Somany Ceramics Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Resilient quarter despite shocks: Revenue grew 3.6% even as floods hit the key Northern market and a 20–25 day plant outage at Kassar wiped ~1–1.2%+ from EBITDA margins.
• Margin recovery is an operating leverage story: EBITDA margin fell to 7.9%, but management expects at least 150 bps improvement from here, driven almost entirely by capacity utilization rising from 75% to 85–87%.
• JV drags are being addressed: Max plant is targeted to hit 75–80% utilization by Q4 and stop losing money; Vintage plant is back online after a 40-day shutdown and product mix overhaul.
• The cycle is turning, slowly: Management sees the industry "out of the woods" but expects a slow, non-V-shaped recovery, with tiles being the last item in the building cycle and demand just beginning to return.
• What to watch next quarter: Whether the promised H2 margin lift materializes as utilization climbs, whether Max plant losses actually shrink on schedule, and whether the North market rebounds after the flood disruption.

Quarter in Review: Floods, Outages and JV Losses

• Northern floods hit volumes: The North territory, which accounts for ~46–47% of tiles sales, was battered by rains across Uttarakhand, Uttaranchal and J&K; volumes grew but not at normal rates, and the company estimates growth would have been upwards of 5% without the disruption.
• Kassar plant outage: A GAIL pipeline leakage at Bawana stopped gas supply to the Kassar plant for 20–25 days; gas was restored on 20th September. The outage contributed ~1–1.2%+ to the EBITDA margin decline.
• Insurance claim submitted: Papers have been filed for the Kassar outage; management hopes the best outcome will flow back into the P&L at a later date.
• JV losses persist: Max JV posted a ₹7.5 crores loss for the quarter; corrective action has been taken and gains are expected from Q4 onwards. Vintage JV had a 40-day shutdown to make the plant fungible between tile formats; it was previously producing only double charge vitrified tiles for government projects where spending was slow.
• South improves: The South market performed better than in the last 3–4 quarters, providing some offset to Northern weakness.
• Working capital steady: Working capital increased marginally by 1 day versus last year; receivables are down further and no open credits exist in the market.

Somany: "This is owing to the issue which we had with the Kassar plant. Had it not been, then it would have been that much better. So we would have actually performed better from last year Q2 and also last year H1. So this is an aberration."

Margin Path: Operating Leverage Is the Engine

• Current margin level: Q2 and H1 EBITDA stood at 7.9% versus 8.5% previously; the Kassar outage was the primary drag, and without it performance would have beaten last year's comparable periods.
• The 150 bps commitment: Management expects at least 150 bps of EBITDA margin improvement from here, with H2 capable of delivering upwards of 10% EBITDA margin.
• Utilization is the lever: Double-digit margins will largely come from capacity utilization rising from the current 75% to 85–87%; at current margins, that operating leverage alone adds ~120–130 bps automatically.
• No price hike yet: Branded players took a price hike, but Somany has not taken one this quarter; management may consider a hike at the end of this quarter or early next quarter if demand picks up.
• Gas costs flat: Gas pricing has been flat across locations and is expected to remain so with no surprises.
• Advertisement spend contained: Ad spend has come down from 2.9% of revenue to 2.3–2.5% and is expected to stay at this level.

Somany: "Currently, this double-digit margin very largely will come from capacity utilization going up from the 75% to 85%, 87% levels and more."

Demand Environment: Out of the Woods, Slowly

• Slow-turn recovery: Management believes the industry is out of the woods but expects a slow turn rather than a V-shaped improvement; demand is coming back slowly and steadily.
• Tiles are the last item: Tiles are the last item to go into a building, so the demand cycle is just beginning; some volume had been taken by local players due to substantial price differentials with poor quality and tax evasion, but that appears to be returning as Morbi players focus on exports.
• October muted by festivals: October saw very small growth due to Diwali and Chhath Puja; management expects a clean run for the next 5 months.
• Price hike retained: The 1.5% price hike taken in July has been retained in the market.
• Morbi capacity discipline: Management is emphatic that no new capacity will be added in Morbi in the next 24 months, with players there "really hurting."

Somany: "I think the industry is out of the woods, although it's going to be a slow turn, it's not going to be a V-shape improvement, but it's out of the woods."

Somany: "Tiles is the last item which goes in the building. In fact, our cycle is just about beginning."

Product Mix Shift: GVT and Non-Tiles Ambitions

• GVT scaling up: GVT sales continue to rise and are expected to cross 50% of the mix within the next 12–18 months, up from the current level.
• Sanitaryware and bathware target: Sanitaryware and bathware currently contribute ~12% of revenue; management targets ~15–16% within 1 year and ~15% within 2 years, with low double-digit growth expected for the full year.
• Bathware split evolving: The bathware segment is currently split 60-40 between sanitaryware and bath fittings; this is expected to move to 50-50 going forward.
• Non-tiles ambition: In the next 2 years, other-than-tiles businesses are targeted to exceed 20% of total revenue.
• Project mix shift: Projects are expected to rise ~1–2% to ~18–19% of revenue; next year the split is targeted at ~75–77% retail, ~2–2.5% export, with projects improving by ~3–4%.
• Margin hierarchy by product: Management gave a qualitative ranking: PVT margins are lowest, then ceramic, then GVT highest, but declined to provide specific margin figures, calling it "a very complex question."

Capital Allocation: No Capex, Buyback on the Horizon

• Capex holiday: No capex is planned for the next 12–18 months; all planned capex has been completed.
• Debt reduction ahead: With no significant capex, debt levels will come down and profitability will go up.
• No working capital drawn: The company did not use any of its fund raise limit this quarter; no working capital was used.
• Buyback possibility: After a large buyback and the Max plant expansion, management currently has no buyback plans, but in the next 12–18 months (maybe 24 months) with no significant capex, treasury will rebuild and they will decide whether to do a buyback or reward shareholders in some other way.
• Standalone vs consolidated: Management stated the company has always looked at consolidated numbers, but did not directly address an analyst's question about how investors should view the divergence in profitability between standalone and consolidated accounts, which stems from underperforming JVs and accounting differences in depreciation and interest.

Competitive Landscape: Morbi and the Quality Gap

• Morbi players struggling: Management stated that Morbi players are "really hurting" and no new capacity will be added there in the next 24 months.
• Quality differential: Somany makes 95% first-quality product; management claimed some Morbi players produce "nothing more than 20% first quality," but declined to elaborate further on the record when pressed on whether larger Morbi players like Simpolo and Varmora are evading GST, calling it "a question which will give me offline."
• Volume returning: Some volume previously lost to local players due to substantial price differentials, poor quality and tax evasion appears to be coming back as Morbi players shift focus to exports.

Somany: "We make 95% first quality. They probably make nothing more than 20% first quality. Anyway, this is a question which will give me offline."

Guidance & Commitments

Key Metrics