CRISIL Research Ier Report Somany Dec2012

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Apollo Hospitals
Enterprise Ltd
CRISIL IERIndependentEquityResearch
Enhancing investment decisions

Detailed Report
Somany Ceramics Ltd
Detailed Report

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 five-
point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL
Fundamental Grade Assessment
CRISIL
Valuation Grade Assessment
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

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Last updated: April 30, 2012

Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias
the grading recommendation of the company.

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Somany Ceramics Ltd
Value-added products to drive future growth

Fundamental Grade 4/5 (Superior fundamentals)
Valuation Grade 5/5 (CMP has strong upside)
Industry Building Products
1

Somany Ceramics Ltd (Somany) is evolving as one of the leading players in the tiles industry.
Its market share in the organised industry increased to 13% in FY12 from 8% in FY08. An
established brand and an extensive pan-India distribution network place Somany favourably
to reap the benefit of shift in consumer preference for branded products. Focus on value-
added products and expansion through an asset light model is expected to drive future
growth. We retain the fundamental grade of 4/5, indicating superior fundamentals. However,
slowdown in the real estate industry and rising operating costs could impact future prospects.
Evolving as one of the leading players in the industry
Somany is evolving as the one of the leading players in the industry after Kajaria Ceramics
backed by its focus on brand building, growing distribution network, launch of innovative
products and expansion through an asset light model. It has been able to maintain growth
and remain profitable in the past one year when majority of its peers reported moderate
growth and decline in profitability.
Tiles industry has robust growth prospects; shift in consumer preference augurs well
CRISIL Research expects the tiles industry to grow at a CAGR of 13-14% over the next two
years. Usage of tiles has increased manifold in the past few years. Customers are shifting to
digital tiles which look similar to Italian marble and wooden floorings but cost less. Also, there
is a shift in preference for high end tiles to replace mosaic tiles. Shift in consumer preference
for branded products augurs well for Somany.
Increase in share of value-added products to aid margin expansion
Key value-added products such as digital, Veilcraft (VC) and Duragres contribution to total
revenues increased to 28% in Q2FY13 from 17% in Q1FY12. Due to the rise in demand, the
contribution is expected to increase to 32% in FY14, which should aid margin expansion.
Focus on asset light model to reduce capex, enhance return ratios
Somanys focus on the asset light model instead of greenfield expansion is expected to lower
capital requirements and reduce lead time in getting access to the capacity. This is expected
to reduce stress on balance sheet and enhance return ratios. Apart from low capex, Somany
has reduced its working capital cycle to 37 days in FY12 from 54 days in FY11 due to faster
inventory turnaround, reduction in receivable cycle and better credit period. As a result, net
debt-to-equity declined to 1.2x in FY12 from 1.6x in FY11.
Revenues to increase at a three-year CAGR of 16%, RoCE to increase
Revenues are expected to increase at a three-year CAGR of 16% to 13.7 bn in FY15 driven
by 13% growth in volumes and 3% growth in realisations. PBT margin is expected to improve
by 150 bps to 5.6% in FY15 driven by increase in contribution from value-added products.
RoCE is expected to improve to 24% in FY15 from 19.6% in FY12.
Valuations current market price has strong upside
We continue to use the discounted cash flow (DCF) method to value Somany. We have rolled
forward our projections to FY15 and revised our fair value to 120 per share from 80. At the
current market price, this translates to a valuation grade of 5/5.

KEY FORECAST
( mn) FY11 FY12 FY13E FY14E FY15E
Operating income 7,171 8,779 10,502 12,032 13,744
EBITDA 680 747 930 1,096 1,273
Adj PAT 229 252 320 406 505
Adj EPS- 6.6 7.3 9.3 11.8 14.6
EPS growth (%) 17.1 9.9 27.0 26.8 24.5
Dividend yield (%) 0.7 0.8 1.0 1.3 1.6
RoCE (%) 19.5 19.6 21.8 22.5 24.0
RoE (%) 24.6 21.9 22.9 23.6 23.9
PE (x) 14.3 13.0 10.2 8.1 6.5
P/BV (x) 3.2 2.6 2.1 1.7 1.4
EV/EBITDA (x) 7.3 6.4 5.7 4.8 4.1
NM: Not meaningful; CMP: Current market price
Source: Company, CRISIL Research estimate

CFV MATRIX

KEY STOCK STATISTICS
NIFTY / SENSEX 5856/19255
NSE / BSE ticker
SOMANYCERA/
SOMANY
Face value ( per share) 2
Shares outstanding (mn) 34.5
Market cap ( mn)/(US$ mn) 3,277/60
Enterprise value ( mn)/(US$ mn) 5,292/96
52-week range () (H/L) 106/29
Beta 0.7
Free float (%) 36.7%
Avg daily volumes (30-days) 41,851
Avg daily value (30-days) ( mn) 3.9

SHAREHOLDING PATTERN

PERFORMANCE VIS--VIS MARKET

Returns
1-m 3-m 6-m 12-m
Somany 7% 68% 118% 198%
NIFTY 4% 3% 14% 24%

ANALYTICAL CONTACT
Mohit Modi (Director) mohit.modi@crisil.com
Ravi Dodhia ravi.dodhia@crisil.com
Hiral Thanawala hiral.thanawala@crisil.com
Bhaskar Bukrediwala bhaskar.bukrediwala@crisil.com
Client servicing desk
+91 22 3342 3561 clientservicing@crisil.com
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Fundamentals
Excellent
Fundamentals
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63.31% 63.31% 63.31% 63.31%
0.04% 0.11% 0.21% 0.23%
0.6% 0.6% 0.6% 0.6%
36.1% 36.0% 35.9% 35.9%
0%
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100%
Dec-11 Mar-12 Jun-12 Sep-12
Promoter FII DII Others
December 26, 2012

