Somany Ceramics Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Demand turning, margin healing: Domestic demand showed gradual improvement, gross margins expanded 2.2% QoQ, and EBITDA margin crossed 9% with another 1%–1.5% improvement guided for Q4.
• Somany Max is the swing factor: The JV loss narrowed from ₹7.5 crores to ₹6 crores QoQ, and management gave an "absolutely given" commitment to cut FY27 losses below ₹10 crores from ~₹26 crores this year.
• Brass cost inflation is a live margin risk: Brass prices rose 22–23% since April with no pass-through yet; a large competitor moved only 15 days ago, so the industry is still absorbing the hit.
• Balance sheet repair underway: Outside debt fell from ₹288 crores to ₹231 crores, with a path to ~₹50 crores by FY28-end, while working capital stayed disciplined at 14 days.
• What to watch next quarter: Whether the guided 1%–1.5% EBITDA margin lift materializes, whether Max plant production in February–March delivers the promised loss reduction, and whether brass price pass-through actually flows through.

Demand & Volume

• Domestic offtake improving: Gradual Q3 improvement came from reduced export pressure and tiles uptake from buildings reaching completion; management cited better dealer walk-ins and called it "a light at the end of the tunnel."
• Volume up but unquantified: Capacity utilization rose QoQ from 76% to 80%, though management declined to put a number on volume growth beyond "slight improvement."
• Export tailwind for domestic: Morbi exports are expected to reach ₹19,000–₹19,500 crores, up 8–9% YoY; every export increase benefits domestic players by pulling supply out of the home market.
• Retail still dominant, projects rising: Retail mix is 77–78% now, expected to shift to ~75% next year as private and government project share grows.

Abhishek Somany: "Yes. There is a light at the end of the tunnel. We're seeing better walk-ins in the market recently and also spoken to many dealers. So there's been an improved walk-in. So there is clearly a light at the end of the tunnel."

Somany Max JV Turnaround

• The loss trajectory: JV loss narrowed from ₹7.5 crores to ₹6 crores QoQ on better utilization; full-year FY26 loss is ~₹26–27 crores, and management committed to below ₹10 crores in FY27, with profitability in FY27–28.
• Production restart imminent: Output resumes in February and March, and Q4 results should begin reflecting the improvement; the Q4 moving average is expected to demonstrate the loss-reduction path.
• Breakeven timeline: Management targets breakeven roughly 18 months from January 2026, framing the FY27 loss reduction as "absolutely given."
• Prior miscommunication clarified: An analyst noted the earlier expectation was FY26 breakeven; management said they had only guided that FY26 losses would stay in the same range, with the step-down to below ₹10 crores always pegged to FY27.

Abhishek Somany: "Hopefully, 18 months from today, but we will be able to reduce the loss of INR26 crores, INR27 crores this year to less than INR10 crores for next year for sure. So that itself will add to EBITDA. And this is -- I'm talking which is something which is absolutely given."

Margins & Costs

• Gross margin improved 2.2% QoQ, and EBITDA margin edged above 9%; management expects another 1%–1.5% lift in Q4.
• Gas prices stable: Fuel costs are largely steady with a Q4 outlook of ~₹42.5–₹43 per SCM; the North plant's four-formula sourcing insulates it when any single index spikes.
• Brass cost pressure unpassed: Brass input prices climbed from ₹570–580/kg in April to ₹770–780/kg now, a 22–23% increase. Pass-through has not occurred because the rise was gradual; a large competitor raised prices only 15 days ago, so the industry is expected to follow.
• Structural gross margin erosion: Over the years, tile prices have not kept pace with inflation, and cost reductions via R&D have not fully offset the price decline.
• Depreciation step-up: A ₹5 crore YoY increase in Q3 depreciation came from reducing the life of certain key assets; the stable run rate going forward is ₹26–28 crores per quarter barring significant additions.
• Ad spend temporarily low: Brand spend printed at 2% of sales this quarter only because Salman Khan-related expenses dropped off after the association ended; underlying spend stays at the 2.5% target and will catch up.

Distribution & Product Mix

• Dealer network deepening: Net addition of ~170 dealers over nine months brought the total to ~3,050, with showrooms up to 530; GVT mix rose from 38% to 42% YoY.
• Many small outlets, by design: Management prefers a legacy model of many small dealers over a few large distributors, arguing it provides diversification; newcomers using one-dealer-per-town face limits when that dealer outgrows its capacity.
• Four efficiency metrics tracked: Net additions to Platinum, Gold and lower clubs; first-year and second-year sales contribution from new dealers; growth pace of exclusive dealers; and analysis of why dealers exit.
• Bathware and adhesives bundling: Roughly 25% of tile counters now carry bathware; having proven quality at scale, bundling with tile dealers is becoming easier, and the same applies to adhesives.
• Depot rationalization: Depots cut from 19 pre-GST to 4 now, retained only for high-value products where the economics support them; the model is largely factory-to-dealer.

Competitive Landscape & Trade

• China less competitive, not more: Management argued China will raise prices, not cut them, because its VAT increase has made it 9%–12% less competitive.
• EU-India FTA too early to assess: The deal will take more than a year to materialize; management declined to comment substantively on structural realization benefits for Morbi exporters.
• Infra.Market question deflected: Asked about competitive intensity from Infra.Market tying up Morbi capacity, management said they have not seen them in the market and declined to share views on an open call.

Abhishek Somany: "No, not at all. We don't see them in the market. We haven't seen any competition from that. I can take that offline. I have my views on that, which may not be right to say on an open call."

Balance Sheet & Capital Allocation

• Debt paydown on track: Total outside debt reduced from ₹288 crores to ₹231 crores; the majority of the ₹121 crore term loan will be repaid over the next three years, with debt falling to ~₹50 crores by FY28-end.
• Working capital disciplined: Net working capital rose marginally to 14 days from 11 days in FY25, with the receivable cycle slightly better.
• Subsidiary working capital: ₹100–₹150 crores will remain deployed in the subsidiary.
• No major investments ahead: Management flagged that next year carries no significant capex, which combined with better utilization and loan paydown supports the confident outlook.

Abhishek Somany: "So, if this quarter goes well, it gives us that much more confidence for the next year where no investments are coming up. We will be better in capacity utilization. Loans will be paid down and also better on value addition and in our ASP. So overall, looking good after a long time. Very confident of that."

Guidance & Commitments

Key Metrics