Somany Ceramics: A Laggard No More?
Somany Ceramics has faced a brutal year in the stock market. Its shares plunged 27% over the past twelve months. This decline far outpaced the modest 2% drop for Kajaria Ceramics and the 11% fall for Orient Bell. The tile sector overall struggles with weak demand. Yet, a surprising consensus emerges from brokerage firms.
Market analysts overwhelmingly back the company. Bloomberg data shows 19 out of 21 brokerages tracking Somany recommend 'buy', 'add', or 'accumulate'. Only two suggest a 'hold'. This stark divergence highlights a stock caught between immediate challenges and long-term optimism.
The Core Problem: The Max Plant Drag
Analysts point to one primary issue. The Somany Max plant, commissioned in January 2024, continues to run at a loss. This facility manufactures large-format tiles for institutional clients. It has a revenue potential of around ₹2.5 billion.
"Losses at Somany’s Max plant have been a major drag," said Keshav Lahoti, an equity research analyst at HDFC Securities. Capacity utilization stood at just 50% in Q2FY26. Analysts believe the plant needs about 75% utilization to break even.
Management expects the plant to post a loss similar to FY25's ₹260 million this fiscal year. However, they project breakeven within 18 months. A new press investment should boost margins and support the ramp-up. A Nuvama Institutional Equities report expects profitability by FY28.
Operational Challenges and Peer Pressure
Somany's struggles are not isolated. Udit Gajiwala, lead analyst at YES Securities, notes slower volume growth compared to Kajaria Ceramics. A wide margin gap, driven by differences in sales mix, has hurt performance. Kajaria's sharper cost focus has widened this gap further.
The broader sector faces headwinds. Unorganized manufacturers in Morbi flood the market with low-priced tiles, disrupting pricing. Geopolitical tensions and tariff uncertainties keep Indian tile exports volatile.
Reasons for Analyst Optimism
Despite the challenges, analysts see several positive levers.
Balance Sheet Strength: The company has consolidated subsidiaries and used capital efficiently. Net working capital days remained low at 14 days in Q2FY26. Debt is reduced to about ₹300 million, with repayments expected over the next few years. Free cash flow, which dipped recently, is expected to recover strongly as major capital expenditure concludes.
Margin Improvement Plans: Somany is taking concrete steps. It has cut channel incentives and plans further reductions as demand improves. Managing Director Abhishek Somany confirmed retained price hikes and potential new increases. The company targets EBITDA margins over 10% in the near term, up from about 8% in H1FY26. A push towards premiumization, including a new premium brand launch within three months, should enrich the sales mix.
Attractive Valuation: The stock's sharp fall makes valuations appealing. Somany trades at a trailing P/E of 27.15, with a one-year forward multiple of 20.9x. In comparison, Kajaria Ceramics trades at a much richer 46.28x. Nuvama estimates Somany is valued at just 11 times FY28 earnings. Antique Stock Broking notes the stock trades at a sharp discount to building material peers despite a stable outlook.
The Path Forward
The turnaround thesis rests on two pillars. First, the Max plant must achieve breakeven and then profitability. Second, domestic demand needs to rebound to support volume growth and margin expansion.
"Sustained volume growth alongside double-digit margins would be the key trigger for a re-rating," said Udit Gajiwala of YES Securities. Investors should also monitor export momentum, which could ease domestic pricing pressure.
Higher volumes would improve operating leverage. This is critical for a meaningful stock recovery. The market's current pessimism contrasts sharply with analyst conviction. They bet that Somany Ceramics' darkest hour may precede a significant dawn.
