Good evening, ladies and gentlemen. Welcome to Somany Ceramics Limited's Q3 FY 2026 earnings conference call. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the management's opening remarks. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Agarwal, 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 Limited and SKP Securities to this financial results conference call. We have with us Mr. Abhishek Somany, MD & CEO, Mr. Shrivatsa Somany, Head, Bathware, Mr. Ameya Somany, DGM, and Mr. Sailesh Raj Kedawat, CFO. We'll have the opening remarks from Mr. Somany, followed by a Q&A session. Thank you, and over to you, Abhishek ji.
Thank you. Good evening, ladies and gentlemen. Welcome to the earning calls of Somany Ceramics for Q3. I'll take you through the broad highlights and then transfer the call to Mr. Sailesh Kedawat, our CFO, for the numbers. The domestic demand saw gradual improvement in Q3 on account of reducing pressure from exports, and also has seen some uptake of the tiles off take from the building sector where buildings are getting completed. We've been talking about it. More and more material is going there, and we will keep seeing this increased off take over the next whole year. We are hoping that the export would be close to the INR 19,900 crores and INR 19,500 crore rupee level, which is approximately up by about 8%-9% from last year, which is really helping a lot of the off take from the Morbi industry.
For us, specifically, sales growth has been 6% in Q3. We would have expected it to be slightly better, but it's at 6% in Q3. Gross margins obviously improved as a result of that by 2.2% from last quarter. Capacity utilization decreased in Q3 YoY from 85%- 80%, but there's an increase of approximately 4% from 76% on quarter-on-quarter. Gas price remained largely stable, and we are seeing the future of the gas pricing also going to be largely stable. The JV loss is primarily on account of Somany Max, due to lower capacity utilization. It's still continuing, although it is slightly lower, and the steps taken to get that into control has been already augmented. We will see production coming in in February and March. That itself would start showing some results in quarter four.
And like we had indicated in the last call, in the next year, this loss would be brought down very significantly or probably we completely turn around the plant. Depreciation impact was approximately INR 5 crores in Q3 compared to Q3 2025 on account of reduction of life of certain key assets. As far as advertising was concerned, we have been on track and our brand spend is at that 2.5% level. What you see on the report is at 2% because we have reduced the expenditure this quarter of Mr. Salman Khan, who is no longer associated with the brand. That has been a reduction, and certain expenses around him has been a reduction. Therefore, you see this, but otherwise every other thing has been maintained, and this will remain at that 2.5% of sales.
Working capital marginally increased by three days as compared to 14 days as compared to FY 2025 of 11 days. However, the receivable cycle has been slightly better. The net dealer addition was approximately 170 in nine months, taking the total to about 3,050. And the showroom count is up to 530 now. There is no change in our guidance. We remain with the same guidance of a decent single digit growth for the year, and EBITDA margin should improve by 1%, 1.5% in Q4 FY 2026. This is as far as the broad highlights are concerned. Specifics of these highlights will be taken by Mr. Sailesh Kedawat. So I am passing the call on to Sailesh.
Thank you, Abhishek ji. This quarter our sales grew by 6%, consolidated sales was INR 677 crores. There was a 16% EBITDA growth, so from INR 53 crores it became INR 62 crores. EBITDA as a percentage is 9.2%, so 80 basis points improvement in EBITDA. Our PBT from INR 19 crores grew to INR 25 crores at around a 28% improvement in PBT, and PAT almost doubled from INR 9 crore- INR 18 crore. As far as vertical by breakup goes, we grew close to 12.5% last year. We grew close to around 35% in adhesives and waterproofing vertical. Tiles growth was 3.6%. Overall growth, which is around 67% or 6%. The tile segment constitutes now around 83.5% of our overall business against 85.3% of our overall business. The GVT segment continues to grow. There is a 4% improvement in GVT over last year. From 38%, it becomes 42% now.
The gas prices predominantly remain stable. Outlook also for gas prices remains. Our debt continues to reduce. Our total outside debt, which was INR 288 crore at the beginning of the year, reduces to INR 231 crore now. Of this, INR 121 crore is the term loan and working capital is INR 95 crore.
Predominantly, this is in two entities, Sudha and Max. The term loan of INR 121 crore gets paid majority in next three years. By 2029, we will pay majority of this debt. On the Max plant, the plant is getting stabilized. The losses, which was around INR 7.5 crore in previous two quarters, have reduced to INR 6 crore on account of improvement in capacity utilization. Quarter four, we should see these losses coming down substantially. We are open for questions now.
