Somany Ceramics (NSE:SOMANYCERA) Q2 2026 Earnings Call

0:00 Good afternoon, ladies and gentlemen. Welcome to the Somany Ceramics Limited Q2 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the management's opening remarks. Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Agrawal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir. Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of Somany Ceramics Limited and SKT Securities to this financial results conference call.

0:53 We have with us Mr. Abhishek Somany, MD and CEO Mr. Shivat Somany, Head Pathway Mr. Amey Somany, Joint President, Building Solutions and Mr. Sailesh Raj Khedawat, CFO. You'll have the opening remarks from Mr. Somany followed by the Q and A session. Thank you. And over to you, Abhishek Ji. Thank you. Good evening, ladies and gentlemen. Welcome to the earnings call of Somany Ceramics Q2. As you would have seen the results, we have grown by approximately 25% and the volume stands at 5.5% for the quarter. The absolute figure was INR $8.54 crores.

1:40 The bathware also has grown at approximately 18%. The EBITDA due to better utilization, optimum utilization of machinery of our own plants and JVs, we have improved our EBITDA, and that stands at 11.7%. This is on the back of better capacity utilization, a full pass through of all the price increases and a better continues effort on a better product mix. A little bit on the industry. The industry is faced at the domestic front, decent demand. The demand remains resilient, both in retail and in projects through the last quarter, considering that we had rains in certain places, etcetera.

2:31 Exports, however, declined for the industry very significantly in last quarter. The export last quarter and H1 for that matter, Export declined by about 31.2% in the first five months. That's the figure we have. And approximately 44%, 45% in terms of volume. So that's been a dent to Morbi. If this is the way it continues, then the total export figure for the year would be anywhere between INR 12,000 crores and INR 13,000 crores. We have seen a little bit of better exports starting this month with freight rates going down a little bit. Now this INR 12,000 to 13,000 crores would be a decrease from INR 18,750 crores last year.

3:21 This is as far as the industry is concerned. Our breakup was tiles, we did about 25% growth at INR723 crores in fact, 27% growth at INR723 crores, INR88 crores for Bhatra last quarter at 15% and the Building Solutions, we did approximately INR45 crores at about 28% growth. All of the areas we've been able to grow fairly well. In the last quarter, again, as mentioned earlier in the year, we had certain plant and equipment, which is going for upgradation and balance equipment. So a couple of plants were not running, which are running now.

4:07 So therefore, the volume would only be better for Q3 and also significantly better for Q4. As mentioned earlier in the call, our JVs, which last year same time were in a 12 crore loss in Q2 and INR 23 crore loss in H1 is in a profit of INR 3 crore in Q2 and INR 6 crore in H1. This is in line with what we have said that the swing of the JV loss versus what the profit would be, would be at least INR 40 crores for this year, we would probably better. Gas prices have remained volatile. We were looking at a favorable gas solution somewhere in end of July, beginning August, but then the war got escalated and the gas prices again became volatile.

5:02 The overall gas prices stands at approximately INR70 a standard cubic meter. You would be glad to know that most of our plants, as we speak, have become fungible between LPG, propane and natural gas. So we have various sources of gas. Therefore, we've been able to control the overall pricing at approximately INR 70 standard cubic meter, which is up from INR 45 standard cubic meter for FY 'twenty six and INR 43 standard cubic meter for Q2. So significant increase in price increase in gas pricing, but however, we've been able to pass that on to the consumer.

5:48 As far as our working capital is concerned, we're in a fairly healthy position. Receivable days are also probably the best in the industry. On the marketing front, we have been maintaining a 2.3% to 2.5% marketing spend, and that would be the spend maintained for the entire year, which in absolute terms would be significantly higher from last year. We've done a lot of effort as always on net dealer additions approximately in H2, we will see net dealer addition in Q2 and approximately 156 dealer addition in H1. Net showroom increase in H1 approximately is about 35. This is the what we've done on the sales and marketing front.

