Wednesday, October 22, 2014

Somany Ceramics - Expensive, Yet Worth A Look


First of all, let me take this opportunity to wish every reader, a Very Happy Diwali, and a Prosperous New Year ahead.


Somany Ceramics has established its presence as a leading and formidable force in the Indian tiles sector. Since 1969, the brand has endeavoured to adorn homes with delight, exuberance and vivaciousness resounding with the quality, strength and life of its products. The company has manufacturing plants in Kadi, Gujarat and Kassar, Haryana and other joint venture plants, generating a production capacity of 41 million sq mts annually. The company is a complete solutions provider in terms of d├ęcor solutions with widest product selection categories – Ceramic wall and floor, polished vitrified tiles, glazed vitrified tiles, digital tiles & sanitaryware and bath fittings as well as tile laying solution.

Along with being considered the epitome of quality and durability in India, it also has its presence in international markets. Brand Somany has established itself as an unchallenged leader of innovation and design in Europe to the Middle East and from Asia to Africa.

A brief look at the tremendous client tele of the company:
https://www.somanyceramics.com/our-client/

The company is, and will be facing stiff competition in the sector, and is currently, the third largest player in organized tiles market. Kajaria Ceramics is probably the largest listed player in the sector. The new venture by Cera Sanitaryware to enter into tiles segment, will also be part of competition faced by the company.
Inspite of such competition, the company is growing at a tremendous pace and is likely to continue, as this is one of the sector, which will be benefitted the most, when a country is moving from being a developing nation to becoming a developed nation. Hence the available competition should not hamper the growth as far as names like Somany are concerned. The smaller and probably less popular faces, might feel the heat, hence I am not looking much into smaller names in this segment, in spite of the expensiveness in larger players including Somany Ceramics.

Few Initiatives By Modi Government that would help the company grow even better:
1) Swatch Bharat Abhiyaan.
2) Development of 100 Smart Cities.
3) Mission of Housing For All by 2022.

A look at company's excellent Debt Management:



Recently, the management made their intentions clear that they won't be adding any debt soon, which is also positive.

This was one of the factor, which drove 2 big institution to buy heavy stakes in the company.
However, the same move led to tremendous increase in stock price over past 1 year.

Out of the total dealer network of more than 1700 dealers across India, the company added around 40 dealers in the past quarter itself.

Apart from that, the company also added about 10 showrooms across India. Both the numbers are likely to increase in near future.

The company recently bought 26% stakes in Sonec Sanitaryware, which is a large company with a capacity of about 3 lakh pieces per year. The company is expected to increase their stakes to 51% in the company. Also the company is looking to expand its current capacity to 55 million sq mts by Mar'15.
Sanitaryware and Fittings is still operating at a very small level, and contributing to about 9-10% of total revenues. The good thing is to see that the sales of Sanitaryware jumped 83% yoy, this quarter. The percentage of revenues coming from this segment, is expected to be at same levels for some years.

Talking about the numbers, the company is growing at a cagr of 18.5% annually in sales in past 5 years, which is pretty good considering the amount of competition in the industry, and it is expected to grow at an equal or even better pace in coming years, with above factors.
Looking at recent Q2 FY'15 performance, the company reported sales growth of 22% and net profit growth of 68%. For the half year ending Sep'14, the company reported sales growth of 24% and net profit growth of 54% compared to half year ending Sep'13. The numbers looks pretty impressive, especially when the company is investing a lot in expansion and brand building.
As per management, irrespective of whether its a good year or bad year, the second half of fiscal is always better than the first half. So, the awesome results in first half is just an indicator of what is to come in second half of this fiscal.

Currently, Kajaria Ceramic and Somany Ceramics, both are trading around same valuation. However, margin expansion in Somany Ceramics later would be interesting as the P/E ratio will come down significantly, from current levels, which is around 37 or so.
In terms of market cap, Kajaria is trading almost 4 times to that of Somany, but they currently have about 4 times the NPM as that of Somany. So, it will be very interesting to see, what happens when margin expansion takes place in Somany, after so much of expansion and brand building.

