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Wednesday, September 16, 2009

Somany Ceramics Ltd:Is it a buy/hold or sell?

Scripscan:Somany Ceramics Ltd

Story:SCL is expected to have revenues of Rs 530 crore in FY 2010. By FY2011, the company is expected to be on track to achieve revenues of Rs 675 crore.The Operating Margin of SCL is expected to improve to 10.5% in FY 2010, and 11% in FY 2011, from the current level of 9.85%. The Net Profit Margin of the company is expected to improve from the current level of 1.89% to 3.25% and 3.75% in FY 2010 and FY 2011 respectively. The margins are expected to go up by virtue of cost control and introduction of patented new products with a price premium.SCL is on its way to increase its market penetration by focusing more on aggressive branding and by way of opening new retail outlets/showrooms. The company has a formidable distribution network of around 1000 dealers, 5000 sub dealers, 20 depots and showrooms across the country. The company is expected to increase its market share from the current levels of 12% to 14% by FY 2011.The USP of the company can be summed as:
•A strong brand presence and recall.•Prompt service, backed by one of the largest distribution networks across the country.•Superiority in R&D and product innovations (viz. patent in VC Shield Technology that was awarded recently).• Widest range of tiles and designs, as well as differentiation in the offering of product range.• Professionally qualified and competent human resource.• Locations of plants in the vibrant markets of Gujarat and Haryana.• However, the economic downturn has negatively affected the real estate sector, which will take some time to revive. But, given the shortage in supply of housing facilities, the long term outlook on the sector is very positive.• Post the Union Budget 2009-10, there will be around 3% net increase in the excise duty on tiles. However, the increase is expected to be passed on to the customers.we maintain our positive outlook on the company. SCL is expected to do well on account of its superior and best in class product line and wide distribution network. As the demand in the real estate and construction sectorpicks up, SCL is expected to gain a substantial pie of the growth in the ceramic industry.A value buy at lower levels.

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