Fair Value 120
CMP 95

CRISIL IERIndependent Equity Research
2
Table 1: Somany - Business environment
Parameter
Manufacturing in-house Manufacturing outsourced
(Low-end, medium-end, large format and
imported tiles)
Low-end, medium-end and value-added
(VC, Duragres and digitally printed tiles)
Revenue contribution (FY12) 55.2% 44.8%
Revenue contribution (FY15) 47.4% 52.6%
Product offering Offerings across all price segments. Diverse floor and wall
tiles in the range of 200 1,500 per sq mt
The company outsources the production of medium
and low-end tiles to manufacturers in Morbi
(Gujarat) and imports high-end products from Italy,
Spain, China, etc. Leveraging its distribution
network, these tiles are sold under the Somany
brand. Recent offerings include value added
products such as glazed vitrified tiles (large format)
and double charge in polished vitrified tiles
Geographic presence Domestic: Pan-India presence; 70% of revenues come from the northern and southern markets, followed by
western and eastern markets
Exports contribute only 1.3% to the top line; exports mainly to UAE, Kuwait, Saudi Arabia
Market position Evolving as one of the leading players in the industry
Tiles industry is highly fragmented with unorganised
players having a market share of ~55%. In the organised
market, Somany has 13% share (up from 8% in FY08). It
also has the second largest manufacturing capacity after
Kajaria Ceramics
Somany has successfully leveraged its brand
and distribution network; revenue contribution
increased to 45% in FY12 from 17% in FY08
End market Residential, retail and commercial real estate, hotels, hospitals and airports
Key competitors Kajaria Ceramics, H&R Johnson (under Prism Cement), Asian Granito, Nitco Tiles, Orient Ceramics and
unorganised players
Sales growth
(FY09-FY12 3-yr CAGR)
13.1% 51.3%
Sales forecast
(FY12-FY15 3-yr CAGR)
(organic growth)
10.4% 22.6%
Demand drivers Shift in consumer preference for branded products
Increase in varied usage of tiles from being used only in kitchen and bathroom to living room, bedroom,
flooring
Floor tiles are being increasingly preferred to natural stones (marble) given the difference in costs and lower
maintenance. Customers are shifting to digitally printed tiles owing to aesthetic appeal (looks similar to Italian
marble and wooden floorings) and lower price
High-end and value-added tiles are being sought as replacement for traditional and mosaic tiles
Margin drivers Margins are expected to be driven by sale of value added products such as VC, Duragres and digitally printed
tiles due to comparatively higher profitability
Competition from unorganised players and peers could restrict realisation growth. This coupled with increase in
power and fuel costs could impact margins
Key risks Rising raw material and power and fuel costs
Competition from the organised and unorganised players
Threat from import of Chinese tiles
Source: Company, CRISIL Research

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Somany Ceramics Ltd
Grading Rationale
Somany: Evolving as one of the leading players in the industry

Market share in the organised industry grew to 13% in FY12 from 8% in
FY08
Somany is evolving as the second best player in the industry after Kajaria Ceramics due to its
strategic focus - brand building, enhancing distribution network, launching innovative products
and expanding through an asset light model. It maintained its growth momentum and
remained profitable in the past year when most players reported moderate growth and a
decline in profitability. Launch of value-added products such as digitally printed and glazed
vitrified tiles has been well received by the market. In the past year, Somany has increased its
manufacturing capacity by 5.3 mn sq mt at a minimal outlay through acquisition of 26% stake
in Morbi-based (Gujarat) companies.

Somanys revenue and PAT growth of 28% and 60% in the past four years have outpaced the
organised industrys growth (revenue grew by 14% and PAT declined by -66%). Its market
share in the organised industry grew to 13% in FY12 from 8% in FY08. Further, the gap
between Somany and H&R Johnson (industry leader in terms of revenue) has narrowed to
14% in FY12 from 18% in FY08. However, the gap between Somany and Kajaria has
increased as Kajaria has reported phenomenal growth during the past four years.

Figure 1: Growing market share in organised* industry
Figure 2: Somany is the third largest player in terms of value
in the organised industry (FY12)
*Kajaria Ceramics, Somany Ceramics, Orient Ceramics, Asian Granito, Nitco Ltd, Murudeshwar Ceramics, Euro Ceramics, Regency Ceramics, Restile
Ceramics, Decolight Ceramics, H&R Johnson and Bell Ceramics
Source: Company, CRISIL Research Source: Company, CRISIL Research

Tiles industry has robust growth prospects
Usage of tiles in the past few years has increased significantly (1) driven by growing demand
from end-user industries such as real estate, healthcare and infrastructure, (2) increase in the
variety of usage earlier used only in the kitchen and bathroom, it is now being used for living
rooms, bedrooms, flooring, etc; and (3) a steady rise in demand for replacing traditional and
mosaic tiles with high-end and value-added tiles. Floor tiles are being preferred over natural
3.3
4.5
5.4
7.2
8.8
39.0 43.4 44.4 58.1 65.2
8%
10%
12% 12%
13%
0%
2%
4%
6%
8%
10%
12%
14%
16%
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
FY08 FY09 FY10 FY11 FY12
( bn)
Somany Sales Industry Sales Market Share (RHS)
Kajaria , 20%
H&R
Johnson,
27%
Somany, 13%
Nitco , 13%
Asian
Granito, 10%
0%
5%
10%
15%
20%
25%
30%
Kajaria Ceramics H&R Johnson Somany
Nitco Asian Granito
Usage of tiles has increased
significantly in past few years
Evolving as the second best
player in the industry after
Kajaria Ceramics

4
stones (marble) given the difference in costs and low maintenance. The ceramic tiles industry
(organised and unorganised) has grown at a five year CAGR of 18% to 170 bn in FY12 in
value terms and at a 12% CAGR to 625 mn sq mt in volume terms. CRISIL Research expects
the industry to grow at a CAGR of 13-14% over the next two years.

Figure 3: Strong growth in tiles industry in past five years

Growing demand from end-user industries
Demand for housing in major Indian cities is expected to be 2.1 mn units over the next five
years. Of the total demand, more than 50% is expected in the mid-income housing segment.
Also, 78 mn sq ft of retail space is planned across 10 major cities in the next two years.
Besides, significant capacity additions are expected in the healthcare, hospitality and
infrastructure segments. We expect growth in the end-user industry to drive the demand for
tiles in the coming years.

Widening scope of usage augurs well; replacement demand picking up
Owing to the availability of different concepts, designs and sizes, the scope of usage of tiles
has increased in the past few years. E.g. wall tiles were previously used only in kitchens and
bathrooms; but now these are also being used in living rooms and bedrooms. Our analysis
suggests tiles consumption per home has increased to ~200 sq mt in FY12 from 100 sq mt in
FY07. Replacement demand is also picking up as people replace traditional or mosaic tiles
with high-end and value-added tiles. Demand from the replacement market, which is a mere
12% in India (compared to 40% in countries such as China, Italy and Spain), is also expected
to drive growth in the tiles industry.

