understand the disconnect.
There is no disconnect. Industry leader had an advantage where they had higher in-house production. There is a particular category which is polished vitrified tile, which we are completely exposed to Morbi. They have a small production of their own. Therefore, we were able to push that extra 2% to 2.5% growth. Other than that, the guidance for us is mid-single-digit growth is what we think would be absolutely achievable. Various people have promised, including us in the past, that we will have high single-digit growth, low double-digit growth, but never has been delivered.
So we have been very cautious in what we are saying. Something which we will deliver for sure is our EBITDA margins and also our single-digit growth. As far as the smaller players are concerned, the base is very small and I am pretty sure it is not sustainable, and you will see that playing out from the next quarter onwards.
Got it. Any color you can give in terms of margin profile in the bathware and the construction equipment? Obviously, it is a very low base right now, but any color in terms of profitability?
It is about a percent better than our normal tile margins. Earlier it used to be better because tile was underperforming. Now that tile is also performing with the capacity utilization going up, it is almost the same, but slightly better.
Got it. Thank you, and good luck.
Thank you.
Thank you. The next question comes from the line of Sagar Jagtap with Marine Research. Please go ahead.
All questions are clear. Best of luck team. Thank you.
I am sorry. I cannot hear you. Hello?
Sagar?
All questions are clear. Best of luck team.
Thank you.
Thank you.
The next question comes from the line of Nilesh Sharma with Monomer Capital. Please go ahead.
Congratulations for good set of numbers. Sir, I just missed your initial commentary. What will be the full capacity at the end of this year?
At the end of this year, you mean 2026, 2027?
Yeah.
2026, 2027, there is no increase in capacity. Whatever we are increasing the 3, 4 million square meters, which is due to some balancing equipment to increase productivity within our own concerns. So there is no new line which we are putting in.
Okay. Sir, any major CapEx plan?
Yes, the major CapEx plan is the 9+ million square meter plant in the south, which is approximately INR 220 crore outlay, which is for next year.
And when next year. So next year will be operational at the end of next year, like 2028?
Yeah. End of quarter three, beginning quarter four of next year it will be operational.
Okay. 9 million and CapEx is INR 220 crore.
More or less, yeah.
Most of that will be funded by internal accruals, if I am not wrong. Yes?
About 60% with internal accruals.
Okay, perfect sir. Thank you, sir.
Thank you. The next question comes from the line of Kalpesh with Valentis Advisors. Please go ahead.
Hi. Congratulations for a great set of numbers, sir. My question is related to Morbi. Morbi's export is down. Is there any chance that they can dump domestically or the product category is different, so they cannot dump here?
No, Morbi's export is down as an independent situation over there. The right side of that is there will be a pent-up demand when the export opens.
They can't put pressure over here in the domestic market because they are not able to sell in export.
Unfortunately, at these kind of gas prices, there's not much they can do.
Understood. You've been consistently showing 11%+ EBITDA margin back-to-back. 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%+ margins, which we showed last quarter and this quarter. That is something which we are very confident and we do believe that we are doing everything possible to go beyond 12%.
Very clear. All the best.
Thank you. The next question comes from the line of Shruti Mulchandani with Ikigai Asset Management. Please go ahead.
Hi sir, I hope I'm audible.
Yeah, very audible.
Thank you, sir, and congratulations on great set of numbers. Sir, the first question I have is that, I understand that the industry currently, in Q1 especially, faced more supply constraints than demand problems. The demand was there. Having said that, the outsourcing partners we had in Morbi, they were not able to supply to us. That is the reason why despite growing the capacity or the volume in our own facilities at a very impressive rate. But because of de-growth in the outsourcing part, the overall volume growth came to be around 2%-3%.