Thank you very much, sir. We will now begin the question and answer session. Each participant is requested to limit to a maximum of two questions. Time permitting, we shall revert for any further questions that you may have that remain unanswered. Anyone who wishes to ask questions may please press star and one on their touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sneha Talreja from Nuvama. Please go ahead.
Good evening, sir, and thanks a lot for the opportunity. Just couple of questions from my end, firstly related to domestic demand. You have mentioned in your PPT that you are seeing signs of export demand improving and domestic oversupply easing. But can we actually see some light at the end of tunnel in the domestic market itself? Because the volume growth still seems to be on a muted side.
Yes, there is a light at the end of the tunnel. We are seeing better walk-ins within the market recently and also spoken to many retailers. There has been an improved walk-in. So there is clearly a light at the end of the tunnel.
Sure. That was on the retail side. Can we also get some flavor on what is really happening at the projects market? How has the demand been for projects for you? Where do we stand now as a percentage of sales and projects?
Retail still is significant portion and it will remain so, although the project is increasing. But projects don't increase overnight. It is a whole cycle of getting it approved, then sample flats, and then the materials going in the projects over the next two years. So currently our retail is approximately 77%?
Yeah.
77%, 78%. And then probably in the next year you would be looking at about 75%, which means that the private project would go up and also the government would go up a little bit.
Understood. And lastly, on the debt repayment cycle, could you repeat the number and where could we see this number falling to in FY 2027? Some guidance there would be useful.
That number right now and what would it fall to, 2027 and 2028.
The outside debts today is INR 231 crore. What we pay in this year is around INR 9 crore, and we pay around INR 70 crore in FY 2027 and FY 2028. This number will come down to around INR 50 crore at the end of FY 2028.
That's essential. Thanks a lot, team, and all the very best.
Sneha, the working capital remains there. There's a small amount of working capital which we utilize in our subsidiary. That will remain. That's around INR 100 crore- INR 160 crore, varying in between this.
Sure. Thanks.
Thank you. The next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi, thank you for the opportunity. Currently, how is your gas and propane mix right now?
It depends. In the North plant, we are using natural gas. There are three different kinds of gas which we get, and also we are using a lot of biofuel. In the Morbi plant, we are using, depending on which month propane is cheaper and which month gas is cheaper, they are both fungible. But currently we are on I am not sure, actually. It is exactly the same price, so I do not remember exactly whether we are on gas or propane. In the south plant, we are completely on natural gas.
Understood. Got it. Earlier we were sort of expecting Max to break even in FY 2026, and now the revised guidance stands at Q4. There would be a substantial reduction in loss, and we possibly might have some losses in FY 2027 also. So it looks like it is taking a lot more than what we anticipated to stabilize. And how [audio distortion]
No, I think there has been some miscommunication with you. We had mentioned that in FY 2026, the losses would be in the same range. In FY 2027, we had said that the losses from INR 25, INR 26 crores will be down to below INR 10 crores, and we continue with that guideline, and we will demonstrate that from a moving average in quarter four itself. You would be able to extrapolate what that would be next year. Obviously, quarter one is a poor figure. It is the lowest figure, but you would be able to see where we will be. We are very confident of lowering these losses or turning around in FY 2027.
Understood. Got it. One last question from my side. You were planning to take some sort of price hike. How is that shaping up?
No, we had not really said any price hikes. We had said that we would control more on discounting. That is work in progress. As and when the market opens and becomes slightly better, we get a better reason to reduce the discounting and hence increase the prices from that point of view. We are continuing to do that alongside value addition which is happening. This is as far as tile is concerned. Of course, in sanitary ware, we are taking a fairly substantial Not in sanitary ware, I am sorry. Bath fittings, we are taking a very substantial price increase. That would be known on the 1st of February. I would not wish to talk about it right now. Which would be largely in line with the industry leaders.
I understand. Got it. That is helpful. Thank you so much.
Thank you. The next question is from the line of Love Gupta from Counter Cyclical Investments. Please go ahead.
Hi, sir. I am seeing the gross margins are reduced from 60%+ levels during the FY 2017, 2024 period to now...
I am sorry, Mr. Gupta, your audio is not clear. Can you please increase the volume a little bit?
Hello, can you hear me now?
Yes. Please proceed.
Hi. Your gross margins during the FY 2017-FY 2024 period were upwards of 60% and have now gone down to 50%, 55%, despite introduction of higher margin products like GVT tiles, et cetera. What could be the reasons for this?
Two things. One is when you calculate gross margins, you have to calculate taking power and fuel costs also. Then you are only calculating it on material cost. That is one correction you have to do. What has happened from 2017- 2025 is, there is a substantial reduction which has happened like-to-like if I do inflation adjustment, the prices of tiles has actually not gone up, but the cost of-
potentially come down.