Tiles is a cost-effective substitution to natural stones
Vitrified tiles have emerged as a cost-effective and convenient flooring solution over natural
stones. While natural stones are still preferred for premium homes (owned by high income
individuals), there is a visible shift to usage of vitrified tiles in mid-income housing
constructions. The aesthetic appeal and the price-friendliness of digitally printed tiles (looks
similar to Italian marble and wooden floorings) are also increasing their usage. Compared to
76
89
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120
140
170
0
20
40
60
80
100
120
140
160
180
FY07 FY08 FY09 FY10 FY11 FY12
( mn)
Tiles
Tiles consumption per home
increased to 200 sq mt in FY12
from 100 sq mt in FY07

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Somany Ceramics Ltd
an average cost of 300-350 per sq ft for an Italian marble and 300-400 per sq ft for wooden
flooring, digitally printed tiles are available for 120-150 per sq ft yet look almost as good as
the original.

Figure 4: Tiles industry grew faster than marble industry Figure 5: Marble industry grew 8% in past five years


Shift in consumer preference works in favour of branded players
In the past few years, the tiles industry has witnessed a shift to the organised players from the
unorganised sector (particularly those based in Morbi). Unorganised players are finding it
difficult to compete with organised players due to the latters well established brand name and
wider distribution network. Besides, increase in power and fuel, raw material and interest
costs in the past few years is having an effect on the already thin margins of the unorganised
players.

Due to shift in consumer preference towards branded and value-added products, the
unorganised players are entering into JVs with the organised players. Over the past few
years, organised players such as Somany, Kajaria, H&R Johnson and Nitco Tiles have
acquired stakes in small Morbi-based players. Therefore, branded players have outpaced
industry growth in the past few years and are poised to ride on the expected robust growth in
the industry.
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0
20
40
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100
120
140
160
180
( mn)
Tiles
67
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78
86
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0
20
40
60
80
100
120
( mn)
Marble
Branded players have outpaced
industry growth in the past few
years

6
Figure 6: Branded players outperformed industry in FY11-12. Figure 7: ... and a similar trend was seen in H1FY13
*Kajaria Ceramics, Somany Ceramics, Orient Ceramics, Asian Granito, Nitco Ltd, Murudeshwar Ceramics, Euro Ceramics, Regency Ceramics, Restile
Ceramics, Decolight Ceramics, H&R Johnson and Bell Ceramics.

Acquisitions by organised players to consolidate their position
Company Date Acquisition Capacity & Products Stake (%) Cost of Acquisition ( mn)
Somany
Ceramics
Oct,2011 Vintage Tiles Pvt Ltd 2.55 mn sqm p.a of polished vitrified tiles 26% 50.0
June,2012 Commander Vitrified Pvt
Ltd
2.65 mn sqm p.a of polished vitrified tiles
and glazed vitrified tiles
26% 32.5
Kajaria
Ceramics
Feb,2011 Soriso Ceramics 4.6 mn sqm p.a. of ceramic tiles 51% 56.5
Feb, 2012 Jaxx Vitrified 3.1 mn sqm p.a. of polished vitrified tiles 51% 62.5
Apr, 2012 Vennar Ceramics 2.3 mn sqm p.a of digitally printed high
end wall tiles
51% 136.5
H&R Johnson Nov, 2011 Small Tiles Pvt Ltd 2.3 mn sqm p.a. of glazed floor tiles 50% NA
Nitco Ltd Mar. 2012 New Vardhman Vitrified 8.7 mn sqm p.a. of vitrified tiles 51% NA

Brand building exercise has started to show results
Our market check revealed that customers are becoming increasingly brand conscious and
opting for superior products. Somany, with its quality products and focus on value-added tiles,
has a strong brand recall among customers. The company outsources a part of its tiles
manufacturing and sells them under its brand name revenue contribution increased to
44.8% in FY12 from 17% in FY08. One of the Somanys best selling product - VC Shield -
which was developed and patented four years ago became a 1 bn brand in FY12. Also,
digitally printed tiles - launched in Q2FY12 - currently contribute 14% to consolidated
revenues; all these reflect the company is able to leverage the brand built over the past few
years. The branding exercise carried over the past few years has started giving returns and is
expected to keep the momentum going in the future.

30%
32%
26%
58%
24%
31%
38%
22%
15%
18%
17%
12%
0% 20% 40% 60% 80%
Kajaria
Somany
Asian Granito
Nitco
H&R Johnson
Industry
Growth*
FY12 FY11
26% 18% 21% 5% 6%
8%
0%
5%
10%
15%
20%
25%
30%
Kajaria Somany Asian Granito Nitco H&R Johnson
H1FY13 Industry Growth*
Customers are becoming brand
conscious

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Figure 8: SGA expenses across players

Strengthened distribution network; devised dealer strategy
with focused approach
A strong distribution network - which helps companies widen their reach and increase
penetration at remote locations - is essential in the tiles industry. Somany has an extensive
pan-India distribution network - it made a net addition of 156 dealers in FY12 - consisting of
1,490 dealers, 7,000+ sub-dealers, a retail chain network of 127 showrooms and 20 depots.
Of the current dealer network, 25% dealers contribute 53% to revenues. Somany has drawn
up a dealer network system to enhance its product penetration. It will sell the entire product
range to category one dealers who provide maximum business to the company. Dealers who
are able to sell a few specific varieties of tiles will receive only those products (and will not be
burdened with other stocks). This will help the company to better manage its receivables.
Business tie-ups with a few marble dealers are expected to increase the reach of Somanys
products.

Table 2: Demarcated dealer network with focused approach
Type of Dealers Particulars
Category 1 Will stock all kinds of tiles digital, value added and large format, GVT, non-value added
Category 2 Stock vitrified tiles
Category 3 Stock ceramics tiles
Category 4 Marble, granite dealers to stock Somany tiles

Key takeaways from interaction with Somany dealers in Jaipur
and Mumbai
Customers have become brand conscious apart from a particular design and size, they
demand branded products. Somany has strong brand recall after Kajaria
Somany was not concentrating on vitrified tiles earlier. However, with increasing
demand, it has launched new varieties of vitrified tiles in the past one year. Demand for
digital tiles and glazed vitrified tiles is on the rise and is expected to drive future growth
5.5%
3.0%
8.0%
4.7%
4.0%
8.7%
6.0%
4.2%
9.0%
4.5%
4.4%
7.2%
3.8%
4.0%
6.1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Kajaria Somany Asian Granito
Added 156 dealers in FY12

8
There is huge demand for digital tiles due to availability of a wide range of designs, size
and colors. Customers view these tiles as a durable and cost-effective substitution for
natural stones and wooden flooring. Retail price of digital tiles with looks similar to
natural stones is 120-150 per sq ft compared to cost of high-end marble of 300-400
per sq ft. Similarly, price for wooden flooring tiles is 100-120 per sq ft compared to
wooden flooring which costs 300-500 per sq ft
Earlier, Somany had the right product mix but lacked branding exercise. In the past one
year, the company has improved the display of all variant tiles at dealer locations which
has resulted in better brand visibility
Dealers enjoy cash discount of 3% if payments are made within two days and a discount
of 2% if made in a week. We believe this strategy is likely to reduce debtor days
Inventory risk remains with the dealers. Therefore, dealers do not stock inventory beyond
15-20 days
Though demand for India-made branded products is on the rise, there is increased
competition from imported tiles

