Somany Ceramics Limited (SOMANYCERA.NS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to Somany Ceramics Limited's Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, 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 and CEO; Mr. Shrivatsa Somany, Head-Bathware; Mr. Sailesh Raj Kedawat, CFO; and Mr. Kumar Sunit, Head Strategy and IR. We'll have the opening remarks from Mr. Somany followed by a Q&A session. Thank you, and over to you, Mr. Somany.

Thank you so much. Welcome, ladies and gentlemen, and Happy Diwali once again. This quarter, we've grown by about 3.6%. This is after a major impact in the Northern Territory, which you all know was virtually underwater. Most of Uttarakhand, Uttaranchal, J&K was underwater. Even though -- even after that, we've been able to grow at 3.6%, considering North consists of approximately 46%, 47% of our tiles sales. So from that point of view, it's been a fairly decent quarter. However, the capacity utilization still has been low. It's been at about 75% this quarter. That is also due to an outage in the Qatar plant in our Northern plant. We had mentioned it earlier in August in -- to SEBI and all to the exchanges that we had an outage. There was almost a 20, 25-day outage in the Bawana pipeline due to the Bawana pipeline, that's about 70, 80 kilometers from the plant. It's a GAIL pipeline, which had a leakage due to which the gas was stopped overnight. We did everything we could to make sure the gas gets restored, and it has got restored on the 20th of September with a 20 to 25-day outage. This did impact some amount of capacity utilization, obviously, but also impacted mostly on the EBITDA level, approximately 1.2%, 1.25% plus EBITDA has got affected. Having said that, now let's come to the EBITDA. Our EBITDA stands H1 at 7.9% and also Q2 at 7.9%, which is down from 8.5%. This is owing to the issue which we had with the Qatar plant. Had it not been, then it would have been that much better. So we would have actually performed better from last year Q2 and also last year H1. So this is an aberration. As far as GAIL is concerned, this is the first time it's happened in their history. So it's absolutely a free condition. We do have insurance on this, and therefore, we are now have submitted all the papers possible for the insurance, and we are hoping that with the best outcome, and this would flow back into the P&L at a later date. Gross margins did decline, which I just mentioned. Margins also got impacted a little bit. Capacity utilization, like I've spoken, has partially been affected due to this. Although it's not entirely due to this, there has been also a muted demand overall in the Northern area, like I said, and across the country. Our JVs are still in losses. One particular JV, which is Max is still in losses where we have taken corrective action, and you will start seeing considerable gains from this from Q4 onwards. Vintage was another JV of ours where we had a shutdown of 40 days. We have changed the product mix over there, which has now made the plant fungible between the -- between some other formats of tiles and some other kinds of tiles. So this particular plant was producing only double charge vitrified tiles, which was basically going to the government. Government spends being slow, has got affected. But having said that, we've changed product mix over there, and this is 100% back online from this quarter onwards. Other than that, our ceramic sale was down 1%, whereas the GVT sale has gone up by 1%. So that is very heartening that GVT keeps going up. And like I mentioned in my earlier call, the GVT sales would be 50% plus in the next 12 to 18 months. The gas pricing has been flat -- completely flat. There has been no changes in the gas pricing across the different locations. Brand spends have been at the same 2% in Q2. Working capital increased marginally by 1 day as compared to last year. However, our receivables has gone down further. So the balance sheet is well under check, and we are extremely cognizant of the fact that we do not want to have any open credits in the market. So we're very careful of that. The net dealer addition has been about 119 in the H1. That takes our total to approximately 3,000 dealers and takes our exclusive showroom count to about 520 in the Q2. We do not want to change our guidance. We're still hoping for a single-digit -- mid- to high single-digit growth in this year. Like I said, we get 3.6%. That is when North did really perform. So we are hoping that with this increased sales in the H2, that would further improve the capacity utilization and that would obviously relate to an EBITDA margin improvement for at least 150 bps from here. These are the highlights for the H2 -- sorry, H1 and Q2. I -- also one more point. The total debt in the JVs has again gone down. It's at INR 257 crores, out of which the 2 JVs constitutes of 75% of the loan, which is approximately INR 105 crores and INR 85 crores between Somany and Max. Other than that, Somany Ceramics standalone does not have any debt. And this year -- this quarter, again, we did not use any of our fund raise limit. So no working capital was used again for this quarter. And we have made repayments of approximately INR 18 crores in H1. So balance sheet keeps getting stronger. We're just hoping for sales to pick up across, which will further increase the capacity utilization and obviously increase the margins quite significantly. This is my highlights. Now I open the floor to Q&A, please. Thank you so much.