It has come down. Whereas the cost of material has not come down, though companies have done lot of R&D. We have done lot of R&D, and we have reduced cost of input material, but the reduction in cost is not in same proportion as the prices of tiles, which has come down. You see a reflection of that in margin, and that ultimately gets reflected into the EBITDA numbers also. What we are doing is we are on trajectory now wherein we have worked on our cost. We are also working on the product mix, bringing more value addition. So you see our EBITDA coming up. I think that's the correct metric to see and not the gross margin. When you are checking gross margin, please adjust it for power and fuel also.
Also, ROC for that period was upwards of 20%. So this would be the same reason for the declining ROC numbers?
Yeah, of course. If the absolute profit is down, ROC, ROE is going to come down. It's ultimately a function of profit and capital employed.
All right. Thank you.
Thank you. A reminder to all the participants that you may please press star and one to ask questions. The next question is from the line of Nilesh Sharma from Anantnath Skycon Private Limited. Please go ahead.
Hello. Thank you so much. Sir, can you please tell me when we can see the Max plant will be neutralized from the loss perspective?
Can you please repeat?
Max plant getting neutralized.
Sorry, could you please repeat?
My question, when we can expect the Max plant loss can be neutralized and we can see at least break-even point from that plant?
Hopefully 18 months from today, but we will be able to reduce the loss of INR 26 crores, INR 27 crores this year to less than INR 10 crores for next year for sure. That itself will add to EBITDA, and I'm talking which is something which is absolutely given. We would try to achieve better than that. Next year, 2027, 2028, this would be in our profit situation.
Okay. Sir, our EBITDA margin is slightly improved in Q3 which is more than 9%. Can we expect it is on a growth trajectory, or we can also expect in Q4 double- digit EBITDA?
Yes, I mentioned in my opening remarks, we are expecting another 1%, 1.5% in Q4.
Okay, sir. And sir, any guidance on volume increment?
There is a slight improvement as far as volume is concerned. I would not want to quantify it specifically, but there is slight improvement as far as volume is concerned. And you can see that in our capacity utilization.
Okay. Thank you, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Ritesh Shah from Investec. The next question is from the line of Rahul Agarwal from Ikigai Asset. Please go ahead.
Hi, good evening. Thanks for the opportunity. Sir, just two questions. Further on to the fuel mix side, you mentioned in North plant you have natural gas and biofuel and Morbi you have propane and gas. I believe there is some spike in Henry Hub pricing because there was snowstorm, and that should have some linkage with the natural gas which you are sourcing in the northern plants. Just wanted to understand does that impact, doesn't impact the short-term, long-term contract? Second, also is that Gujarat Gas, I think, cut pricing for gas for Morbi, I think last month. Net-net, what is really happening on the fuel side? A bit more detail will really help. If you could just explain that. Thanks.
We have four kinds of formulas in the North plant, therefore we are kind of insulated when the Henry Hub goes up. We have a Henry Hub, we have the RasGas piping, which is linked to Brent. Sorry, it is linked to crude.
[crosstalk ]
Crude. It is linked to crude, which is from the Qatar gas. We have JPC and we have the HP HT gas. GAIL has basketed all of that, so one going up, the other becomes cheaper, so therefore we are kind of insulated as far as that is concerned. Henry Hub specifically spiking is really not mattering to us as we speak. This is as far as the Qatar plant is concerned. As far as the Gujarat plant is concerned, which is our plant in Ahmedabad city and also Morbi both put together, there has been a slight reduction in prices by a INR 1, INR 1.5 , but now propane and natural gas are kind of the same. No major difference. It went up by INR 1 , INR 1.5 . Now it has come down by INR 1 , INR 1.5 .
The total difference is approximately INR 3 from a swing point of view from [INR 0.75]-INR 2 . So no major difference.
So let's say third quarter 2026, what was the average fuel price for Somany overall for manufacturing in the third quarter 2026?
Yes, [INR 44]. This is only gas pricing. This does not include anything which we do on the biogas. Some of the industry people report it as a consolidated price where they mix up the biofuel and the natural gas pricing. What I am giving you is only the gaseous fuel, which is our South plant, West plant, and North plant, which we get from GAIL, GSPC, Indian Oil Corporation.
Right. This number you are saying the swing factor was INR 3 SCM, so we should see INR 41 for the fourth quarter. Is that understanding correct?
No. We should see approximately INR 42.5, INR 43 as a blend of all three locations. Because the other locations, Gujarat going down, the other locations, if they go up, then it kind of compensates. So we should look at it about INR 42 and INR 43 and not INR 41.