6:39 Our guidance going forward, considering H1 is now done. Our guidance for the entire year FY 'twenty seven remains to be high single digits, and we are quite sure that we would be able to achieve that. Software guidance is going to be plus 20%, upwards of 20%. The EBITDA margin at the beginning of the year, we had mentioned that we would be looking at an EBITDA margin increase for FY 'twenty seven over the FY 'twenty six figure of between 11.5%. We are revising that to approximately 2% to 2.5 improvement over the FY 'twenty six figures. Brand spend, like I mentioned, going to be maintained. Gas and other input costs currently remain to be volatile.

7:28 As of now, we are able to pass on, but it would only time would tell us to how this progresses in H2. It would be the same for the entire industry. So hopefully, it should be if it's a huge increase, it would be a pass on. Otherwise, it's going to be a daily constant watch on the gas and other input cost pricing. We hope to do a good H2 and continue our progress for the FY 'twenty eight also. This is from me. I open the floor to Q and A. And before I finish, I would like to wish every one of you a very, very happy and prosperous Diwali. Thank you.

8:17 Thank you very much. We will now begin the question and answer session. Each participant is requested to limit himself or herself to a maximum of two questions. Time permitting, we shall revert for any further questions that you may have remaining unanswered. Our Our first question comes from the line of Nielsh Sharma with Monomer Capital.

9:05 Please go ahead. Hello. Thank you so much for the opportunity. So my first question is, can you hold the price that we have increased last few quarters if the gas price corrected? So the gas price, in fact, from the beginning of April, it's probably corrected slightly. It is probably reduced by INR $2.03. And the entire price increase from April to now has been approximately 16% to 17%, which is a complete pass through. Okay. So we will be able to maintain or is there any planning to increase for this?

9:55 No. Gas price currently is holding at 70%. If there is a huge increase, in which case, I think everybody would have to pass it on. We will see. But as of now, we're not getting any feelers that, that would be a major increase. There was a massive increase in the propane pricing, but that increase still after the increase also, it's slightly lower than the natural gas pricing. And we are using propane in quite a few of our plants in Morbi. And in North, we have multiple contracts. So we are able to get slightly cheaper pricing than Morbi. So overall, we're still holding at INR $70.71 going forward. Unless there's a huge upset in the next two, three months, which I don't believe there would be, but who knows. So as of now, it's a full pass through.

10:48 Okay. Sir, last question. As we have seen in the last two, three years, new geopolitical development across the world, how do you see the export volume going forward from Morby? And how we as a organized player impacted by these volumes? So Morby is facing the situation in a very tough way. Approximately 35% of Morby is shut as we speak. And I think another 10% will be shut over Diwali. All of these are export oriented units. As you all know, that it's a very voluminous product beyond the point you can't hold this product. But in the last one month, exports has picked up because freight rates have started reducing.

11:38 And we believe that they are continuously reducing. November should be a better month. December, as you know, Europe and most of the world shut down. So the Europe so the exports will restart only in January. But it's definitely better than Q2. That's what I get to hear from Morbi. How we are impacted with the as a domestic organized player, I think we've been facing a lot of pressure on the supplies from Morbi. There is a little bit of excess supply, but that's not held us back from reducing prices. We've been holding our prices a complete pass through. And yet we've been able to grow in a fairly healthy way. We don't export very much, so we didn't get hit on that front.

12:26 There is one positive development other than freight. America has kind of banned all engineered marble is what we heard from the news, which means engineered marble and quartz, which means that tiles from India, the big slab tiles may get a good opportunity to be exported in The U. Thank you. Thank you so much. Thank you. Our next question comes from the line of Sagniksadkar with SKP Securities. Please go ahead. So I just wanted to know the GBT mix currently that we are doing. So with the keeping that keep coming up, what kind of GBT mix we are targeting? And will that result in some margin expansion going forward?

