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Somany Ceramics Ltd

Q2FY14 Results First Cut

Enhancing investment decisions

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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a fivepoint scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (negative 10-25% from CMP) Strong downside (<-25% from CMP)

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Somany Ceramics Ltd

Q2FY14 results first cut: Margins below expectations
Fundamental Grade Valuation Grade Industry 4/5 (Superior fundamentals) 4/5 (CMP has upside) Building Products

October 24, 2013 Fair Value CMP CFV MATRIX

Excellent Fundamentals

The above grades are outstanding ones and are currently under review Somany Ceramics Ltds (Somanys) Q2FY14 standalone revenues were in line but margins and earnings were below CRISIL Researchs expectations. Highlights of the results are mentioned below; this will be followed by a detailed quarterly update. Our outstanding fundamental grade is 4/5 and the fair value is 109 per share. We may revise our assessment post discussion with the management. Revenues grew by 18.5% y-o-y and 18.1% q-o-q to 3,056 mn driven by growth in volumes and realisations. EBITDA margin declined by 187 bps y-o-y and 64 bps q-o-q to 6.4%. Margin decline is mainly on account of higher power and fuel costs, which increased 42.4% y-o-y and 24.9% q-o-q due to rupee depreciation and increase in gas prices.

109 90

Fundamental Grade

5 4 3 2 1

Poor Fundamentals

Valuation Grade

EBITDA margin. Owing to decline in margins, PAT declined 22.1% y-o-y to 63 mn in Q2FY14. EPS for Q2FY14 is 1.8 vs 2.3 in Q2FY13. As of September 2013, Somany has working capital cycle of 35 days - in line with our expectations. It has gearing of 1.0x as of Q2FY14. Valuations: Current market price has upside Our discounted cash flow-based outstanding fair value estimate for Somany is 109 per share. The fair value implies P/E multiples of 10.1x FY14 and 8.0x FY15 EPS estimates. At the current market price of 90, the valuation grade is 4/5.

KEY STOCK STATISTICS

NIFTY/SENSEX 6164/20725 SOMANYCERA/ NSE/BSE ticker SOMANY Face value ( per share) 2 Shares outstanding (mn) 34.5 Market cap ( mn)/(US$ mn) 3,105/51 Enterprise value ( mn)/(US$ mn) 4,554/74 52-week range ()/(H/L) 115/59 Beta 0.8 Free float (%) 36.7% Avg daily volumes (30-days) 10,570 Avg daily value (30-days) ( mn) 0.9

KEY FORECAST
( mn) Operating income EBITDA Adj Net income Adj EPS ( ) EPS growth (%) Dividend Yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) FY11 7,171 680 229 6.6 17.1 0.8 19.5 24.6 13.5 3.0 7.0 FY12 8,779 747 252 7.3 9.9 0.9 19.6 21.9 12.3 2.5 6.2 FY13 10,538 871 323 9.4 28.3 1.3 21.9 23.2 9.6 2.0 5.2 FY14E 12,881 966 370 10.7 14.5 1.2 21.7 21.9 8.4 1.7 4.9 FY15E 14,790 1,131 466 13.5 25.9 1.6 22.6 22.6 6.7 1.4 4.3

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-12 Pro moter Mar-13 FII Jun-13 DII Sep-13 Others 63.3% 63.3% 63.3% 63.3% 34.8% 1.7% 0.2% 34.6% 1.9% 0.2% 34.5% 2.0% 0.2% 34.0% 1.9% 0.8%

NM: Not meaningful; CMP: Current market price Source: Company, CRISIL Research estimates

PERFORMANCE VIS--VIS MARKET

1-m 17% 5% Returns 3-m 6-m 18% 27% 3% 6% 12-m 0% 8%

Somany NIFTY

ANALYTICAL CONTACT
Mohit Modi (Director) Ravi Dodhia Bhaskar Bukrediwala Client servicing desk +91 22 3342 3561 clientservicing@crisil.com mohit.modi@crisil.com ravi.dodhia@crisil.com bhaskar.bukrediwala@crisil.com