Looking at all the above data, the company looks very strong fundamentally. The expensive valuation currently is justified and is likely to improve further, as future look very promising.

The only negative, would be the current hike in gas pricing, which is still moderate, when compared to what was decided earlier. However, in the long run, the company will get over these things, by price rise, and other factors. Hence for long term, it won't be a big problem.

No targets and no action will be recommended here. This is just a case of company, which one can study and take his/her actions accordingly.

Happy Investing!!!!

79 comments:

  1. Hi Kunal,

    Nice pick :)

    Thanks
    Anshul

    ReplyDelete
  2. Thanq u kunal, Wish u and your family a very happy diwali & prosperous new year.

    ReplyDelete
  3. Hi kunal, happy diwali and new year.
    -Anand

    ReplyDelete
  4. Hi Kunal.

    Wishing u and your family a very happy diwali.

    ReplyDelete
  5. Thanks for one more gem n happy diwali n prosperous new year.

    ReplyDelete
  6. D: Dazzling lights
    I: Immense joy
    W: Windfall
    A: Abundant peace
    L: Lavish festivities
    I: Illustrious life.

    Wishing Kunal and all blog readers a very happy, prosperous and blessed Diwali….!!

    ReplyDelete
  7. So, we have 2 companies that reported its numbers, after fantastic display by Cera Sanitaryware, and as expected, both of them, also came out with strong set of numbers...

    Capri Global came out with a big growth, with sales increasing 44% yoy, and net profit increasing 17%. More and more penetration will further improve sales growth, and slowly, net profit will follow. For the half year ending Sep, the company has already reported EPS of 13, and it seems, they are likely to achieve annual EPS around 27, which would be pretty good, when compared to its current market price.

    Dewan Housing came out with excellent set of numbers, with sales growing 24% yoy, and net profit around 18% yoy. Sanctioned housing loan increased by 39% yoy, while disbursement increased by 31% yoy. Lots of brokerage house have shown their positivity in the counter through research reports, which is pretty good to see.

    ReplyDelete
  8. Hi Kunal,

    Wishing you happy diwali (though much late). I have a little doubt about SSWL.

    Company is not paying consistent tax( they are deferring tax liability) any idea why is that happening? Further, though from last 3 months, company has produced excellent production numbers, yet stock has not moved an inch. Does market fears that something is cooking?

    ReplyDelete
    Replies
    1. Hi Ajay,

      Thank you & Wishing you a Happy Diwali as well!!!

      Regarding SSWL, still there are several concerns, some of them were listed in initial thread. Firstly, the debt levels are way too high, and the management has not shown any strong intent to reduce it.
      Secondly, ROE for past 3 years, has been very low, which is mainly because of poor growth.
      Dividend yield is still very low.

      And from my past experience in the counter, I think, it moves at one stretch. Last time, it jumped from 160 to 270 levels within just 3-4 days, and then settled around 270-300, which is still going on.

      Lets see. I posted this as a case of turnaround, which seems to be on track, but of course, it will take time. I am constantly watching all the updates regarding the company, to see, if they are living up to the newly set expectations.

      The good thing though, is that promoters have bought heavily in the current price range, which gives some hope, for better numbers coming out this year.

      Hope that helps.

      Regards,
      Kunal Banker

      Delete
  9. Sir how is Astra Microwave for Long Term Investment. It was on my watchlist but it suddenly spiked up. Can it be a Multibagger from current Levels?

    ReplyDelete
    Replies
    1. Yes, positive on Astra Microwave for long term...

      Delete
  10. Hi how is July Agro for long term

    ReplyDelete
    Replies
    1. Its tough sector, difficult to predict valuations...
      However, fundamentally, I like Vimal Oils the most in this sector..

