SOMANYCERA - Somany Ceramics Limited Share Price

In the earnings call for Q4 FY 2024-25 held on May 7, 2025, management of Somany Ceramics provided a cautiously optimistic outlook for the upcoming fiscal year. They reported a sales growth of 5% in Q4 and a volume growth of 3%, while operating margins remained stable at 8.2%. However, they expressed concern over a decline in gross margins, which fell by 2.8%, largely due to increased discounting.

Key forward-looking points include:

1. Capacity Utilization: Management noted a decrease in overall capacity utilization to 81% from 89% in the previous year. They anticipate improvements, particularly with the Max plant, which is currently operating at 55% capacity utilization. Management aims to reach 75%-80% utilization in the near term.

2. Sales Guidance: The company guided for a high single-digit to low double-digit growth in revenue for FY 2025-26. They anticipate continued strong growth in the bathware segment, with a 18% increase in Q4 and an 11% rise for the full year.

3. Margins Improvement: They expect EBITDA margins to improve by 1%-1.5%. If the Max plant reaches desired capacity utilization levels, further margin enhancements are likely.

4. Dealer and Showroom Expansion: The company plans to continue adding to its dealer network, with 181 net dealer additions and 40 new showrooms in FY 2024-25.

5. Debt Management: Total debt stood at INR 288 crores, which is a slight increase from INR 233 crores the previous year. Management is focusing on maintaining a healthy balance sheet with no working capital loans on a standalone basis.

These insights suggest that while challenges exist, management remains focused on operational efficiency and strategic growth for FY 2025-26.

Question 1: Keshav Lahoti - "However, that is completely offset by lower gross margin. So, what has changed? And is it a one-off in this quarter? Or will the gross margin continue in the coming quarters also?"
Answer: No, the gross margin will stabilize. This quarter's pressure stemmed from our attempt to boost capacity utilization and avoid losing market share. It's a one-off situation; with further efforts to control employee costs, we anticipate an increase in gross margins moving forward.

Question 2: Madhur Rathi - "So, I understand because of Max not operating at full level. But was there any other factor that for this such a stark difference between both of these?"
Answer: The primary issue affecting the discrepancy in numbers is indeed the Max plant's underperformance. Other plants have either shown profitability or had losses we've already removed from our portfolio. We are actively working to improve the Max plant's performance this fiscal year.

Question 3: Sagnik Sarkar - "So, if you could categorize Tier-wise, I mean Tier 1 cities versus Tier 3 cities, like which are the cities that you see where demand is most affected and where do you see green shoots?"
Answer: Demand has dulled across the board; it's not isolated to specific cities. Tier 1 cities have seen delayed purchases, while smaller towns have deferred demand. However, there are emerging positive signs in certain Tier 2 and Tier 3 towns, suggesting potential growth.

Question 4: Utkarsh Nopany - "Have we taken any pricing action in the March quarter and what is your sense on the pricing side in the near future?"
Answer: We haven't increased prices lately; our pricing is under pressure due to a competitive market and incoming export materials. Currently, there's no strategy to raise prices; instead, we're focusing on stricter receivables and reducing discounting.

Question 5: Abhir Pandit - "So, just wanted to understand how it's affecting your industry, specifically is it that the unorganized market is taking market share in this space or how is it going?"
Answer: Yes, the unorganized market has increased its presence, with local dealers springing up everywhere as they respond to market demands. While they are gaining some share, we believe major dealers foresee a consolidation challenge for these smaller entities soon.

Question 6: Nitesh Dutt - "So specifically on demand, what is it that's making you believe that the muted demand would turn back in FY '26?"
Answer: My optimism stems from a stronger Q4 performance compared to earlier quarters, along with early signs of demand recovery in April. Increased real estate activities and deferred purchases returning to focus suggest improvements ahead, both domestically and in exports.

Each answer encapsulates the inquiries and provides a concise summation of the conversations held during the earnings call, framing the complexities faced and the future outlook projected by the management of Somany Ceramics.