Value added products have kicked-in with increase in
contribution to top-line
Demand for value-added products and large format tiles are on the rise. Overall, the ceramic
tiles industry witnessed 18% growth in the past five years. The value-added tiles grew at a
robust 25% given the shift in consumer preference and higher disposable income. Over the
past few years, Somany has focused on enhancing production and marketing more of its
value-added products, and vitrified tiles with new designs, size and style. The companys
strategy has paid off with contribution from high-end and medium-end products increasing to
55% in FY12 from 34% in FY11. The share of key value added products such as digital tiles,
VC and Duragres increased to 29% in Q2FY13 from 17% in Q1FY12. Somanys overall
realisation also increased to 324 per sq mt in Q2FY13 from 220 per sq mt in FY09. Given
the strong brand recall and wider distribution, we expect the growth momentum to continue
and contribution from medium and high-end tiles to increase to 65% in FY13 and 70% in
FY14.

Figure 9: Healthy volume growth in key value-added products Figure 10: Digital tiles reported strong revenue growth
0.6 0.7 0.8 1.1 0.9 1.0 1.2 1.6 1.4 1.9
18%
18%
19%
21%
24%
23%
28%
30%
39%
43%
0%
10%
20%
30%
40%
50%
0.0
0.4
0.8
1.2
1.6
2.0
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3
(mn sq mt)
Volumes % of manufacturing volumes (RHS)
35
88 169 271 376
2%
4%
6%
14%
15%
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
50
100
150
200
250
300
350
400
Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13
( mn)
Value Contribution (RHS)
Share of key value added
products increased to 29% in
Q2FY13 from 17% in Q1FY12

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Somany Ceramics Ltd

Figure 11: Value-added products drive overall realisation

Value added products to aid margin expansion
Increase in contribution from value-added products such as digital, vitrified and large tiles will
lead to rise in margin due to better realisations. We expect EBITDA margins to increase 80
bps in the next three years to 9.3% by FY15. Since the company is following an asset-light
model (which has lower capital requirements) for expansion, interest and depreciation costs
are likely to be lower. Accordingly, PBT margins are expected to increase by 150 bps over the
next three years.

Figure 12: Margins to increase during FY12-15

220
232
255
284
307
324
0
50
100
150
200
250
300
350
FY09 FY10 FY11 FY12 Q1FY13 Q2FY13
(/sq mt)
Overall Realisation
10.7%
9.5%
8.5%
8.9%
9.1%
9.3%
3.8%
3.3%
2.9%
3.0%
3.4%
3.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
FY10 FY11 FY12 FY13E FY14E FY15E
EBITDA margin PAT margin

10
Focus on asset-light model to reduce capex, lower lead time
Somany is focusing to add capacities on an asset-light model instead of going for greenfield
expansion. This strategy not only has lower capital requirements but also helps to reduce lead
time in getting access to the capacity. In the past one year, Somany acquired 26% stake in
Morbi-based Vintage Tiles Pvt Ltd (VTPL) and Commander Vitrfied Pvt. Ltd (CVPL) at a
capital outlay of 190 mn (including debt). With these acquisitions, Somany got acess to 5.3
mn sq mt of capacity at a much lower capital cost; greenfield expansion for similar capacities
require 1,200 mn. These acquisitions have also lowered lead time by at least one year.
Products manufactured at these plants will be marketed under the Somany brand leveraging
its pan-India distribution network. Going forward, Somany plans to expand through the asset-
light route instead of greenfield expansion. This is expected to reduce stress on balance sheet
and enhance returns ratios.

Figure 13: Capacity additions through asset-light model in past one year
*CVPL was acquired in June 2012

Low capex, well managed working capital lead to decline in
debt
Apart from lower capex, Somany has managed its working capital quite well in the past few
years. Owing to faster inventory turnaround, reduction in receivable cycle and better credit
period, Somany has reduced its working capital cycle to 37 days in FY12 from 54 days in
FY11 and 78 days in FY08. Inventory days were reduced significantly by 37 days to 52 days
over the past four years due to superior product-profile (which has a faster turnaround).
Debtor days have also reduced by 11 days to 55 days during the same period on account of
faster collections through cash discounts. Owing to lower capex and better working capital
management, debt levels declined to 1.7 bn in FY12 from 1.8 bn in FY11. Its net debt-to-
equity improved to 1.2x from 1.6x during the same period.

16.7 16.7
19.2 19.2 19.2
2.7 2.7
2.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY09 FY10 FY11 FY12 FY13E*
(mn sqm)
Installed capacity Vintage Tiles Commander Vitrified
Inorganic growth through
acquisitions
Faster inventory turnaround
and reduction in receivable
cycle led to improvement in
working capital cycle
Focusing on an asset-light
model instead of greenfield
expansion

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Figure 14: Improvement in working capital cycle Figure 15: Dip in inventory and debtors days

Going forward, we expect working capital days to remain at 50 days for the next three years.
Also, asset turnover ratio is expected to increase to 2.8x in FY15 from 2.4x in FY12. Owing to
expected increase in margins, well managed working capital cycle and improvement in asset
turnover, we expect RoCE to increase to 24% in FY15 from 19.6% in FY12.

Figure 16: RoCE to improve

Somanys financial performance better than peers during
FY08-12
Somanys financial performance during FY08-12 was better than that of most players in the
ceramic tiles industry.
Revenue growth of 28% was above peers average of 13%. However, PAT growth was
far better at 60% vs. an average of 8% for peers.
Somany has median RoE of 22% vs. peers average of 10%

82
78
62
56
54
37
0
10
20
30
40
50
60
70
80
90
(Days)
71
67
63
65
62
55
129
88
61
64 65
52
0
20
40
60
80
100
120
140
(Days)
Debtors days Inventory Days
20.2%
19.5%
19.6%
21.8%
22.5%
24.0%
18%
19%
20%
21%
22%
23%
24%
25%
RoCE
Somany posted better financial
performance during FY08-12

12
Figure 17: Somany has second-largest capacity Table 3: Dealer network comparable to peers
Company Showrooms Dealers Sub dealers
Somany 127 1,490 7,000
Kajaria 70 800 6,000
Asian Granito 20 1,400 4,000
Nitco 78 1,100 5,500
Orient Bell Ltd 40 2,184 8,000