13:23 So this question is becoming more and more irrelevant going forward because everything is moving to GBT. There's a very thin line between what we're doing now in various different levels. But anyway, I will answer your question. We're currently at 45% of GVT mix, up from last year at about 40%. And the next 16,000,000 odd square meters, which we are putting into production in the next twelve months, all of that is GVT, which means that GVT will become significantly higher. And the minute GVT becomes significantly higher, obviously, that contributes even to the bottom line into EBITDA. So I believe in the next two to three years, GVT would become close to 65% to 70%.

14:10 Okay. And what kind of margin expansion will this result in? No, GBT does not specifically give margin expansion. It does have a slightly better margin, but then GBT also has a non margin crediting business. But overall, we are guiding for a 2%, 2.5% margin increase this year. And obviously, we would better that for next year. Sir, another question on the CapEx front. So in the past, I think you have mentioned about the Nepal JV CapEx, which I think was stalled in between. So any plans of providing that? Or is it scrapped as of now? We are currently doing a CapEx where we are buying a couple of CapExes on the card. One CapEx is the buying extra shares, making our sanitary ware JV, we will go up to 76% from current 51%.

15:10 That is one CapEx. The other CapEx is the Ceramics plant, which is our South JV, where we are expanding. We're doubling that plant. Currently, we had announced a 9,000,000 square meter expansion, but we believe we will be able to add approximately 11,000,000 to 12,000,000 square meters in the South. So that is the other expansion which we're taking place. I think Salish can take you through the numbers of what this expansion will entail over the next twelve months. So not everything is in this financial year. Over to you, Salish. So the Ceramics total CapEx would be close to around INR $2.50 crores now with just increased in claim which we are talking. We are funding this through a 50% mix of taken 50% mix of equity as of now. So our CapEx will be in the range of around INR 60 crore from Somany side in that.

16:05 Besides that, there are two other CapEx which we announced last time. There is a modernization happening in Sudha for which we are going to invest around 15 crore. And there's a modernization happening in Vintage where we are going to invest around INR 8 crore. So this is all in CapEx, which is there as of now with us. And we do a routine of around INR 70 crores to 80 crores in Somany standalone towards organization of our equipment. This is normal routine CapEx. So routine, Subha, routine vintage and our increase of shareholding, that is all funded from internal approval. Okay. Thanks. Thank you. Thank you. Our next question comes from the line of Puneet Saula with Saula Family Office. Please go ahead.

16:56 Hi, Am I audible? Yes. You are audible. Absolutely. Sir, just one question. It's... I I know that you have covered it right now, but is there a particular gas price level from the current prices where it will not become viable for us to, you know, you know, produce our, you know, halt our production. And just wanted to know in the current quarter what has been our utilization of our capacity, both our individual and the JV? Yes. So capacity utilization is optimum, which is all the plants which were running were running at 100 capacity. Like I said that we had certain plants for twenty days and fifteen days in August and July, which were getting upgraded. So minus that, we've been running at optimum level.

17:45 As far as gas pricing is concerned, because tiles is the least is the cheapest material for any floor covering and also for wall covering. We don't believe that scenario would unfold where prices become so expensive that there is an alternate material. In fact, even if tiles go up by 50% from the current prices, hypothetically, it would then it would still be extremely viable for a consumer to buy tiles over any other material, any other building material. So that eventuality, fortunately, for the industry is not posing any threat currently. Sir, just had a follow-up on the firstly, I just wanted to know that the... Is there any planned maintenance or something which we are planning for the... This year?

18:41 Or we plan to run all the plants going forward also at full capacity. Okay. And secondly, while pricing, I just wanted to know that, like, in unit, there's an increase in the gas prices. So there's a good chance that we will be able to pass the cost to the consumer. Correct? Yes. Yes. So that eventuality of passing on cost is not an issue. The issue comes when there is known availability of gas, and we've been given to understand from all gas authorities in India and the government that there is more than enough gas available. The question is the price. As far as your first question is concerned, there are always routine maintenances which happen. But the plants which were taking an upgradation like in Vintage last quarter and in one of our other plants last quarter and this quarter in the month of October, one of our plants in the North one of our lines in the North was going through a massive upgradation to reduce costs and also increase capacity.

