Somany Ceramics Q1 FY27 earnings call

Somany Ceramics reported a robust Q1 FY27, with EBITDA margins expanding by 3.6 percentage points to 11.6%. This improvement was primarily attributed to enhanced operational efficiencies, including a significant increase in standalone capacity utilization from 72% in Q1 FY26 to 83% in Q1 FY27, and the turnaround of Joint Ventures from a INR10 crores loss last year to a INR3 crores profit this quarter. The company also saw its working capital days reduce from 17 to 12 days, reflecting improved operational management.

The company achieved a 3% volume growth and a 24% value growth in Q1 FY27. The moderate volume growth was partly due to supply disruptions from Morbi, which was shut for 1.5 months in April, impacting material availability. Management expects to compensate for this in Q2, noting that demand in May and June was decent, despite July being a tough month due to rains. The 16-17% price hike implemented in Q1 contributed significantly to the value growth.

Somany Ceramics is bullish on future growth, announcing plans for a new 9 million square meter plant in the South with an estimated outlay of approximately INR220 crores, projected to be operational by Q3/Q4 FY27 and generate INR350 crores in potential revenue. Additionally, the company is augmenting existing lines by 4-5 million square meters, expected to be fully in place by Q4 FY27, and investing in balancing equipment to increase productivity, with most of these efforts concluding by Q3 FY27. The total capex for FY27 is estimated at INR275 crores, with 65-70% funded through internal accruals.

Gas prices remained highly volatile, with marginal increases observed from June through August. While the company successfully passed on these increases, its premium over Morbi players has narrowed. Morbi operations have resumed at 100% capacity using expensive Gujarat gas, which management believes limits their ability to aggressively cut prices in the domestic market. Channel inventory remains 'fairly lean' as partners are cautious due to gas price volatility.

Exports faced significant headwinds, declining by 50-60% from their peak due to geopolitical reasons. Management anticipates this trend to persist through Q2 FY27 until freight conditions stabilize. This decline has been a 'downer' for the quarter and remains a key area of concern for overall sales performance.

Management expressed high confidence in maintaining the current 11.6% EBITDA margin and aims to improve it beyond 12% for the full year, driven by sustained operational efficiencies and JV profitability. They project mid-single-digit volume growth for the year, emphasizing a cautious approach to guidance based on deliverable targets rather than aspirational figures. The new capacity additions and value-added mix are expected to contribute to higher margins by Q4 FY27.