Figure 18: Revenue and PAT growth superior to peers... Figure 19: ... while PAT margin is below

Figure 20: Median RoE and... Figure 21: ... RoCE highest in the industry

24.3
38.3
16.2
8.1 8.5
14
0
5
10
15
20
25
30
35
40
45
Somany Kajaria Asian
Granito
Nitco Euro Muru-
deshwar
(mn sq mt)
Installed capacity (FY12)
28% 27% 32% 7%
-6%
-7%
60%
52%
-9%
-15%
2%
-41%
-60%
-40%
-20%
0%
20%
40%
60%
80%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
S
o
m
a
n
y
K
a
j
a
r
i
a
A
s
i
a
n

G
r
a
n
i
t
o
N
i
t
c
o
E
u
r
o
M
u
r
u
d
e
s
h
w
a
r
Revenue CAGR FY08-12 PAT CAGR FY08-12
9.8% 15.7% 11.6% 10.9% 19.9% 27.2%
2.4%
3.9%
5.6%
3.7%
-1.3%
2.3%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
S
o
m
a
n
y
K
a
j
a
r
i
a
A
s
i
a
n

G
r
a
n
i
t
o
N
i
t
c
o
E
u
r
o
M
u
r
u
d
e
s
h
w
a
r
EBITDA margin FY08-12 PAT margin FY08-12
21.9%
20.4%
11.4%
4.9%
1.4%
1.1%
0% 5% 10% 15% 20% 25%
Somany
Kajaria
Asian Granito
Nitco
Euro
Murudeshwar
Median RoE (FY08-12)
14.7%
14.6%
11.2%
6.2%
11.1%
5.8%
0% 5% 10% 15% 20%
Somany
Kajaria
Asian Granito
Nitco
Euro
Murudeshwar
Median RoCE (FY08-12)

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Somany Ceramics Ltd
Key risks
Slowdown in the economy, real estate industry
Growth in the tiles industry is dependent on the overall economy in general and the real estate
industry in particular. During the economic slowdown in FY09, the tiles industry registered a
marginal growth of 5% compared to the five-year average of 18%. Also, the real estate
industry is witnessing slowdown in a few pockets, though tier II/III cities remain strong.
Although the slowdown in the real estate industry has so far not majorly impacted the tiles
industry, sustained slowdown could hamper future growth prospects

Inability to pass on the rise in power and fuel costs
Power and fuel costs increased significantly in the past few years but Somany was partially
successful in passing on the rise in costs through value-added products. More-than-expected
rise in power and fuel costs would pose a downside risk to our financial estimates.

Competition from organised players
Somany has been able to outpace industry growth over the past few years. However, intense
competition from organised players might impact volumes and margins if the demand
momentum decreases.

Lifting of anti-dumping duty - threat from Chinese products
During FY06-08, there was a huge influx of Chinese tiles in the Indian market, which impacted
Indian players volumes and margins. However, the anti-dumping duty of 137 per sq mt on
Chinese tiles in FY09 provided some respite. The anti-dumping duty will be reviewed in
December 2014; if lifted, Chinese products could be a potential threat to the industry.

Inability to pass on the rise in
power and fuel costs might
impact the margins

14
Financial Outlook
Value-added products to drive revenue growth at three-year
CAGR of 16%
Revenues are expected to increase at a three-year CAGR of 16% to 13.7 bn by FY15 driven
by 13% growth in volumes and 3% growth in realisations. We expect the growth to be driven
by the sale of value-added products such as digitally printed tiles, Duragres and VC tiles; their
contribution to top-line is expected to increase from 18% in FY12 to 33% in FY15.

Figure 22: Revenues to increase at a CAGR of 16% by FY15 Figure 23: Value-added products contribution to rise

EBITDA, PBT margin to improve
We expect EBITDA margin to increase to 9.3% in FY15 from 8.5% in FY12. Despite cost
pressures, margins are expected to improve due to increase in contribution from value-added
products which have high realisations. Contribution from outsourced manufacturing to
consolidated top-line is expected to increase to 53% in FY15 from 45% in FY12. As the capital
requirement for these products is lower, we expect interest and depreciation cost to decline as
a percentage of sales. Accordingly, we expect PBT margin to improve to 5.6% in FY15 from
4.1% in FY12.

5,416 7,171 8,779 10,502 12,032 13,744
21.1
32.4
22.4
19.6
14.6
14.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
( mn)
Revenue y-o-y growth (RHS)
52.4%
44.6%
37.1%
24.1%
17.8%
14.6%
14.1%
14.2%
18.1%
27.9%
31.6%
32.9%
33.5%
41.2%
44.8%
48.0%
50.6%
52.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Basic/value-added products VC, Duragres and Digital Trading
PBT margin to improve 150 bps
to 5.6% in FY15
Revenues to increase at a
three-year CAGR of 16% to
13.7 bn in FY15

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Figure 24: EBITDA margin to improve in FY15 Figure 25: PBT margin to improve 150 bps by FY15

PAT to witness higher growth than revenues, EPS to increase
from 7.3 in FY12 to 14.6 in FY15
PAT is expected to grow at a three-year CAGR of 26% to 505 mn in FY15, driven by
revenues and increase in PBT margin. We expect EPS to increase to 14.6 in FY15 from 7.3
in FY12.

Figure 26: PAT and PAT margin Figure 27: EPS and EPS growth

RoCE, RoE and asset turnover to increase
RoCE is expected to grow to 24% in FY15 from 19.6% in FY12 driven by growth in asset
turnover ratio. Due to the asset light model, we expect asset turnover ratio to increase to 2.8x
in FY15 from 2.4x in FY12. RoE is expected to increase from 21.9% in FY12 to 23.9% in
FY15 driven by growth in profitability.

582 680 747 930 1,096 1,273
10.7%
9.5%
8.5%
8.9%
9.1%
9.3%
0%
2%
4%
6%
8%
10%
12%
100
300
500
700
900
1,100
1,300
1,500
( mn)
EBITDA EBITDA margin (RHS)
299 334 363 485 613 765
5.5%
4.7%
4.1%
4.6%
5.1%
5.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
100
200
300
400
500
600
700
800
900
( mn)
PBT PBT margin (RHS)
196 229 252 320 406 505
3.8%
3.3%
2.9%
3.0%
3.4%
3.7%
0%
1%
2%
3%
4%
0
100
200
300
400
500
600
()
PAT PAT margins (RHS)
5.7 6.6 7.3 9.3 11.8 14.6
121%
17%
10%
27% 27%
24%
-25%
0%
25%
50%
75%
100%
125%
150%
0
2
4
6
8
10
12
14
16
()
EPS EPS growth (RHS)
RoCE to improve from 19.6% in
FY12 to 24% in FY15

16
Figure 28: RoCE to increase Figure 29: Asset turnover ratio to increase

26.5%
24.6%
21.9%
22.9%
23.6%
23.9%
20.2%
19.5% 19.6%
21.8%
22.5%
24.0%
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
25%
30%
RoE RoCE (RHS)
1.9
2.2
2.4
2.6
2.7
2.8
1.0
1.5
2.0
2.5
3.0
(x)
Asset turnover ratio

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Somany Ceramics Ltd
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management
quality, apart from other key factors such as industry and business prospects, and financial
performance.

