Buy Somany Ceramics, target Rs 822: Edelweiss Financial Services

Edelweiss Financial Services has a buy call on Somany Ceramics Ltd. with a target price of Rs 822. The current market price of Somany Ceramics Ltd. is Rs 497.0. Time period given by the brokerage is a year when Somany Ceramics Ltd. price can reach defined target. Somany Ceramics Ltd., incorporated in 1968, is a midcap company with a market cap of Rs 2112.61 crore.

Investment rationale by Edelweiss

Somany Ceramics’ (Somany) new CFO, Mr. Saikat Mukhopadhyay, pointed out during our interaction that industry demand remains weak (singledigit) and pricing continues to be under pressure from the unorganised sector due to lack of strict surveillance following the E-way bill implementation. Management is confident of posting low double-digit volume growth in FY19 due to a low base; however, margin expansion will be governed by the improved product mix and rising contribution of the high-margin bathware segment. Tile margins are likely to remain tight due to greater gas cost and stiff competition, which puts our FY19E at risk. That said, we maintain ‘BUY’ with TP of INR822 (27x FY20E) based on our thesis that a shift in favour of organised players would benefit Somany.