SOMANYCERA - Somany Ceramics Limited Share Price

In the Q1 FY 2025-26 earnings call conducted on August 14, 2025, management provided an optimistic outlook despite challenging market conditions.

Management noted that domestic sales had modest growth, increasing by 4% year-over-year, while volumes rose by 3%. However, they highlighted that exports were expected to decline from Rs.18,000 crores last year to around Rs.16,000-Rs.17,000 crores, reflecting ongoing pressures from lower demand and competition.

Key forward-looking points include:

1. Sales Guidance: Management maintained guidance for high single-digit sales growth and anticipated EBITDA expansion of about 1% to 1.5% driven by improved capacity utilization. They expressed confidence that the second half of the fiscal year would show marked improvement.

2. Capacity Utilization Improvements: The current capacity utilization was reported at 77%, with expectations to increase to over 70-75% for plants like Max, which is currently running at 52% capacity. Management mentioned taking corrective actions already showing signs of improvement.

3. Joint Venture with Durabuild: The recent JV with Durabuild aims to tap into the construction chemical market, particularly waterproofing, which they estimate to be a Rs.6,000 crore market. They anticipate launching products by the end of September.

4. Retail Expansion: Management plans to add 200-250 new dealers, targeting primarily Tier-II and Tier-III towns to enhance distribution and increase market presence.

5. Strategic Focus: There is a concentrated effort on enhancing product mix and quality while maintaining current pricing strategies, aiming for better realizations and gradual market share gains"”even in a flat domestic market.

Overall, the management's emphasis on growth through strategic initiatives and continued investment in capacity utilization supports a hopeful outlook amidst a challenging demand environment.

Here are the major questions and respective answers from the Q&A section of the Somany Ceramics Limited Q1 FY26 earnings conference call:

1. Question: "Can you elaborate more on the Durabuild acquisition? What is the strategy for this going forward, and how will it contribute to the top line and margins by FY '27 and FY '28?"

   Answer: The Durabuild acquisition focuses on waterproofing products, capitalizing on a Rs. 6,000 crore market. We're targeting a 75% share soon, moving to 100% within three years. While revenue is uncertain now, we aim for improved margins from construction chemicals. Initially, profits will be pressured as we establish the business. Our plan is robust, and we will leverage existing distribution channels for the targeted waterproofing products.

2. Question: "If the demand remains muted and exports face challenges, do you think the worst is over for receivables and realizations in the industry?"

   Answer: Realization remains stable; the decrease seen was due to product mix changes rather than price drops. Pricing has slightly increased this July. Current trends indicate that export levels may stabilize around Rs. 17,000 - Rs. 18,000 crores. We have also reduced receivables by a day, maintaining a solid focus on this despite market pressures.

3. Question: "Can you provide insights into the current demand scenario in the domestic market and the export market?"

   Answer: Demand remains pressured but stable. We've seen growth in July, suggesting resilience. While exports may see a slight increase of 10-12%, they remain lower than previous years. Current trends indicate exports won't exceed Rs. 16,000 - Rs. 17,000 crores. The domestic market shows positive signs amidst heightened competitive pressure, particularly from low-value segments.

4. Question: "What is the expected return profile for the Rs. 50 crore investment in SMPL?"

   Answer: The Rs. 50 crore investment will enhance the Max plant's efficiency, focusing on preventing shutdown costs and enhancing production capabilities. While specific returns are not set, we anticipate a decent payback by improving capacity utilization and reducing operational costs, which is crucial given current market conditions.

5. Question: "What is the current number of showrooms, and what are the targets by FY '26?"

   Answer: We've added approximately 65 dealers this quarter, aiming for 200-250 net additions overall. Our additions primarily target Tier-II and Tier-III towns to expand our footprint, with urban and non-urban distributions continually balanced for optimal reach.

6. Question: "How do you view margins amidst recent competitive pricing pressures?"

   Answer: We believe margins will not decrease further; achieving better capacity utilization will enhance them by around 0.5% to 1%. Our strategy focuses on producing higher quality products and innovating, not on cutting prices, which can erode brand value and market share.

7. Question: "What is the sales split by region?"

   Answer: Our sales distribution is as follows: North accounts for 41%, South for 27%, with the rest split between East and West, and about 3% from exports. This distribution underlines our strategic focus on expanding in key regional markets.

8. Question: "How would you characterize the competitive environment from smaller players?"

   Answer: Smaller players often leverage tax evasion, providing temporary competitive advantages, but they don't necessarily have better designs. Our focus is on innovative products and better distribution, ensuring sustained growth and minimizing dependency on such tactics.

These responses illustrate the company's strategic outlook, market conditions, and operational strategies, reflecting an overall cautious yet confident approach to navigating current challenges.