19:41 All of those were over and above the routine maintenance. I do believe that the H2 would have lesser disruptions because generally, we plan all our maintenances in the first quarter because that's the leanest quarter. Obviously, this year, nobody could predict that the first quarter, there would be such a situation like the war. But other than that, most of our maintenance are behind us. So we would be running at optimum capacity and 100% capacity from that point of view going forward. Okay. Fair enough. Thank you very much, sir, and festive greetings for the year. Thank you. Thank you. Thank you. Thank you. Our next question comes from the line of Sneha with Nuvama. Please go ahead. Good evening, and congrats on good set of numbers.

20:29 While margin expansion is really appreciated, what I basically wanted to understand is, you know, you you know, everything is going good. You know, we are getting market share from more the... You know, you've been mentioning that, you know, demand growth is good both on the retail and the projects front. Then buy only a 5% sort of a volume growth number. Leader this particular quarter has, you know, reached a 10% kind of a double digit number. When can we see scenario when even we move to the double digit growth that we used to do it at once? I don't think anybody has gone to a double digit. There's been high single digits and close to 10%. I think we'll be there close to that in the second quarter. We should be anywhere between 7%, 8%.

21:16 The first quarter was in a little bit of a dampener because a lot of our products were Morby in our JVs and the outsourcing. Our next quarter, this quarter, we had certain plant maintenances and also upgradation to improve capacity. This is going to play out in a very positive way in terms of margin and in terms of volume growth. So not very worried. We could have easily done one percent point more this quarter if we had those plants up and running, which were out for twenty, twenty days in the month of July and a little bit in August. So I think we're on. We're obviously very concerned with not selling cheaper products. So we are very cognizant of the fact that we keep our realizations up.

22:10 So if you see our gap is reducing from the industry leaders in terms of our realization fairly significantly and it will keep decreasing from the industry leaders going forward in terms of making sure that we sell a better value added product and also augment more capacity for our big Understood, sir. Second two data points is what I needed. Our GvT share last year same time as well as now and our project shares last year same time and now. GBT has gone up by 5%, Sneha. Project is, I don't have the figure offline, but I think it's gone up by about 2% to 3%. 3% schedule will feature rent in the project.

22:56 I believe GBT will further go up by another 5% and project will go up another 2%. This is the next year you're saying? So last year, projects were about 70 sorry, last year, retail was 76%. This year, retail sorry, last year, retail was at 80.5%. This year, retail is approximately 76%. So that 4%, 5% difference will be there in favor of projects. Similarly, can I get the number for GVT, sir? GVT are 45% currently, up from 41%. Got that. This would significantly go up because 100% of the expansion, which is going up on today's basis, GBT. So 15,000,000, 16,000,000, 17,000,000 square meters are going to come only in GBT. So obviously, it's going to push up that share fairly significantly escalate that share over the next twelve to eighteen months.

23:52 Okay. One last one, if I may. Could you help us with the deadlines for the expansion? I'm sorry if I've already if you've already answered this and I missed this. I think the deadline for the expansion is exactly the same time next year, we should be firing in production, which means about September, not really November, but September. Understood. That was pretty helpful. So thanks a lot. Our next question comes from the line of Shruti Mulchandani with Ikigai Asset Management. Go ahead. Adesh, and good evening.

24:38 Good evening. Of questions from my side, especially in the volume growth. So I think you mentioned that in q two, we had some maintenance related, you know, disruptions that affected the volume that we saw. But, you know, historically, if I see, q three has been a seasonally low quarter in terms of absolute volume that we do. And I think that kind of impacts our margin as well because we are seasonally low in terms of volumes. We are seasonally low in revenue, and hence the margins because of Opless Opless is a little bit lower there. So because I think we'll have the added capacity from the debottlenecking and because there won't be any disruptions, do we see this trend reversing in this year Q3 versus what we have been seeing historically? Yes, Q3 I mean, has gone very well.