Strong and experienced management
Somany has an experienced management led by Mr Shreekant Somany, chairman and
managing director, and Mr Abhishek Somany, joint managing director. Mr Shreekant Somany
has more than 20 years of experience in the ceramic and sanitaryware industry, and heads
the companys production work. His son, Mr Abhishek Somany, BBA from Richmond
University, UK, heads marketing, finance and strategy.

Management strategy of going slow on greenfield expansion is
paying off
Management has deferred the capex of 1,100 mn in FY11 for the greenfield expansion of
5 mn sq mt. Instead, it has adopted an asset light strategy and acquired 26% stake in Vintage
Tiles Pvt Ltd and Commander Vitrified Pvt Ltd. This has helped reduce balance sheet stress
without constraining growth. Its return ratios have increased marginally in FY12 and are
expected to increase further in the next two years.

Second line of management is fairly strong
Though most of the activities are currently handled by Mr Abhishek Somany, based on our
interactions with various business heads - production, marketing - we believe that Somany
has a strong second line of management who have ~15 years of experience in their
respective domains.

Somanys promoters have more
than 20 years of experience in
the ceramic industry

18
Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate
governance and management quality, apart from other key factors such as industry and
business prospects, and financial performance. In this context, CRISIL Research analyses the
shareholding structure, board composition, typical board processes, disclosure standards and
related-party transactions. Any qualifications by regulators or auditors also serve as useful
inputs while assessing a companys corporate governance.

Corporate governance at Somany reflects good practices supported by a strong and fairly
independent board, with good and relevant experience, and board processes and structures
broadly conforming to minimum standards.

Board composition
Somanys board consists of nine members, of whom seven are independent directors, which
exceeds stipulated SEBI guidelines. Given the background of the directors, we believe the
board is experienced and fairly diversified.

Boards processes
The company has various committees audit, remuneration and investor grievance - in place
to support corporate governance practices. The company's disclosures are sufficient to
analyse various business aspects of the company. CRISIL Research assesses from its
interactions with independent directors of the company that the quality of agenda papers and
the level of discussions at the board meetings are good.

We understand that the independent directors are well aware of the companys business and
are fairly engaged in all the major decisions, The audit committee is chaired by an
independent director, Mr R. K. Daga, who is ex-president of Federation of Small & Medium
Industries and ex-chairman of Indian Institute of Materials Management. The board also
includes well-known names like Mr Y. K. Alagh, chairman of Institute of Rural Management,
Anand and former minister of power, and Mr Salil Singhal, chairman and managing director of
PI Industries Ltd and Chairman Emeritus of Pesticides Association of India

Good disclosure levels
The companys quality of disclosure is good judged by the level of information and details
furnished in the annual report, websites and other publicly available data. Somany is also
forthcoming in sharing relevant and important information. Recently, Somany has been
honoured with a gold award from LACP, US, for communication excellence through annual
report.

Board consists of nine
members, of whom seven
are independent

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Somany Ceramics Ltd
Valuation Grade: 5/5
We continue to use the discounted cash flow (DCF) method to value Somany. We have rolled
forward our projections to FY15 and raise our fair value to 120 per share from 80. At this
fair value, the implied P/E multiples are 10.2x FY14 and 8.2x FY15 EPS estimates. Given the
current market price, the valuation grade is 5/5.

Key DCF assumptions
We have considered the discounted value of the firms estimated free cash flow from
FY15 to FY20
We have assumed cost of equity of 17.4%, after factoring in the risk premium for the
small size of the company
We have assumed a terminal growth rate of 4% beyond the explicit forecast period until
FY21

WACC computation
FY15-21 Terminal value
Cost of equity 17.4% 17.4%
Cost of debt (post tax) 7.7% 7.7%
WACC 12.6% 13.5%
Terminal growth rate 4.0%
Source: CRISIL Research estimates

Sensitivity analysis to terminal WACC and terminal growth rate
Terminal growth rate
T
e
r
m
i
n
a
l

W
A
C
C

2.0% 3.0% 4.0% 5.0% 6.0%
11.5% 131 148 169 197 234
12.5% 113 126 142 162 188
13.5% 98 108 120 136 155
14.5% 85 94 103 115 130
15.5% 75 82 90 99 110

Sensitivity analysis to terminal EBITDA margin
Terminal EBITDA margin Fair value ()
7.7% 90
8.7% 103
9.7% 120
10.7% 142
11.7% 169

We raise our fair value to 120
per share from 80

20
One-year forward P/E band One-year forward EV/EBITDA band
Source: NSE, CRISIL Research Source: NSE, CRISIL Research

P/E premium/discount to NIFTY P/E movement
Source: NSE, CRISIL Research Source: NSE, CRISIL Research

Fair value movement since initiation
0
20
40
60
80
100
120
A
p
r
-
0
9
J
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-
0
9
S
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9
D
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-
0
9
M
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1
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J
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D
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J
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S
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D
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()
Somany 1x 3x 5x 7x 9x
0
1,000
2,000
3,000
4,000
5,000
6,000
A
p
r
-
0
9
J
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9
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9
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9
M
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J
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D
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M
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-
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1
J
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-
1
1
S
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p
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1
D
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1
M
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-
1
2
J
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-
1
2
S
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p
-
1
2
D
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-
1
2
( mn)
EV 2x 3x 4x 5x
-100%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
A
p
r
-
0
9
J
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-
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9
S
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9
D
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9
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0
J
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0
S
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1
0
D
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c
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1
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M
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1
1
J
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1
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p
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1
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1
M
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-
1
2
J
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-
1
2
S
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p
-
1
2
D
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c
-
1
2
Premium/Discount to NIFTY Median premium/discount to NIFTY
0
2
4
6
8
10
12
A
p
r
-
0
9
J
u
n
-
0
9
S
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p
-
0
9
D
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c
-
0
9
M
a
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1
0
J
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-
1
0
S
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p
-
1
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D
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c
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M
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-
1
1
J
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1
1
S
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p
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1
1
D
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1
M
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2
J
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-
1
2
S
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p
-
1
2
D
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c
-
1
2
(Times)
1yr Fwd PE (x) Median PE
+1 std dev
-1 std dev
0
100
200
300
400
500
600
700
800
0
20
40
60
80
100
120
140
D
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1
A
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-
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J
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1
A
u
g
-
1
1
O
c
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-
1
1
D
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-
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1
F
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b
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1
2
A
p
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-
1
2
J
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1
2
A
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g
-
1
2
O
c
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-
1
2
D
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2
('000) ()
Total Traded Quantity(RHS) CRISIL Fair Value Somany