[Operator Instructions] The first question is from Keshav Lahoti from HDFC Securities.

So wanted to get a sense on the demand...

First question is from Keshav Lahoti from HDFC Securities.

Am I audible? Shall I go ahead.

Yes, sir.

So my first question is on demand side. So firstly, have you seen any pickup in demand in October? How is the demand outlook? And secondly, we have said we have taken some price hike in July. How has that played out? And -- so you said you have taken some price hike in July and...

Price hikes have been retained. We have been able to retain the price hike. In fact, we're looking -- if the demand picks up, we'll probably take another price hike in this quarter or maybe early next quarter. As far as the demand side is concerned in October, considering that was Diwali and Chhath Puja, we have been able to grow with a very, very small amount in October, which is a great news because now it's a clean run for the next 5 months of the year. So I think demand to that extent, considering we've grown at 3.6% last quarter, considering North just did not perform because of rains, I think the demand is coming back slowly and steadily.

Okay. Got it. And what was the quantum of price hike on blended basis -- more hike?

[indiscernible] 1.5%.

1.5%, right?

Yes.

Okay. Got it. And tell me one thing as you highlighted in the call because of Kassar plant the margin was [Technical Difficulty]

No. The Kassar stoppage contributed approximately to 1% to 1.2% plus of EBITDA for the quarter because of the outage of 20 days. That's what I mentioned.

Okay. [Technical Difficulty]

So my margin would have been better by 1% to 1.5% or more if it had not been for the 20-day complete shutdown of the plant.

Got it. So just last question from my side. How is the margin guidance [Technical Difficulty]

I can't hear you, I'm sorry. We can't hear you.

So EBITDA margin guidance, you have given an improvement of 100 to 150 bps for FY '26. Does that hold? Or will you like to hit?

No, I would hold that.

The next question is from Sneha Talreja from Nuvama Wealth.

The way you mentioned the domestic demand, could you give us some flavor on the exports demand?

Sorry? Export demand...

The way you mentioned on the domestic demand, how is export demand shaping up? Because that could you tell us about how much Morbi guys are focusing on the domestic market?

Sure. So export for us was down, in fact, by INR 6 crores because some orders left first week of October instead of end of September because the vessel is not available. So it was down by INR 6 crores. But otherwise, our export is largely anything, it's literally 2% of revenues. It really doesn't matter. But overall, for the industry, it's good news. It's picked up by approximately 7%, which means that we are on route to maybe INR 19,000 crores to INR 20,000 crores this year versus about INR 17,000 crores, INR 17,500 crores last year. So overall, export for 5 months, the data which we have for 5 months and not -- the 5-month data shows that it's picked up by 7%.

Understood. And what will be the utilization of our Max plant and at which level do we kind of start making money here?

Max plant is only at 50% and we are hoping by quarter 4, it will be at 75% to 80%. We're not hoping we're very sure that it will be 75% to 80%. Which means it stops bleeding money. It will not lose money, but it will not make money. It will start making money from next year, but at least we will stop credit losses.

[Operator Instructions] The next question is from Madhur Rathi from Counter Cyclical Investments.

Sir, I'm trying to understand that there is a significant divergence between our standalone and consolidated numbers, mostly due to depreciation and interest, but even otherwise, even working capital days, there is a significant difference. So basically, how should the investors see the company in standalone or consol numbers should be taken?

Well, obviously, it's one company. Standalone, we've done much better than earlier quarter. Consol, it has been dragged because of the 2 JVs. But the company has always looked at as consol. So I would like Sailesh to answer that. However, the one thing before he starts answering, I would say that we have grown on a consol level by 3.6% plus our EBITDA would have been at least 1%, 1.2% better had we not had this previous accident, which is at GAIL side and nothing to do with us. Go ahead, Sailesh, you can answer this.

So Madhur, if you look at our standalone and consol numbers, you are seeing difference not in sales, but there is a difference in the profitability. There are 2 or 3 joint ventures, which Abhishek ji mentioned earlier, which has not performed during this quarter. Max and Vintage was only for this month -- this quarter. But otherwise, it's on track now. The depreciation number difference between standalone and consol is accounting. You have to understand that consol also accumulates the joint ventures, which are manufacturing joint ventures. So all their interest, depreciation, operating costs when you do consol, it comes into the financials.

Sir, now secondly, sir, what is the trend in gas prices going forward? And sir, how is the demand looking? Is the industry out of the woods or some more pain is left on the demand side?