      Delete
  11. Sarath RamakrishnanOctober 28, 2014 at 9:18 PM

    Hi Kunal,

    kindly share your view on Manjushree Technopack Q2 results & its outlook for coming quarters.
    Is it a good idea to accumulate @current levels ?

    Thanks

    ReplyDelete
    Replies
    1. First of all, if you observe history, Q2 has been worst quarter traditionally for them, so I am not judging the future based on this quarter earnings...
      Outlook is poor in terms of profit, however, growth will continue to be good...

      Some Negatives:
      1) Management promising only 20% growth this fiscal, when they have already achieved more than 33% growth in first six months. The management said, it will be difficult to achieve 550 Cr topline for the year, which is about 25% growth...
      2) Management doubted the current market price of the stock, saying their current price is abnormally high, and hence they are not looking at adding more shares from open market at this price. This is a big negative from management...

      Some Positives From This Quarter:
      1) Even if they consider current price as higher, promoters have still increased their stakes by 2%, which assures us of better growth prospects ahead.
      2) Debt has come down by a significant amount, which could be taken very positively by some large & institutional investors..

      Looking at data, I would be neutral on it as of now...

      As per the much talked about recent regulation from SEBI, I won't be recommending any stock specific actions, that you can take.

      Delete
  12. Sarath RamakrishnanOctober 28, 2014 at 11:45 PM

    thanks Kunal !

    ReplyDelete
  13. Hi Kunal,

    Kindly share your view on LINC Pen And Plastic.

    Regards

    Jitendra

    ReplyDelete
    Replies
    1. Highly positive..
      In my watchlist... trying to study it as much as possible..

      Delete
  14. Kunal Sir, Can Gulshan Polyols should be bought at this Level's? Its consolidating from long time in a range... Please suggest if this could be a good entry point or not?

    ReplyDelete
    Replies
    1. As I said, its not possible for me, to give you buy/sell/hold recommendation from now..
      I can just tell you about the business and probable performance of the company in future...

      The data in Gulshan Polyols is very attractive. Balance sheet is also looking good. Strong Customer Base, plus expansion in new areas. All these could lead to much better performance in future, though we cant neglect the fact that margins may remain under pressure for some time...
      Positive on the company for long term..

      Delete
  15. Hi Kunal,

    Pls share ur view on United spirits

    ReplyDelete
    Replies
    1. Hi Sudheer,

      Generally not tracking any company with market cap over 10k Cr, or with a large cap tag..

      Regards.

      Delete
  16. Hi Kunal, word of thanks for control print recomendation.

    pls share ur view on Sunil hitech systems

    ReplyDelete
    Replies
    1. Positive on Sunil Hitech Engg for long term...

      Delete
  17. Hi Kunal,
    Whats your view on MOLDTEK PACKGING......Results are excellent according to me.......but why did Vora Financial Service sell so much of shares..

    ReplyDelete
    Replies
    1. Can't see anything negative in the company..
      Recent run up may be one of the factor..
      I would still be positive for long term..

      Delete
  18. Sarath RamakrishnanOctober 30, 2014 at 9:33 PM

    Hi Kunal,

    Hope you are doing fine .
    Did you get a chance to look at Granules India Q2 results ? On Standalone basis they are doing a good job by increasing sales and NPM ( close to 10 % this quarter). But Subsidiary loss is increasing . When do you expect subsidiaries to be break even ? Your overall view of result is appreciated !

    Thanks

    ReplyDelete
  19. 2 main pharma companies in our radar since the beginning of this blog, reported their quarterly numbers today.