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Somany Ceramics Ltd
Peer comparison

M. Cap
EPS () Price/earnings (x) Price/book (x) EV/EBITDA (x) RoE (%)
( mn) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Somany Ceramics 3,277 7.3 9.3 11.8 13.0 10.2 8.1 2.6 2.1 1.7 6.4 5.7 4.8 21.9 22.9 23.6
Orient Ceramics 1,379 12.8 N.A N.A 7.9 N.A N.A 0.6 N.A N.A 6.3 N.A N.A 9.3 N.A N.A
Kajaria Ceramics 17,252 11.0 14.7 19.5 21.3 16.0 12.1 6.1 4.8 3.7 8.7 8.0 6.7 32.1 32.4 32.9
Asian Granito 1,062 8.7 N.A N.A 5.5 N.A N.A 0.5 N.A N.A 3.9 N.A N.A 9.3 N.A N.A
Nitco Ltd 774 -17.0 N.A N.A N.A N.A N.A 0.2 N.A N.A 7.2 N.A N.A -10.9 N.A N.A
Source: CRISIL Research estimates, industry

Somany is trading at a 33% discount to industry leader Kajaria based on FY14 P/E. We
believe current discount is justified given Kajarias strong brand strength and better return
ratios.

CRISIL IER reports released on Somany Ceramics Ltd
Date Nature of report
Fundamental
grade Fair value
Valuation
grade
CMP
(on the date of report)
06-Dec-10 Initiating coverage 4/5 79 5/5 60
28-Jan-11 Q3FY11 result update 4/5 84 5/5 40
06-Jun-11 Q4FY11 result update 4/5 84 5/5 43
22-Jul-11 Q1FY12 result update 4/5 84 5/5 45
04-Nov-11 Q2FY12 result update 4/5 72 5/5 43
01-Feb-12 Q3FY12 result update 4/5 68 5/5 40
07-Mar-12 Detailed report 4/5 68 5/5 35
01-Jun-12 Q4FY12 result update 4/5 80 5/5 43
23-Jul-12 Q1FY13 result update 4/5 80 5/5 44
22-Oct-12 Q2FY13 result update 4/5 80 4/5 71
26-Dec-12 Detailed report 4/5 120 5/5 95

22
Company Overview
Somany, incorporated in 1968, as Somany Pilkingtons, in collaboration with UK-based
Pilkingtons Tiles, is among the leading and branded tiles manufacturing company in India.
The company is a part of the HL Somany group and is present both in the ceramic and the
vitrified segments. The company has two manufacturing plants, located at Kadi (Gujarat) and
Kassar (Haryana), with a total manufacturing capacity of 19.2 mn sq.mt. In FY2011-13, the
company acquired 26% stake in each of Vintage Tiles Pvt Ltd and Commander Vitrified Pvt
Ltd to produce low-end products and outsource some manufacturing of tiles. Through this
acquisition, the company got access to additional manufacturing capacity of 5.2 mn sq mt.
The company is present across varied price points - from low-cost tiles that cost 200 per
sq.mt. to top-end tiles that cost 2,500 per sq.mt. It offers tiles in 77 sizes, the largest handout
by any tile manufacturer in the Indian tiles industry. It has introduced new products such as
Durages, digital and VeilCraft tiles. It has a pan-India distribution network and earns 70% of
revenues from the northern and southern markets.

Key milestones
1968 Incorporated as Somany Pilkingtons Ltd, in collaboration with the UK-based
Pilkingtons Tiles
1971 Production started in November
1996 R&D facility received government recognition
1999 Kadi unit was accredited ISO 14001 for environment-friendly manufacturing
2002-04 Natural gas supply to Kassar (Haryana) plant was suspended that affected
production and profitability
2007 Changed name to Somany Ceramics Ltd
2009 Only company in Indian ceramic tile industry to get a patent for its product
VC Shield (Indias highest abrasion resistant tiles)
2010 Brownfield expansion with capacities of 2.45 mn sq.mt. in Haryana
2010 Stock split from 10 to 2
2010 Purchased 15-acre land near its existing unit for greenfield expansion
2011 Acquired 26% stake in Vintage Tiles having manufacturing capacity of 2.65 mn
sq.mt.
2012 Acquired 26% stake in Commander Vitrified Pvt Ltd having manufacturing
capacity of 2.55 mn sq.mt.
2012 Ventured into the sanitaryware segment and chrome-plated bathroom fittings
under brand name Aquaware
2012 Installed two digital printing machines one at Kadi (Gujarat) and the other at
Kassar (Haryana) plants to produce higher value added tiles. Received the
Indian Power Brands Award for the second consecutive year

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Somany Ceramics Ltd
Region-wise sales contribution in FY08 Region-wise sales contribution in FY12

North
33%
South
39%
East
9%
West
15%
Central
2%
Export
2%
North
36%
South
33%
East
15%
West
11%
Central
3%
Export
2%