I just wanted to understand from Q2 onwards, will we see the support coming from the outsourcing to it as well, because Morbi has started to kind of start the production again. With that, our capacity utilization will remain at the same level, or do we see that, the outsourcing supply coming in, that will be impacted
Our capacity utilization will be high, and I think we are not getting enough material today, but that is nothing to do with the supply side of Morbi. Geographically, we have plants in the south, north, and west, so there is 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. Procuring from Morbi beyond a point becomes counterproductive because of freight. From that point of view, we are looking very good as far as demand is concerned. Therefore, we are extremely confident of keeping our own production at 100% capacity utilization. Which is a major kicker to the EBITDA, and therefore we are extremely confident of the EBITDA.
Last year we had a loss of about INR 24 crore, INR 25 crore in our JVs. This year we will be in a net profit, so the swing will be more than INR 30 crore from last year. That's something which we are very confident in terms of the volume. I have already answered as to why we are seeing that we will not be in a position to reduce our capacity, which is our own capacity.
Understood, sir. This is helpful. Sir, having said this, with the EBITDA margin sustaining at these levels, I believe the guidance for FY 2027 was 100 and 150 basis points higher than FY 2026. 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 capacity utilization. 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 JVs and in our wholly-owned subs to further augment capacity. 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 three and four.
Understood. Sir, just on those balancing equipment, that capacity will also come in FY 2028 along with the 9 million square meter plant, or that will be reflecting in FY 2027?
No, 9 million square meters will only come in towards the third quarter of next year. That is virtually a greenfield plant. Everything needs to be made from the land building capital. Sorry, land we have, but the building and capital and all that happens only in 15 months.
The balancing equipment, the debottlenecking.
That is happening now, most of which will be concluded by end of quarter three.
Got it. Got it. Because they are value added, the margins will be higher than what we have today.
Correct. In quarter four, you will get the effect of all those efforts which we have taken, and we will demonstrate that. Until then, we will hold that margin or maybe slightly better.
Understood. And sir, just lastly, what would be the CapEx, the absolute amount for FY 2027 and FY 2028 with these plants that you have?
From now to 2027 end, we have already looked at approximately an INR 275 crore outlay, which includes the INR 220 crore plant, plus balancing equipment in various other plants and some more balancing equipment in the bathware and sanitaryware plant. All put together, we are at about INR 275, and we will be funding about 65%-70% of this through internal accruals. Again, we are not putting pressure on the balance sheet at all. 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. The joint venture is at 60/40. Therefore, that is going to be in that joint venture.
Understood, sir. This was helpful. Thank you for the answers.
Thank you. Before we take the next question, a reminder to all the participants, if you wish to register for a question, you may press star and one now. The next follow-up question comes from the line of Saket, an individual investor. Please go ahead.
Sir, I wanted to know, like last quarter it was standalone, we had 83% capacity. Going forward, do you see utilization further increasing, sir?
You mean capacity utilization?
Yeah. Yes, sir.
Yes, capacity utilization will further improve.
Sir, what level it can go like maximum?
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. 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 will be slightly better in this quarter in capacity release.
Like with current capacities we have, sir, and at current prices of one-fourth times, what was the maximum revenue we can have with JV and our own capacity?
Approximately INR 3,700 crores. Yeah, more or less, give or take INR 50 crores at today's prices.
Current prices. Okay. With the bottleneck we are doing by year-end, it will actually increase by INR 300 crores more.
Yes. Partly, yes.
Okay. Understood.
Thank you. Participants, if you wish to ask a question, you may press star and one.
Please conclude.
Sir, we have one more follow-up question. Should we take that?
Sure.
Thank you. We have our next follow-up question from Saket, an individual investor. Please go ahead.
Sir, I just had one further query. We see the industry leader is having margins close to 8%-9%, and we are having close to 11% as of now. What is the reason that we have such a stark difference between the top and second player?
There are many areas of discussion, so maybe it is best we take it offline.
Okay, sir. Thank you, sir.
Sure.
Thank you.
Thank you. 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 2026-2027. We remain positive for the entire year for both the single-digit volume growth and also a double-digit margin. For the margins which we have given today, we will only better that going forward and all efforts the company is doing to make sure that we increase even on the volume front. Look forward to meeting you all in the 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, you may now disconnect your lines. Thank you.