"Somany Ceramics Ltd (BUY, TP: Rs 730) Q4FY21 Results: Strong industry tailwinds, SOMC gaining volumes"
1. Revenues at Rs 5.6bn, up 59.6% yoy, , volume up 54% yoy (at 16.9msm) 2 yr CAGR of 5% (Q4FY19-Q4FY21) and realisation up 3.8% yoy, 1.1% qoq.
2. OPM at 15.9% vs. 3.3% yoy, 12.9% qoq. EBITDA at Rs 896mn vs Rs 115mn yoy, Rs 633mn qoq. 2-year CAGR of 13% (Q4FY19-Q4FY21).
3. Management guided for high teen yoy growth in the tiles segment and operating margins to be maintained at 12-13%, with increase in capacity additions expect operating margins to further increase.
4. SOMC has planned capex of Rs 1.4-1.6bn for South (Rs 350mn), West (Rs 900mn) and North (Rs 400mn) plants. Post the additional capacity is operational, GVT mix can increase to 30%.
5. A pick up in domestic construction activity will lead to a volume of 61.6msm in FY23. SOMC is strengthening its distribution network while working on improving its cash-flow cycle (which deteriorated in FY17-19) and balance sheet.
6. At CMP trades at a PE of 24x/18x on FY22/23 EPS. On revised earnings estimates, we now expect earnings CAGR of 40.6% over the next two years. We value SOMC on 25x FY23 EPS, a c.40% discount to the industry leader, to arrive at a target of Rs 730 (earlier Rs 500).