Okay. Got it.
For a thing, there's no significant dispatch of gas. If you were only a GAIL player, then there was a difference of about INR 3, INR 3.5. But because we are an actual player and we get gas in the south and the north and in the blending does not move that much.
Okay, very clear. And secondly, you mentioned about price hikes happening on the bath fitting side. This is largely driven by the brass cost or is there anything else?
Yeah. Shrivatsa here. Yeah, it's largely driven by the brass cost.
What kind of inflation are we seeing on the brass side? I'm sorry, pardon me, I didn't really follow that, but just in terms of ballpark, what is the inflation we are seeing on the brass side?
Yeah. If I give you an idea, in April, we were buying brass at around INR 570, [INR 580] per kilogram. Now we are doing [INR 780, INR 770]. It is about a 22%, 23% increase.
And this entire pass-through not really happened since April. That is what you meant? Hello?
Sorry, can you repeat? It was not clear.
There was no pass-through since the increase.
Yes, because the increase, it has been a gradual increase since then. There is a very large player in the industry without which the prices do not increase, and they have increased prices only 15 days ago, and therefore everybody has been following suit.
Okay. Got it. Very clear. Thank you so much and best of luck. Thank you.
Thank you. Participants, you may please press star and one to ask questions. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. A couple of questions. First is, how do we measure our distribution efficiency? Is our distribution strategy very different from the peers? Have we already resorted to bundling, given we have new growth engines already in place? That is the first question, sir.
No, b undling what? I'm sorry.
Bundling, say, tile adhesives with tiles. Do we incentivize the channel to cross-sell or to sell together?
Right. I think there's two parts to this question. How do we do the efficiency and the bundling? The efficiency part, obviously, it's a legacy company. We've been dealing with dealers and not distributors. It is different from various players. I don't know which players you would look at, but there are some people in the industry which have larger distributors, which means that let's say they have more dealers of a larger size. We have more number of dealers, but smaller in size. One could argue which is a better way. I personally believe that over time, the time tested is that you have many more outlets, even though they're small, because in case a proprietorship has to go down, you're well-diversified. There are some other people in the industry which are newcomers. They are working with the principle of one dealer in one town.
That has certain limitations. Once they grow beyond the size of that dealer, then they will have to make more dealers, which means the specific dealer which was enjoying a lot of the margins would go down, and then they would be in the same boat as us. Our principle and our efficiency, how we measure this is how many net additions we've made to our Platinum Club, which is an X number of crores and above, how many net additions we have made to our Gold Club, which is slightly lower than the Platinum Club, and there is another club which is lower than the Gold Club. How many additions which we've made, that is one matrix. And what is our total sale from these three club dealers as part of our total sale, and how we are increasing that.
The second matrix which we do the efficiency is when we add a dealer. For example, if we add 100 dealers in the entire year, I'm only giving you an example now. If we add 100 dealers in a particular year, what is my sale contribution from those new 100 dealers, and how do we see those new 100 dealers going forward in the next year? The third matrix is that how we are seeing our exclusive dealers as to how many of them are growing and at what pace they are growing. The other matrix is, of course, to basically see some dealers which cease to be our dealers as to why they cease to be our dealers. These are the four matrix which we use on a continuous basis to see how we are moving in the path. This is the first question.
The second question is bundling. Yes, we completely try to bundle as much as possible. However, as far as sanitary ware is concerned, all the other brands in India are also legacy brands. The top three brands of India and the other two foreign brands of India who are in India, which have been around for the last 25, 30, and the other legacy brands have been there for 60 and 70 years. They have the same relations with the dealers, which means that it is that much more difficult for me to get that sanitary ware counter. Right now, our growth has happened where approximately 25% of our tile counters are bathware counters.
But now that we've grown very large in bathware and formed our relations and proven to the market that we are excellent in quality and excellent in product, it is becoming easier for us to bundle this going forward with our tile dealers. The same is the case with adhesives. Again, in adhesives, it is becoming more and more easier for us to bundle this with our tile dealers. Yes, our endeavor is to bundle as much as possible and milk the same counter as much as possible. I hope I'm able to answer the questions.
Yes, sir. Thanks for this. Just a clarification on the first part of the answer. Are there any variables beyond the spread of dealers or something like turnaround time? Or, say basically, does the material directly go from the factory to the dealer, or do we have depots on a pan-India basis? Is that business model consistent with other players, or is it any different?