25:23 So we are very hopeful for a better Q3 than even Q2. Okay. Okay. This was helpful. Additional, could you just add And no, upgradation which we're doing is more from a long term perspective. So one of the upgradation, one big one happened in October in the Northern Plahn, but that's all part of the game. We are significantly increasing capacity over there. So all for the better, which will only be margin crediting. But Q3, I don't see any disruption in terms of volume unless any other further geopolitical situation happens. That's a separate issue. Understood. So Q3 will be better off than Q2, an absolute number? EBITDA should be better or maybe the same absolute number yet to be seen as to what the volume growth would be. But yes, I believe the volume would be better than what we have done in H1. So volume targets will be slightly better.

26:21 Understood. Understood. And just on the capacity that you added by debottlenecking, would it be possible to quantify the same? Sorry? I'm sorry? The capacity that you added via our debottlenecking in Q2, would it be possible to quantify the same? To quantify? Yes, of course, I can. It will I mean, I can take you plant wise, probably you can do it offline with She will take you through. But overall, we would be in the entire year, annualized capacity will go up by about 4,000,000. Got it. Got it. This is helpful. And just lastly, from my side in terms of medium to long term outlook, so I think this year, it's been really good for us in terms of margins because these subsidies have been contributing positively. We have seen a better mix in terms of GBT and, know, overall capacity utilization has been very good for us. So we would be, I think, based on the new guidance ending the year at 11.5% sort of EBITDA margins.

27:22 But when I look at FY 2829, I believe we have some more room for improvement. So where do you see the margins landing maybe two or three years from now? That's a very forward looking statement, but what I can say is that it will keep increasing, and we will keep reducing the gap with the industry leaders. This year has been good, but there has also been a strategic shift where we have got market share. I don't think we're going to be anywhere worse off in capacity utilization because we've augmented more capacity within the same plant, which is absolutely fantastic because the same units are producing now 4,000,000 square meters more. So next year, all of that will go into margin accreting. Also, you can do your back of the envelope calculation. This year, our swing of the joint ventures loss versus profit has been 40%, where the first quarter was quite slow. So obviously, that will also get added. So that will our JVs will only perform even better next year. So all of that will all go into margins, which will be upwards of 11.5% to 12% is what I'm guiding now. So it would be upward of that next year.

28:35 I wouldn't want to immediately look at a three year scenario, but we do feel that next year also strategically, we should be in a better position. Hopefully, exports will be better. Gas pricing has worked in the favor of the industry, where I believe that the gas pricing, which is currently in Morbi at approximately INR 80 per standard cubic meter. If the war had to settle, I don't see that going back to INR 45. I see that settling anywhere between INR 60 and 70, which means that strategically, there is going to be a shift and an improvement in realization and pricing and organized sector like you've seen in the last H1 has had a better pricing power, and we would continue to take advantage of that and get market share. The other thing which has happened is that Morbi has become less competitive at this gas pricing.

29:23 Export is taking a hit. The land prices have only more shot up. The rupee dollar, rupee euro has shot up. Freight rates have shot up, which is making it very difficult for any Morbi operator to expand capacity. So we believe that there is going to be no substantial improvement in increase in capacity in the next eighteen to twenty four months. In fact, there would be probably a decrease in capacity, which is which again goes in favor of the organized sector. While I say that for tiles, we are extremely bullish for the building solutions and also extremely bullish for the sanitary ware sector. Sanitary ware, we've grown at 20%, and we would probably we will grow at 20% for the entire year, and we are looking at a 20% again for the next year.

30:13 Building solutions, again, we started a very large plant in the North last month, and our South plant also started last quarter. All of those will start giving us more value and on volume. So both of those, which constitute approximately 16%, 17% of our total revenue is going to be pushed in the next two to three years to maybe 20% to anywhere between 2025% of the total value volume we sell in tiles. All of that will come at a slightly better EBITDA margin. So we're looking good in terms of continuously improving our EBITDA year on year. This sounds really wonderful. And happy Diwali to you and the team.

