Somany Ceramics margins strengthen as price hikes and utilisation support FY27 growth

Investment View and Valuation

ICICI Securities retained its BUY recommendation on Somany Ceramics and revised its target price to Rs 640 on August 13, 2026. The target price is based on 19 times FY28E EPS.

The broker’s positive thesis is based on a narrowing price differential between organised tile manufacturers and unorganised Morbi players. It believes this should sustain demand recovery for branded suppliers and improve the competitiveness of organised manufacturers.

Strong Q1 FY27 Operating Performance

Somany Ceramics reported strong operating performance in Q1 FY27. Net sales increased 24.0% year on year to Rs 749.6 crore, while tile volumes rose 2.8% to 16.5 MSM. Volume growth was limited by supply disruptions in Morbi, which constrained outsourced-material availability early in the quarter.

Tile revenue increased 23.7% to Rs 633 crore, driven by a 20.3% increase in blended realisation to Rs 384 per sqm. The company implemented a 16–17% price increase to offset higher natural-gas costs and also benefited from a favourable product mix.

Consolidated EBITDA increased 78.9% year on year to Rs 86.2 crore, with EBITDA margin expanding by 353 basis points to 11.5%. PAT rose 242.7% to Rs 35.5 crore, aided by operating leverage and lower interest costs.

Demand Recovery and Pricing Environment

Management has guided for mid-single-digit tile-volume growth in FY27, supported by higher capacity utilisation and operating efficiencies. It expects double-digit EBITDA margins to continue. Channel inventory has normalised and remains lean, while management expects demand to improve.

Somany Ceramics has taken a 16–17% price increase, compared with 30–35% increases by Morbi players. Management believes the lower price increase has narrowed the price gap between organised and unorganised suppliers, which should improve the competitiveness of branded tile manufacturers.

Morbi operations normalised from May and reached 100% utilisation from mid-June. However, management indicated that the final leg of Morbi capacity is unlikely to restart.

Capacity Utilisation and Business Mix

In Q1 FY27, blended utilisation was 80% for tiles, 77% for sanitaryware and 95% for faucets. Bathware revenue grew approximately 22% year on year to Rs 76.5 crore, and management indicated that bathware margins are around 1% higher than tile margins.

The sales mix comprised 34% own manufacturing, 34% joint ventures and 32% outsourced products.

Somany Max losses narrowed to approximately Rs 1 crore from about Rs 7 crore in Q1 FY26. Management expects FY27 losses to remain below Rs 10 crore, compared with Rs 21 crore in FY26, as utilisation improves.

Natural Gas Costs and Export Conditions

Natural-gas cost averaged approximately Rs 68 per SCM in Q1 FY27. Prices in South India and Morbi were in the mid-Rs 70s per SCM, while northern-region prices were Rs 68–69 per SCM.

Management expects gas-price conditions to normalise, although volatility remains material. Morbi exports declined around 50–60% year on year and are expected to remain weak until freight conditions normalise. Higher freight and raw-material costs have reduced export competitiveness.

Earnings Outlook and Estimate Revisions

ICICI Securities forecasts tile revenue to grow at a 13.2% CAGR over FY26–FY28E to Rs 2,977 crore. Tile volumes are expected to grow at a 7% CAGR to approximately 82.6 MSM, while overall revenue is forecast to grow at a 12.2% CAGR to Rs 3,512 crore.

The broker expects EBITDA margins of approximately 10.3% in FY27E and 10.2% in FY28E, compared with 9.2% in FY26. PAT is expected to grow at approximately 30.6% CAGR over FY26–FY28E.

Capacity Expansion and Capex

FY27 capex is estimated at approximately Rs 270 crore, including around Rs 220 crore for the Tirupati project. The company expects to add 3–4 MSM of incremental capacity through debottlenecking by Q3 FY27.

The 9+ MSM Tirupati facility is expected to start in Q3 or Q4 FY28, with around 60% of the project funded through internal accruals.

Key Risks

• Volatility in natural-gas prices could affect operating costs and margins.
• Competition from unorganised players remains a key risk to pricing and demand recovery.