Yeah, kind of consistent with the other players. It goes from factory directly to dealer. There are some depots. We used to have pre-GST, we used to have 19 depots, and now we have how many, about four? We have four depots, and they are also of very small sizes. What we are keeping in this depot is a high-value product, where we can afford the depot. That is how it is. So from 19 depots, we are down to four depots. I don't think this is really going anywhere. It is going to remain there. Maybe another depot will come up somewhere where we want to keep more value-added product. That's it. So yeah, it goes largely from factory to dealer.
Perfect. This is helpful. Sir, second question. You did touch upon discounts, and you indicated that probably we will revisit it in the next few months. But sir, what do we make of competitive intensity in the marketplace? There is a specific player called Infra.Market. I think they have tied up a lot of capacity in Morbi. How do you see their influence in the local market? Has it made any difference to us?
No, not at all. We don't see them in the market. We haven't seen any competition from that. I can take that offline. I have my views on that, which may not be right to say on an open call.
Awesome. Thank you so much. All the very best, sir. Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may please press star and one to ask questions at this time. The next question is from the line of Nilesh Sharma from Anantnath Skycon Private Limited. Please go ahead.
Sir, does the EU-India FTA structurally improve the realization for Morbi exporters, or it will be largely from volume-led opportunity? How this deal eventually impact Somany Ceramics?
First of all, the EU deal will take more than a year to come to light. Let's see what happens. It's too early. It's just an announcement. Nothing really known on that. I think the volume which has grown in Morbi from INR 16,500 crores to about INR 19,500 crores this year at this point, that is clearly benefiting the Morbi industry. Secondly, I think what will benefit more and is likely to happen faster than the EU deal is the Chinese apparently have reduced their VAT on tiles. I'm not sure whether it's 9% or 12%, but they've reduced or taken off the VAT, which means that they have become that much more expensive. Now the companies there have two choices. Either to absorb that cost or then partially absorb the cost and pass it to the consumer.
Any which way, India will become slightly more competitive in the export market wherever China was very significant. That's something which we think will benefit the Indian industry. As far as Somany Ceramics is concerned, we don't export very much. It's only about 1.5%- 2% we export, and we think we will be at that figure only. These strategic calls of EU, et cetera, doesn't really affect Somany Ceramics immediately.
Okay. My concern is just to understand if the export increase, then it will eventually better for us.
Yes, of course. Absolutely. With every time the export increases, it is better for the domestic industry and the domestic players because their off-take then happens in the export market. So you are absolutely right on that effect.
Okay. So we can expect then China eventually reduce the price so that export will be increased and that eventually impact Somany at positive front.
China will increase the prices, not reduce the prices. They will increase the prices. Their VAT has gone, so they have become 9%-12% less competitive.
Okay. Okay, sir. Thank you, sir.
Thank you.
Thank you. The next question is on the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi, thank you for the follow-up. Sir, how much was the ad spend for this quarter versus last year? And what is the target for this year?
Yes, sure. So if you remove the effect of the star which we do not have associated with us anymore and the expenses around that, if we remove that because that happened in this quarter, then it's 2.5%. If we take that into account, then it's 2%. This will catch up to 2.5% and we will maintain an ad spend of 2.5%. That's where we are.
I'm sorry, I missed you. So you said it will be 2.5%. Before that, I missed you what you said.
What I said is that this year, this quarter, the effect of the superstar which we had associated with us, we know that's no longer associated, so that money has been not paid out and the expenses around him has not been paid out. Therefore, you see a slightly lower ad expense. But other than that, it will catch up at 2.5%.
Understood. Got it. One last question from my side. The depreciation has been in stock. So this will be the going forward run rate of INR 28 crore per quarter?
Yeah. This is going to be a run rate. It's going to be between INR 26 crore, INR 27 crore. That's going to be a stable run rate now, unless and until we do some more significant additions. We adjusted life of some assets in quarter four of last year. That's where you see increased depreciation numbers with corresponding quarter of previous year. But it's going to be a stable number now.
Got it. Okay. Thank you. That's it.
Thank you. You may please press star and one to ask questions at this time. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mr. Somany for closing comments. Thank you, and over to you, sir.
Yeah. Thank you everyone for patiently listening. I think we are looking at better times. This quarter should be a good quarter on all accounts. We should be better in sales, and also we should be able to reduce the losses of Max and very confident of increasing our EBITDA. In line with what we had discussed in our meeting and also in our previous calls and also this call. If this quarter goes well, it gives us that much more confidence for the next year where more investments are coming up. We will be better in capacity utilization, loans will be paid down, and also better on value addition and in our ASP. So overall, looking good after a long time. Very confident of that. Thank you so much, and until we meet next time for the annual earnings call. Thank you.
Thank you, members of the management. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you.