31:00 You too. Thank you. Thank you. Our next question comes from the line of Karan Battaglia with Asian Market Securities. Sir, just wanted to understand how our margins in our bath fittings and sanitary ware portfolio, what kind of cost inflation we've seen and how much of price hike has already been passed on? On sanitary ware? Sanitary ware put together. Okay. I'll let my brother answer that. Yes. So our margins are high.

31:45 Our margins are a couple of bps above tiles at any given point in time. And as for the price increase for sanitary ware, we've passed on pretty much most of it because it's only been a gas price increase and gas price doesn't really affect sanitary ware as much as it does for tiles, for example. We've been able to pass that on. Of course, with sanitary ware, it's not just the gas, it's also been your plastic fittings like your seat covers and thermal fittings that have gone up because of fuel, but we've been able to pass on most of it. Faucets, on the other hand, considering brass has practically doubled in the last one point five years. As an industry, we haven't been able to pass on all of it. But yes, we've been able to pass on enough where we were not taking too much of a hit.

32:35 No. So I was comparing tires, we've seen margin expansion. So how do we see the financial performance first half to come first half in 10 Q and fittings on the margin front? It's going to be about the same. No, first half of Q1 was slightly lower in the bath fitting plant because the brass prices had shot up. That price increase happened more towards Q1 and Q2 beginning. So Q2 was slightly better than Q1. So Q1 was a little bit of a drag on the bar fitting. So YTG price hike could be a good point for you? We couldn't price hike because industry leader does not price hike. Here, Jaguar being 50% of the industry, most of the industry follows their need.

33:25 Right, right. Also, you mentioned will be 4% higher on the fixed sales. So how does the pricing arrangement work there? Is it with the lag? Or how do we see the mix impacting our overall gross margins on particular margin? 4% higher on what? On project sales. Mentioned that 4% will be Yes. Higher on Yes. So our project sales basically is more from a volume perspective. It's slightly lower when it comes to realization. So when we talk of a pass on, if we passed on the entire 17%, 18% in channel, in projects, it's about 1%, 1% less. But yet, we are kind of covered. And projects is a pricing which is done now, it generally holds for a longer time. So overall, it averages out, hoping that the gas would go down.

34:19 But project is slightly lower than channel, the realization. But then on the back of that, they take very significant volume from us. Understood. Understood. And any top line that you now share for FY 2027, 2028? 2027, 2028, again, the way it is looking, we should be again at a high single digit for FY 'twenty eight. No, I'm referring to the absolute revenue for 'twenty seven, 'twenty eight. Impossible to let you know because we don't know what's going to happen with the war. We don't know what's going to happen with the pricing of oil and gas. So I can only predict H2.

35:09 No, Given our CapEx that has happened in the additive business in last six months, we've commissioned a new plant. We've had significant capacity expansion. So in the additive portfolio, how do you see the run rate shaping up? This is doing very well. We're growing at between 4050%, and we will continue to do that, not additive building solutions. We will continue to do that even next year. Our next question is from the line of Bharat Kurikyala from Choice Institutional Equities. Please go ahead. Hello? You are not aware. You may proceed. Yes. So like what is our capacity right now in tiles? Then what will be the capacity after the power plant and also our development?

36:04 So this year, we hope to sell between 79,000,080 million square meters this year. And next year, it would be approximately 12,000,000 to 13,000,000 square meters No, sorry. Next year, the capacity will come in only towards the mid. So we would add about 10,000,000 square meters to 11,000,000 square meters next year. Okay. That's it, sir. That's it from my end. Thank you. Thank you very much. That was the last question in the queue. As there are no further questions, I would now like to hand the conference over to Mr. Somany for the closing remarks. Thank you for joining us for the earnings call.

36:52 Wishing you all a very prosperous and happy Diwali. Things are looking very, very positive for the entire industry and specifically for Somany Ceramics on all fronts. We hope to continue to maintain a very healthy balance sheet and continue to have our focus on getting the expansions up and ready as soon as possible. We would welcome you again for the earnings call for quarter three very soon. Thank you so much. Happy, Divine. Thank you. On behalf of SKB Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines. Thank you.