Somany is one of the leading players in the tiles industry. Its market share in the organised industry increased to 13% in FY13 from 8% in FY08. The company’s products have a strong brand recall. It also has an extensive distribution network comprising 1,750 distributors.
Contribution from high-margin value-added products such as digital, Veilcraft (VC) and Duragres’ to total revenues increased to 42% in Q1FY14 from 19% in Q1FY12. We believe increase in share of value-added products would offset the decline in margin due to high power and fuel costs. The company has been successful in reducing working capital cycle to 35 days in FY13 from 54 days in FY10 due to faster inventory turnaround.
We expect revenues to grow at a two-year CAGR of 19% to 14.8 bn in FY15 driven by 15% growth in volumes and 3% growth in realisations.
EPS is expected to grow at a two-year CAGR of 21% to Rs 13.5 in FY15. Using DCF method the fair value of 109 stock target price per share. At this fair value, implied P/E multiples are 10.2x and 8.1x on FY14E and FY15E EPS.