    1) Ajanta Pharma:
    The company is still going strong, and it seems, there is no stopping as far as their growth is concerned. Once again, there was a 21% jump in revenues and close to 40% jump in net profit. I say it looks very good, because, as everyone knows, the company has achieved lots of success in past 2-3 years, and still, in each quarter, we are seeing more than 40% jump in net profit, which is impressive. This quarter, was probably the best, as far as company's margins were concerned, as NPM stood around 23%.
    Annual EPS looks all set to be in the range of 80-95 by year end.
    Sales are growing almost equally at both domestic as well as export front, which is also pretty good. R&D expense continues to rise, which lays down the path for further growth.
    As we are nearing the commercialization of 2 new plants, the expectations of future growth rises even further.
    When talking about the fundamentals of the company, this is one company, which can be studied as benchmark, as there is not a single parameter, on which it fails. Atleast not on parameters that I have. Not sure about others though.

    2) Granules India:
    The sales growth continues to see a downtrend this year when compared to last year, and it was somewhere expected also, because, we are now comparing it with a year, which had almost similar capacity utilization (may be slightly more this time). However, the biggest change, observed in the company, is the improvement in operating efficiency, which can lead to higher margins. One of the biggest factor, was their shift from API to Finished Dosages, as far as the % of sales were concerned.
    Sales went up by 16% yoy, and net profit went up by 46% yoy.
    The biggest challenge company is facing is the non-performance of its subsidiaries. The standalone unit is doing a brilliant job, and has been the savior in most of the past year results, as far as their good looking numbers are concerned.
    The standalone sales are up by 14% and consolidated by around 16%, in a time, when they say, Auctus contributed about 25 Cr to the topline.
    The turnaround in each of its subsidiaries, could lead to unlocking of a strong growth company.
    However, as per management, they don't see a turnaround in their subsidiaries until FY'16 or may be FY'17.
    So, all in all, it still remains a long term story.
    Stock price, has majorly to the improving margins, inspite of continuous losses from subsidiaries which is good to see, and speaks a lot about their core unit and its performance.
    There was one good point mentioned in their press release. It said that they commercialized 1 new API (thanks to their R&D facility which started last year), completely in house, even after adding 12 APIs to their portfolio, because of Auctus acquisition. Plus, it said that their R&D facility is still working hard and may be they will introduce more such APIs from their core unit. They are looking to commercialize 4-5 more such APIs this year.
    One turnaround happened last year, the other will happen when subsidiaries will start performing. Till then lets wait and watch.

    As mentioned previously, no recommendations will be provided on either of the stocks. The decision has to be taken by the reader himself.

    ReplyDelete
  20. What is your view on SKM eggs?

    ReplyDelete
  21. Sir, when are you coming with your next study

    ReplyDelete
    Replies
    1. Can't guarantee a timeline, but it will be very soon...
      Probable next week..

      Delete
  22. Kunal sir,

    Good morning, have you checked KTIL. This company from logistic sector is trading at ridiculous valuations. They are building warehouse on 84 acres of land that too with rail link on one side and national highway on the other. The equity also is very low. I have attached a link for your review and reply on the same. I have taken position in this company at Rs. 310. Please give your opinion.

    http://www.kesarinfra.com/news.html

    ReplyDelete
    Replies
    1. As informed earlier also, I am positive on the company..
      Have it in my watchlist currently...

      Delete
    2. OK sir thank you.

      Delete
  23. hi kunal,

    You have given result update for granules/ajanta pharma, similarly it would be nice if you give update for the recommended stocks of yours and also a quarterly/half-yearly update of all your stocks how it has performed.

    coming to somany ceramics,after the recent results of kajaria,hsil, i feel somany will also follow,i think the sector itself is getting re-rated.

    ram
    hyderabad

    ReplyDelete
    Replies
    1. Hi Ram,

      If you observe the past threads written on this blog, I used to write separate post for each quarter result of each company. However, that time, my main intention was to inform my reading on probable action that can be taken with specific stock, based on result...
      Now, as SEBI has put a ban to it, it doesn't make much sense to do so...
      Still, I will continue to put my views on results, and keep readers informed of any development..

      Regards.

      Delete
  24. Sir kindly advice me on Fedder Lloyd. as i am a investor on its. thank you sir g

    ReplyDelete
    Replies
    1. Positive on current valuation only...