For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

Strong Upside

PBT margin declined 142 bps y-o-y and 32 bps q-o-q to 3.1%, in line with the decline in

Strong Downside

CRISIL IERIndependentEquityResearch

Q2FY14 Results Summary (Standalone)

( mn) Net sales Raw materials cost Raw materials cost (% of net sales) Power & fuel Employees cost Other expenses EBITDA EBITDA margin Depreciation EBIT Interest and finance charges Operating PBT Other income PBT Tax PAT Adj PAT Adj PAT margin No. of equity shares (mn) Adj EPS ( ) Source: Company, CRISIL Research Q2FY14 3,056 1,893 62% 432 208 329 194 6.4% 55 139.7 48 92 2.6 95 32 63 63 2.0% 34.5 1.8 Q1FY14 2,588 1,594 62% 346 200 268 181 7.0% 53 128.4 45 84 4.8 88 30 58 58 2.2% 34.5 1.7 Q2FY13 2,578 1,603 62% 303 182 277 212 8.2% 50 162.1 49 113 3.2 116 36 80 80 3.1% 34.5 2.3 q-o-q (%) 18.1 18.8 38bps 24.9 3.7 22.9 7.3 -64bps 3.8 8.8 6.5 10.0 (45.8) 7.0 6.3 7.4 7.4 -20bps 7.4 y-o-y (%) 18.5 18.1 -22bps 42.4 13.9 18.5 (8.4) -187bps 9.2 (13.8) (2.7) (18.7) (18.8) (18.7) (11.1) (22.1) (22.1) -107bps (22.1) H1FY14 5,643 3,487 62% 777 408 596 375 6.7% 107 268.1 93 175.6 7.4 183 62 121 121 2.1% 34.5 3.5 H1FY13 4,481 2,588 58% 625 360 518 389 8.7% 99 290.4 100 190 5 195 62 133 133 3.0% 34.5 3.9 y-o-y (%) 25.9 34.7 402bps 24.4 13.1 15.1 (3.6) -204bps 8.5 (7.7) (7.8) (7.6) 48.0 (6.2) 0.2 (9.2) (9.2) -83bps (9.2)

EBITDA margin under pressure due to high fuel costs...

( mn) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2,175 2,763 1,904 2,578 2,672 3,349 2,588 3,056 0% 4% 2% 8.0% 8.4% 9.3% 8.2% 8.3% 7.3% 7.0% 6.4% 8% 6% 10%

... which led to decline in PAT

( mn) 120 100 80 2.2% 60 40 20 47 0 86 53 80 82 101 58 63 1.0% 3.1% 2.8% 2.2% 3.1% 3.1% 3.5% 3.0% 3.0% 2.5% 2.0% 1.5%

2.0%

Dec-11

Dec-12

Dec-11

Dec-12

Jun-12

Jun-13

Jun-12

Mar-12

Mar-13

Mar-12

Sep-12

Mar-13

Jun-13

Revenue

EBITDA margin (RHS)

PAT

PAT margin (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Sep-13

Sep-12

Sep-13

Somany Ceramics Ltd

Share price movement

700 600 500 400 300 200 100 0

Fair value movement since initiation

() 140 120 100 80 60 40 20 0 ('000) 800 700 600 500 400 300 200 100 0

May-11

May-12

May-13

Feb-11

Feb-12

Feb-13

Jul-11

Jul-12

Sep-11

Sep-12

Jul-13

May-12

Feb-09

Mar-11

Mar-13

Jun-11

Oct-11

Jan-12

Nov-08

Somany

Nov-10

NIFTY

Dec-12

Jan-08

Jun-09

Jan-10

Sep-09

Aug-10

Aug-12

Oct-13

Apr-08

Apr-10

Dec-10

Total Traded Quantity(RHS)

