Somany Ceramics Limited

Somany Ceramics reported a 4% year-on-year sales growth to ₹601 crores and a 3% volume growth for Q1 FY26. Despite a 3.2% quarter-on-quarter increase in gross margin, operating margins were mildly impacted by reduced capacity utilization, with console utilization at 77% and standalone at 72%. The Max plant, in particular, contributed a loss of approximately ₹6.5 crores to the quarter's results, and depreciation impact was approximately ₹5 crore higher compared to Q1 FY25.

The company concluded a joint venture with Durabuild, acquiring its intellectual properties to strategically enter the construction chemicals market. This new venture targets a combined market of ₹11,000-12,000 crores, focusing initially on waterproofing and admixtures. The go-to-market strategy for waterproofing products (B2B and B2C) is planned for the end of September, with the option to fully acquire Durabuild over the next three years, though initial years may see some pressure on margins.

Management acknowledged the impact of low capacity utilization on profitability, especially at the Max plant, which operated at 51-52% utilization. To address this, the company has approved a ₹50 crore investment to add presses, balancing equipment, and a warehouse, aiming to increase Max plant utilization to above 70-75% by H2 FY26. This initiative is expected to significantly improve overall capacity utilization and reduce losses at the Max plant, which was previously underutilized.

The domestic market experienced muted demand, while exports faced pressure, with the overall export market projected to be ₹16,000-17,000 crores for FY26, down from ₹18,000 crores last year. Management noted that Morbi-based competitors primarily survive on tax evasion, which is becoming unsustainable, and Somany has maintained realization and even implemented a small price increase in July, indicating a stable pricing environment for quality players.

Somany Ceramics added 65 net dealers in Q1 and targets 200-250 net additions for the full fiscal year, primarily in Tier-II and Tier-III towns. The company also aims to increase its B2B sales by at least 5-6% to further improve capacity utilization. This expansion is carefully managed to avoid issues with receivables, a common challenge in the B2B segment.

The sanitaryware and bath fittings segment recorded revenues of ₹63 crores in Q1, up from ₹61 crores in the prior year, while faucets grew to ₹31 crores from ₹28 crores. Despite a plant shutdown impacting Q1, the company is confident of achieving early double-digit growth for the sanitaryware and faucet business for FY26, indicating strong performance in these ancillary segments.

The company reiterated its guidance for high single-digit revenue growth and an EBITDA expansion of 1-1.5% for FY26. Management is confident that improved capacity utilization, particularly in H2, will lead to a 0.5-1% margin improvement. Brand spends are expected to remain in line with last year, and efforts are underway to reduce employee costs as a percentage of revenue, contributing to overall profitability.