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CRISIL assigns valuation grade of 5/5 to Somany Ceramics

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CRISIL Research has come out with its report on Somany Ceramics. The
research firm has initiated coverage on the company with a valuation
grade of ‘5/5’ and fundamental grade of 4/5, in its June 6, 2011
Somany Ceramics Ltd’s (Somany’s) Q4FY11 revenues and earnings exceeded
CRISIL Equities’ expectations on robust performance by value-added
products. Margins, however, were slightly below estimates due to
higher raw material, fuel and interest costs. We retain our positive
stance on the future growth prospects of the company. We maintain our
earnings estimate and the fundamental grade of 4/5.
Q4FY11 result analysis
• Somany’s Q4 revenues grew 32.1% y-o-y to Rs 2,392 mn. This was
mainly due to 72% y-o-y volume growth in value-added products such as
VC and Durastone tiles. The trading segment’s (manufacturing contract)
revenues grew 19% y-o-y to Rs 906.4 mn, its contribution to the top-
line remained stable at 40%.
• Increase in raw material, power and fuel costs led to 95 bps y-o-y
decline in EBITDA margins to 8.5% in Q4FY11.
• Decline in EBITDA margins and 72.7% y-o-y increase in interest
expenses led to a comparatively lower y-o-y PAT growth of 9.2%. PAT
margins declined 70 bps y-o-y to 3.3% in Q4FY11.
Key development: Gujarat plant expansion on hold
• Considering the rising interest rate scenario, Somany has put its Rs
770 mn greenfield project in Kadi (Gujarat) on hold. Instead, it will
be concentrating on the trading business, leveraging strong brand
equity and distribution network. Over the years, trading revenues’
contribution to topline increased from 17% in FY08 to 40% in FY11,
thereby registering higher-than-industry growth.
• During the quarter, Somany concentrated on strengthening its brand
and has spent Rs 66 mn as advertising expenses (Rs 141 mn in FY11 vs.
Rs 93.8 mn in FY10).
Valuations: Current market price has strong upside
We continue to value Somany based on the discounted cash flow method
and maintain the fair value of Rs 84 per share. At this fair value,
the implied P/Es are 9.6x FY12E and 7.5x FY13E EPS. Consequently, we
retain the valuation grade of 5/5, says CRISIL Research report.
Disclaimer: This report (Report) has been commissioned by the Company/
Investor/Exchange and prepared by CRISIL. The report is based on data
publicly available or from sources considered reliable by CRISIL
(Data). However, CRISIL does not guarantee the accuracy, adequacy or
completeness of the Data / Report and is not responsible for any
errors or omissions or for the results obtained from the use of Data /
Report. Opinions expressed herein are CRISIL’s opinions as on the date
of this Report.  The Data / Report are subject to change without any
prior notice. Nothing in this Report constitutes investment, legal,
accounting or tax advice or any solicitation, whatsoever. The Report
is not a recommendation to buy / sell or hold any securities of the
Company. CRISIL especially states that it has no financial liability,
whatsoever, to the subscribers / users of this Report. This Report is
for the personal information of the authorized recipient only. This
Report should not be reproduced or redistributed or communicated
directly or indirectly in any form to any other person or published or
copied in whole or in part especially outside India, for any purpose.
© CRISIL Limited. All Rights Reserved. Published under permission from
To read the full report click on the attachment
Tags: Somany Ceramics, CRISIL Research
Attachments : SomanyCeramics_Crisil_090611.pdf

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