      The companies of this group have always with a low PE.

      Delete
  25. Hi Kunal,

    Expecting a feedback on Photoquip India after contacting the Management. I hear that September sales are marginally up during September quarter (q-o-q). However, please try to find out about profitability of the venture atleast by March 215.

    totalview

    ReplyDelete
    Replies
    1. Sure, will do that...
      Somehow, my interest is getting lost in the company, as the management approach towards investors, is getting more and more weaker... No retail participation..

      However, will only conclude once annual numbers are out...

      Delete
  26. Dear Kunal , Are you tracking Prima Plastics ?

    ReplyDelete
    Replies
    1. Hi Renu,

      Tha major problem with these names is their sustainability, when you players like Nilkamal and Wimplast in competition..
      However will have a detailed look once...

      Regards.

      Delete
  27. Gulshan Polyols and Dynemic Products attracted Upper Circuit of 10% with excellent trading volumes. Price being Rs.237.70 and Rs.73.20 respectively !!! Still a long way to go !!!

    totalview

    ReplyDelete
    Replies
    1. Hope they both sustain the rally this time... :)

      Delete
  28. Dear Kunal, Love the way you openly discuss stocks and take opinion from your followers.

    Please look into Surya Roshni. Although the ROC is not good, but it seems that their lighting and home appliance business commands much more valuations as it is growing at around 18-20%. Also, reading the management reports, it seems they are quite focus on the this segment. The other business of pipes seems to be doing ok. Your comments please.

    ReplyDelete
    Replies
    1. As you said, valuation wise, it seems there is some potential, however, not quite convinced with its fundamentals...
      Will need more time to dig in further, before I can let you know anything conclusive...

      Delete
    2. It would be good if you can spare some time and get an insight if something is changing with management focus. Thank you

      Delete
  29. Getting clues that bigger moves are expected on Ricoh India and Gulshan Polyols' counters during November 2014 !!!! No onus please.

    totalview

    ReplyDelete
  30. Whats your views on Polyplex Corporation, if you track?

    ReplyDelete
  31. Dear Kunal,

    Dai-Ichi Karkaria declared very good results for Sep Quarter. Although all its peers are trading at 25-30 PE, this stock is grossly undervalued. At current market cap of 110 Cr its market cap is just half the value of its land in Kasarwad, Pune. On top of it, its debt free and has free cash reserves. When you discussed about some interesting microcaps last year, this was one of the stock in the list. I see that except this stock all the stocks that you discussed then have given multifold returns. This is the only stock still available at decent valuations. Hope market realizes its potential soon and provides suitable valuations.

    Regards,
    Jay

    ReplyDelete
    Replies
    1. Dear Jay,

      What is the basis of valuation of Kasarwadi land? You have valued it for around 200+ crores. Can you please share with us the area of the land and prevailing rate? Thanks !

      totalview

      Delete
    2. Hi Jay & totalview,

      Standalone business sales de-growth is still a concern... Profit is just because of land assets...
      From the total profit before tax of 11.5 Cr, 7.45 Cr is being shown as profit on sale of long term investment, as it happened last year also in same quarter..

      Regarding Land, as far as the information I have, they have about 20 acres of land in Kasarwadi, approximately. Considering a modest rate of about 2500 Rs per sq ft as land rate in that area, the valuation comes to about 217 Cr (purely, a rough estimate, as I am not sure of land rate in that exact area).
      I may be wrong with numbers here. Will try to figure out the land size and exact land rate, if possible.

      Btw, for you information, I stay about 3-4 Kms away from Kasarwadi... :D

      Regards.