Dec-11

CRISIL Fair Value

Dec-12

Jul-08

Jul-13

-Indexed to 100 Source: NSE, CRISIL Research Source: NSE, BSE, CRISIL Research

Oct-13
Somany

CRISIL IERIndependentEquityResearch

Annexure: Financials
Income statement
( m n) Operating incom e EBITDA EBITDA m argin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Share of profit from associates PAT (Reported) Less: Exceptionals Adjusted PAT FY11 7,171 680 9.5% 175 505 171 334 0 9 344 105 239 9 229 FY12 8,779 747 8.5% 183 563 207 357 6 (1) 362 111 251 (1) 252 FY13 10,538 871 8.3% 205 666 200 466 9 (3) 472 152 320 (3) 323

Balance Sheet
( m n) Liabilities Equity share capital Reserves Minorities Net w orth Convertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net f ixed assets Capital WIP Total fixed assets Investm ents Current assets Inventory Sundry debtors Loans and advances Cash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets FY11 69 970 1,039 1,785 1,785 257 3,081 1,730 51 1,780 63 988 1,293 580 99 6 2,967 1,737 1,231 7 3,081 FY12 69 1,190 1,259 1,666 1,666 254 3,178 1,904 45 1,948 117 1,006 1,400 658 151 6 3,221 2,115 1,105 8 3,178 FY13 69 1,461 1,530 1,624 1,624 262 3,416 1,991 102 2,093 165 1,205 1,747 811 175 7 3,945 2,795 1,150 8 3,416

Ratios
FY11 Grow th Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoCE (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days Creditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) Current ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage 32.4 16.8 17.1 17.1 FY12 22.4 9.9 9.9 9.9 FY13 20.0 16.6 28.3 28.3

9.5 3.2 24.6 19.5 16.5

8.5 2.9 21.9 19.6 17.5

8.3 3.1 23.2 21.9 19.5

Cash flow
( m n) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investm ents Capital expenditure Investments and others Net cash from investm ents Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing Change in cash position Closing cash FY11 334 (80) 175 (249) 180 (415) (59) (474) 259 (28) 10 241 (52) 99 FY12 363 (114) 183 177 609 (352) (55) (406) (120) (32) 0 (151) 51 151 FY13 475 (144) 205 (20) 516 (350) (49) (398) (42) (48) (3) (93) 25 175

13.5 3.0 7.0 0.7 10.1 0.8

12.3 2.5 6.2 0.5 11.0 0.9

9.6 2.0 5.2 0.4 12.9 1.3

65 79 62 54 2.2 4.7 4.3 1.7 1.7 1.6 3.0

52 75 55 37 2.4 4.8 4.7 1.5 1.3 1.2 2.7

51 82 57 32 2.7 5.4 5.2 1.4 1.1 0.9 3.3

Quarterly financials*
( m n) Net Sales Change (q-o-q) EBITDA Change (q-o-q) EBITDA m argin PAT Adj PAT Change (q-o-q) Adj PAT margin Adj EPS Q2FY13 2,578 35% 212 20% 8.2% 80 80 52% 3.1% 2.3 Q3FY13 2,672 4% 221 4% 8.3% 82 82 2% 3.1% 2.4 Q4FY13 3,349 25% 243 10% 7.3% 101 101 23% 3.0% 2.9 Q1FY14 2,588 -23% 181 -25% 7.0% 58 58 -42% 2.2% 1.7 Q2FY14 3,056 18% 194 7% 6.4% 63 63 7% 2.0% 1.8

Per share
Adj EPS () CEPS Book value Dividend () Actual o/s shares (mn) FY11 6.6 11.7 30.1 0.7 34.5 FY12 7.3 12.6 36.5 0.8 34.5 FY13 9.4 15.3 44.4 1.2 34.5

*Standalone financials Source: CRISIL Research

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