I think the industry is out of the woods, although it's going to be a slow turn, it's not going to be a V-shape improvement, but it's out of the woods. Exports have started picking up. Morbi, the amount of evasion they can do is already happening. People -- they're really hurting over there. No new capacity is going to be added in the next 24 months for sure. And as far as gas pricing is concerned, it remains to be flat. I don't think there are any surprises in the future with most of the wars also getting settled or kind of being at the same level as what it was a couple of quarters ago. So I don't see any surprises in the gas pricing. I think it will largely remain flat.

For Somany, what kind of CapEx can we expect for the next 1 or 2?

I don't have any CapEx for the next 12 to 18 months. All the CapEx has been done. So we will see the debt levels coming down and profitability going up.

And sir, just a final question, is it fair to assume that considering the 1%, 1.2% from the Kassar plant and the 150 basis points improvement, we can do upwards of 10% EBITDA margin for H2?

Yes, correct. Your understanding is absolutely correct.

[Operator Instructions] Next question is from Pranav Mehta from Equirus Securities.

Can you hear me?

No, Pranav. It's not really clear.

Can you hear me now?

Not really. But try -- go ahead.

[Technical Difficulty]

Can't hear you. Pranav, can't hear you.

Pranav, if you're in a indoor area, I'll request you to move to an area with network. Your voice is breaking. Pranav, we request you to rejoin the queue. Maybe you can connect and call back.

Hello. Can you hear me now?

Yes.

Yes, sure. [Technical Difficulty]

I'm sorry, Pranav. I request you to call back. Your voice is not clear again. We'll move to the next question. The next question is from [ Ashutosh Khetan ] from AMSEC.

I just wanted to ask what the contribution of the ceramics, PVT and GVT for this quarter?

Ceramics is at 33%, PVT is 26% and GVT is 41%. If I take you to levels of FY '24 2 years ago, ceramics was 36%. So it is down by 3%, GVT was 34%, it's up by 7%.

[Operator Instructions] Next question is from Madhur Rathi from Counter Cyclical Investments.

Sir, so our stock price is at a 10-year level at which it was back in 10 years back and the company is also at least on a standalone basis is totally debt free. So any plans to do another share buyback and extinguish our share so that the future growth can get divided on a smaller base of shares?

No, currently we did a fairly large buyback and we also had a large expansion of Max plant. Therefore, currently, we have no plans of a buyback. But in future, like I said, in the next 12 to 18 months, maybe 24 months, we don't have any significant CapEx. And we do believe that our treasury will keep coming back after all the investments which we've already made, we will then decide whether to do a share buyback or reward shareholders in some other way. But yes, the principle will be to not -- if there is no expansion, then we would reward the shareholders.

Sure, sir. And sir, in your best judgment, sir, when can we again see double-digit margins, which post-COVID hasn't been the case for a long time?

Absolutely. I think in the next couple of quarters, you'll start seeing the double-digit margins.

Next question is from Yash Tawani from Aamara Capital.

I just want to understand what is the margin difference in terms of the ceramics, PVT and the GVT that we have?

That's a very complex question because within ceramics, we have a fairly large differential in margin in terms of contribution and so is the PVT. But to answer your question, PVT is the lowest and then ceramic and the highest is GVT. Within GVT also there's a lower range of GVT and a very high range of GVT. So the spectrum in the GVT is much, much wider. The spectrum in the ceramics is slightly smaller and PVT is hardly a spectrum. So it starts at one point and ends very quickly in a couple of rupees above. So PVT is the lowest contributor and then ceramics and then GVT.

Okay. And one more thing I'll follow-up on that, that what are the targets that we see over the next 2, 3 years in terms of the total synergies in terms of the total take or duties like say, the GVT total sits at 41% then what is the vision that we have to take at for the next 2, 3 years?

Well, within the next year, it should be at 50%.

Next question is from Ashvath from Arihant Capital.

So I just wanted to ask our volumes have been relatively flat on Q-on-Q basis. So I wanted to know what kind of improvement are we expecting on volumes? That will be my first question.

Well, amongst the largest players, I think we lost at about 3.6%, considering North is a very heavy sales territory for us and North has been battered by rains. So I think volume also, we are -- like I said, I'm maintaining mid- to high single-digits for this year.

Sir, on sanitaryware, how much contribution do we expect on top line from here on since our realization has been pretty decent, our utilization has been pretty decent here. So where do we see this on a percentage basis?

Sanitaryware, we are looking at in the next 1 year, approximately 15%, 16% of our revenue will be sanitaryware or the bathware. We're about 12%, we'll be probably 15% in the next 2 years.

Next question is from Keshav Lahoti from HDFC Securities.

How much has been the Max loss for this quarter?

Sailesh, Max loss for the quarter.