04 Feb , 2022 By : Kanchan Joshi
Somany Ceramics (SCL) is the second largest tiles manufacturer in the domestic tiles market. The multibagger stock has rallied over 110% in a year's period, however, is down about 7% in 2022 (year-to-date or YTD) so far. ICICI Securities sees more upside on Somany Ceramics shares, and has upgraded the stock's rating after Q3FY22 results.
With strong underlying demand and likely improvement in margins when gas price cools off, the brokerage has upgraded the stock's rating to Buy from Hold with a target price of Rs1,000 with target period of around twelve months.
The company's new capacity of 10 MSM (with potential to generate around TRs 250-300 crore worth of additional revenue at full capacity) and incremental margin of 100-150 bps will come by Q4 end/Q1FY23, believes ICICI Securities.
Additionally, the company has also announced setting up of greenfield manufacturing facility of large format/slab tile in Gujarat, which is expected to commence production during Q4FY23 at capex of around Rs170 crore. Further, any respite in gas price rise to aid margins which could act as key triggers for future price performance.
Somany reported a mixed bag performance in Q3. Its topline was up 19.3% year-on-year (YoY) at Rs587 crore led by tiles revenues. The EBITDA was at Rs62.4 crore, down 1.5% from the year-ago quarter. The resultant margins were at 10.6%, down 223 bps YoY owing higher gas prices. The company's net profit was up 14%, aided by lower interest and taxes.
Besides Somany Ceramics, ICICI Securities also likes Mahindra Lifespace in realty/building material space on its play on expanding residential real estate portfolio. The brokerage's Buy rating on Mahindra Lifespace shares comes with a target price of Rs335 apiece.
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