      Delete
    3. Hi Kunal,

      It's a fact that they are not able to make much money out of core business. However, it can be a good asset play provided one considers it a pure long term investment. However, shall wait for your reply on land size and rate of the area. It seems some land parcel, may be a small one, was also taken over by Maharashtra Govt and compensation of Rs.1.56 crs. was paid for the same. If you could find out the size of land taken over and why it was taken over, it will be very good. Shall wait for your reply.

      totalview

      Delete
  32. Thanks Kunal. So even if we consider the modest rate of 2500 Rs per sq ft, it is available at just 50% of its land price. As you mentioned this quarter excluding the exceptional item, the profit has declined. Hope company is going to make investments with the free cash available and the company revunes and profits improve from here on. Even with current earnings its grossly undervalued compared to its peers.

    Regards,
    Jay

    ReplyDelete
    Replies
    1. Also, you said it has not appreciated, but I think it was around 40-50, when we started discussing it on this blog..
      So, returns have been good, if not the best!!! :)

      Delete
    2. It has already gone up by more than 200% !!!! And trading at it's highest !!!

      totalview

      Delete
  33. Hi Kunal,
    Please let me know your view on bharat seats(maruthi suzuki company) trading at 28 and future seems to be good..

    ReplyDelete
    Replies
    1. Might have to wait for long term...
      Good to see that, first half of this fiscal, has turned out to be very good...
      Will wait for few quarters before concluding on the same...

      Delete
  34. Hi Kunal, appreciate your views on Ashiana Housing and Sharp India.

    ReplyDelete
    Replies
    1. Still not enough belief in Real Estate & Infra business...
      Valuation wise, Sharp India is cheap, however, difficult to predict growth of companies in white goods business, unless a very strong brand..
      Hope you understand my point of view...

      Delete
  35. Dynemic Products traded at Upper Circuit @ 79 with robust volumes !!!

    totalview

    ReplyDelete
    Replies
    1. Upper circuit on both the days prior to results...
      Is it informed buying taking place at the counter.?

      Lets find out tomorrow...

      Delete
  36. Hi kunal,

    Pls share ur view on land bank of godrej properties and tata communications.
    .Are the stocks shield proof with huge chunks land in mumbai

    ReplyDelete
    Replies
    1. Sorry, not a fan of land bank stories..

      In case of Dai-Ichi Karkaria also, when I wrote, it was majorly about core business, rather than their land bank. Don't deny that it is one of the positives, but personally love judging the company based on its performance rather than only assets...
      It was probably the reason, I wasn't writing much about the company, even after such good rise in past 1 year...
      Recently also, when we had a discussion about it, my first line, was that, the de-growth in sales, is still a concern for me..

      To take one more such example, I think Control Print also has a very good land bank. However, I, in my post, haven't given that as a reason for my selection. I, rather had a stronger belief in their core business..

      I don't deny such land banks being used as a parameter, but I myself, is not much interested in that...

      Delete
    2. Forgot to mention, that apart from all these points, personally, I like Tata Communications, and think they have some potential, however, as such, not a fan of such big names...
      Still, no interest in real estate and infra, hence can't comment on Godrej Properties..

      Delete
  37. result update on sswl,the stock has not risen even after good results which has been factored in however wheels have appreciated with decent results.what's your fair target to sswl

    ram

    ReplyDelete
    Replies
    1. May be the Sales Highlight of October month, was the reason. However, in the same report they have also mentioned that they will not lower their guidance of such de-growth in one month, and are confident of achieving 20% by covering up in Nov and Dec.

      Further increase in debt, though very little, may also be the reason..

      I continue to stay positive, as I am having a long term view.

      Delete
  38. Replies
    1. 2 upper circuits prior to result was indication of that fact...
      It was more or less expected...
      But not sure, how much appreciation is already factored in anticipation of good results..
      Let time give the answer to that... :)

      Delete
  39. hi kunal
    i have been holding both capital first and capriglobal . I want to exit one of the two companies . Which one should be held for long term as per your .
    regards

    ReplyDelete
    Replies
    1. You know that I can't answer such questions... It depends on your conviction...
      I am positive on both the companies for long term..
      Can't say anything on short term, as it depends on lots of factors, like any positive news or results.

      Delete
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    ReplyDelete