24
Annexure: Financials

Source: CRISIL Research

Income statement Balance Sheet
( mn) FY11 FY12 FY13E FY14E FY15E ( mn) FY11 FY12 FY13E FY14E FY15E
Operating income 7,171 8,779 10,502 12,032 13,744 Liabilities
EBITDA 680 747 930 1,096 1,273 Equity share capital 69 69 69 69 69
EBITDA margin 9.5% 8.5% 8.9% 9.1% 9.3% Reserves 970 1,190 1,470 1,825 2,267
Depreciation 175 183 214 234 264 Minorities - - - - -
EBIT 505 563 716 862 1,008 Net worth 1,039 1,259 1,539 1,894 2,336
Interest 171 207 243 258 253 Convertible debt - - - - -
Operating PBT 334 357 473 604 755 Other debt 1,785 1,666 2,116 2,116 2,066
Other income 0 6 11 9 10 Total debt 1,785 1,666 2,116 2,116 2,066
Exceptional inc/(exp) 9 (1) - - - Def erred tax liability (net) 257 254 254 254 254
PBT 344 362 485 613 765 Total liabilities 3,081 3,178 3,908 4,263 4,655
Tax provision 105 111 165 207 260 Assets
Minority interest - - - - - Net f ixed assets 1,730 1,904 2,097 2,217 2,502
PAT (Reported) 239 251 320 406 505 Capital WIP 51 45 45 45 45
Less: Exceptionals 9 (1) - - - Total fixed assets 1,780 1,948 2,141 2,262 2,547
Adjusted PAT 229 252 320 406 505 Investments 63 117 117 117 117
Current assets
Ratios Inventory 988 1,006 1,323 1,516 1,732
FY11 FY12 FY13E FY14E FY15E Sundry debtors 1,293 1,400 1,784 2,044 2,259
Growth Loans and advances 580 658 737 811 892
Operating income (%) 32.4 22.4 19.6 14.6 14.2 Cash & bank balance 99 151 94 136 105
EBITDA (%) 16.8 9.9 24.5 17.8 16.1 Marketable securities 6 6 6 6 6
Adj PAT (%) 17.1 9.9 27.0 26.8 24.5 Total current assets 2,967 3,221 3,945 4,513 4,995
Adj EPS (%) 17.1 9.9 27.0 26.8 24.5 Total current liabilities 1,737 2,115 2,303 2,637 3,011
Net current assets 1,231 1,105 1,642 1,876 1,984
Profitability Intangibles/Misc. expenditure 7 8 8 8 8
EBITDA margin (%) 9.5 8.5 8.9 9.1 9.3 Total assets 3,081 3,178 3,908 4,263 4,655
Adj PAT Margin (%) 3.2 2.9 3.0 3.4 3.7
RoE (%) 24.6 21.9 22.9 23.6 23.9 Cash flow
RoCE (%) 19.5 19.6 21.8 22.5 24.0 ( mn) FY11 FY12 FY13E FY14E FY15E
RoIC (%) 16.5 17.5 18.8 18.7 19.4 Pre-tax prof it 334 363 485 613 765
Total tax paid (80) (114) (165) (207) (260)
Valuations Depreciation 175 183 214 234 264
Price-earnings (x) 14.3 13.0 10.2 8.1 6.5 Working capital changes (249) 177 (593) (192) (138)
Price-book (x) 3.2 2.6 2.1 1.7 1.4 Net cash from operations 180 609 (60) 448 632
EV/EBITDA (x) 7.3 6.4 5.7 4.8 4.1 Cash from investments
EV/Sales (x) 0.7 0.5 0.5 0.4 0.4 Capital expenditure (415) (352) (407) (355) (549)
Dividend payout ratio (%) 10.1 11.0 10.4 10.4 10.4 Investments and others (59) (55) - - -
Dividend yield (%) 0.7 0.8 1.0 1.3 1.6 Net cash from investments (474) (406) (407) (355) (549)
Cash from financing
B/S ratios Equity raised/(repaid) - - - - -
Inventory days 65 52 57 57 57 Debt raised/(repaid) 259 (120) 450 - (50)
Creditors days 79 75 70 70 70 Dividend (incl. tax) (28) (32) (40) (51) (63)
Debtor days 62 55 59 59 57 Others (incl extraordinaries) 10 0 0 (0) (0)
Working capital days 54 37 51 50 47 Net cash from financing 241 (151) 410 (51) (113)
Gross asset turnover (x) 2.2 2.4 2.6 2.7 2.8 Change in cash position (52) 51 (56) 42 (31)
Net asset turnover (x) 4.7 4.8 5.3 5.6 5.8 Closing cash 99 151 94 136 105
Sales/operating assets (x) 4.3 4.7 5.1 5.5 5.7
Current ratio (x) 1.7 1.5 1.7 1.7 1.7 Quarterly financials
Debt-equity (x) 1.7 1.3 1.4 1.1 0.9 ( mn) Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13
Net debt/equity (x) 1.6 1.2 1.3 1.0 0.8 Net Sales 2,077 2,175 2,763 1,904 2,578
Interest coverage 3.0 2.7 2.9 3.3 4.0 Change (q-o-q) -13% 5% 27% -31% 35%
EBITDA 177 175 233 177 212
Per share Change (q-o-q) -13% -1% 34% -24% 20%
FY11 FY12 FY13E FY14E FY15E EBITDA margin 8.5% 8.0% 8.4% 9.3% 8.2%
Adj EPS () 6.6 7.3 9.3 11.8 14.6 PAT 57 47 85 53 80
CEPS 11.7 12.6 15.5 18.6 22.3 Adj PAT 57 47 86 53 80
Book value 30.1 36.5 44.6 54.9 67.7 Change (q-o-q) -28% -18% 82% -39% 52%
Dividend () 0.7 0.8 1.0 1.2 1.5 Adj PAT margin 2.8% 2.2% 3.1% 2.8% 3.1%
Actual o/s shares (mn) 34.5 34.5 34.5 34.5 34.5 Adj EPS 1.7 1.4 2.5 1.5 2.3

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Somany Ceramics Ltd
Focus Charts
Growing market share in organised industry Digital tiles reported strong revenue growth

Capacity additions through asset-light model Highest RoE in the industry

*CVPL was acquired in June 2012

RoE, RoCE to increase Shareholding pattern over the quarters
3.3
4.5
5.4
7.2
8.8
39.0 43.4 44.4 58.1 65.2
8%
10%
12% 12%
13%
0%
2%
4%
6%
8%
10%
12%
14%
16%
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
( bn)
Somany Sales Industry Sales Market Share (RHS)
35
88 169 271 376
2%
4%
6%
14%
15%
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
50
100
150
200
250
300
350
400
Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13
( mn)
Value Contribution (RHS)
16.7 16.7
19.2 19.2 19.2
2.7 2.7
2.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY09 FY10 FY11 FY12 FY13E*
(mn sqm)
Installed capacity Vintage Tiles Commander Vitrified
Inorganic growth through
acquisitions
21.9%
20.4%
11.4%
4.9%
1.4%
1.1%
0% 5% 10% 15% 20% 25%
Somany
Kajaria
Asian Granito
Nitco
Euro
Murudeshwar
Median RoE (FY08-12)
26.5%
24.6%
21.9%
22.9%
23.6%
23.9%
20.2%
19.5% 19.6%
21.8%
22.5%
24.0%
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
25%
30%
RoE RoCE (RHS)
63.31% 63.31% 63.31% 63.31%
0.04% 0.11% 0.21% 0.23%
0.6% 0.6% 0.6% 0.6%
36.1% 36.0% 35.9% 35.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-11 Mar-12 Jun-12 Sep-12
Promoter FII DII Others

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