Earnings Call Transcript - XNSE:SOMANYCERA 2026-11-05

Operator

Good afternoon, ladies and gentlemen. Welcome to Somani Ceramics Ltd.'s Q2 FY27 earnings conference call. As a reminder, all participant clients will be in the listen-only mode. There will be an opportunity for you to ask questions after the management's opening remarks. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Agrawal, Head Institutional Equities at SKP Securities Ltd. Thank you, and over to you, sir.

Naveen Agarwal, Other

Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of Sumani Ceramics Limited and SKP Security to this Financial Results Conference call. We have with us Mr. Abhishek Sumani, MD and CEO, Mr. Shivat Sumani, Head Pathway, Mr. Amai Sumani, Joint President, Building Solutions, and Mr. Sailesh Raj Kedawad, CFO. We'll have the opening remarks from Mr. Sumani followed by the Q&A session. Thank you. And over to you, Abhishekji.

Abhishek Sumani, CEO

Thank you. Good evening, ladies and gentlemen. Welcome to the earnings call of Sumani Ceramics Q2. As you would have seen the results, we have grown by approximately 25%, and the volume stands at 5.5% for the quarter. The absolute figure was the 854 throws. The bathware also has grown at approximately 18%. The EBITDA, due to better utilization, optimum utilization of machinery of our own plants and GVs, we have improved our EBITDA, and that stands at 11.7%. This is on the back of better capacity utilization, a full path-through of all the price increases, and a better continuous effort on a better product mix. A little bit on the industry. The industries faced... At the domestic front, decent demand. The demand remains resilient both in retail and in projects through the last quarter, considering that we had rains in certain places, etc. The exports, however, declined for the industry very significantly in last quarter. The export, our last quarter and H1, for that matter, export declined by about 31.2% in the first five months. That's the figure we have. And approximately 44%, 45% in terms of volume. So that's been a dent to Morbi. If this is the way it continues, then the total export figure for the year will be anywhere between 12,000 and 13,000 crores. We have seen a little bit of better exports starting this month with freight rates going down a little bit. Now, this 12,000 to 13,000 crores would be a decrease from 18,750 crores last year. This is as far as the industry is concerned. Our breakup was trials we did about... 25% growth at 723, in fact, 27% growth at 723 crores, 88 crores for bathware last quarter at 15%, and the building solution, we did approximately 45 crores at about 28% growth. All of the areas we've been able to grow fairly well. In the last quarter, again, as mentioned earlier in the year, we had certain plant and equipment, which is going for upgradation and balance equipment. So a couple of plants were not running, which are running now. So therefore, the volume would only be better for Q3 and also significantly better for Q4. As mentioned earlier in the call, JVs, which last year, same time, were in a 12 crore ruby loss in Q2 and 23 crore ruby loss in H1, is in a profit of 3 crore rubies in Q2 and 6 crore rubies in H1. This is in line with what we had said, that the swing of the JV loss versus what the profit would be, would be at least 40 crores for this year. We would probably better. Gas prices have remained volatile. We were looking at a favorable gas solution somewhere in end of July, beginning August, but then the war got escalated, and the gas prices again became volatile. The overall gas prices stand at approximately 70 rupees a standard cubic meter. You would be glad to know that most of our plants, as we speak, have become fungible between LPG propane and natural gas. So we have various sources. Therefore, we have been able to control the overall pricing at approximately 70 rupees a standard cubic meter, which is up from 45 rupees a standard cubic meter for FY26 and 43 rupees a standard cubic meter per cube group. So, significant increase in gas pricing, but, however, we've been able to... Working capital is concerned. We're in a fairly healthy position. Our receivable days are also probably the best in the industry. On the marketing front, we have been maintaining a 2.3 to 2.5% marketing spend, and that would be the spend maintained for the entire year, which in absolute terms would be significantly higher from last year. We've done a lot of effort, as always, on net dealer editions. Net dealer edition in Q2 and approximately 156 dealer edition in H1. Net showroom increase in H1 approximately is about 35. This is what we've done on the sales and marketing front. Our guidance going forward, considering H1 is now done, our guidance for the entire year FY27 remains to be high single digits, and we are quite sure that we will be able to achieve that. Bathware guidance is going to be plus 20%, upwards of 20%. The EBITDA margin at the beginning of the year, we had mentioned that we would be looking at an EBITDA margin increase for FY27 over the FY26 figure of between 1% and 1.5%. We are revising that to approximately 2% to 2.5% improvement over the FY26 figures. Brand spend, like I mentioned, are going to be maintained. Gas and other input costs currently remain to be volatile. As of now, we are able to pass on, but only time would tell as to how this progresses in H2. It would be the same for the entire industry. So, hopefully, it should be, you know, if it's a huge increase, it would be a pass-on. Otherwise, it's going to be a daily constant watch on the gas and other input cost pricing. We hope to... progress for the FY28 also. This is from me. I open the floor to Q&A. And before I finish, I would like to wish every one of you a very, very happy and prosperous Diwali.

Operator

Thank you very much. We will now begin the question and answer session. Each participant is requested to limit himself or herself to a maximum of two questions. Time permitting, we shall revert for any further questions that you may have remaining unanswered. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handset while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Nilesh Sharma with Monomar Capital. Please go ahead.

Speaker 7

Hello. Thank you so much for the opportunity. So my first question is, can you hold the price that we have increased last few quarters? Is the gas price corrected?

Abhishek Sumani, CEO

So, the grass price, in fact, from the beginning of April, it's probably corrected slightly. It is probably reduced by 2-3 rupees, and the entire price increase from April to now has been approximately 16-17%, which is a complete pass-through.

Speaker 7

Okay. So, we will be able to maintain, or is there any planning to increase for this?

Abhishek Sumani, CEO

No, gas price currently is holding at 70. If there is a huge increase, in which case I think everybody would have to pass it on, we will see. As of now, we're not getting any feelers that that would be a major increase. There was a massive increase in the propane pricing, but that increase still, after the increase also, it's slightly lower than the natural gas pricing, and we are using propane in quite a few of our plants in Morby, and in North, we have multiple contracts, so we're able to, you know, get slightly cheaper pricing than Morby. So overall, we're still holding at 70-71 rupees going forward. Unless there's a huge upset in the next 2-3 months, which I don't believe there would be, but who knows. So as of now, it's a full parcel.

Speaker 7

Okay. So, last question. As we have seen in the last two, three days, new geopolitical development across the world, how do you see the export volume going forward from Morby, and how we as an organized player are impacted by these volumes?

Abhishek Sumani, CEO

So, Morbi is facing the situation in a very tough way. Approximately 35% of Morbi is shut as we speak. And I think another 10% will be shut over Diwali. All of these are export-oriented units. As you all know, that it's a very voluminous product. Beyond the point, you can't hold this product. But in the last one month, exports have ticked up because freight rates have started reducing. And we believe that they are continuously reducing. November should be a better month. December, as you know, Europe and most of the world shuts down. So the exports will restart only in January. But it's definitely better than Q2. That's what I get to hear from Morbi. How we are impacted as a domestic organized player, I think we've been facing a lot of pressure on the supplies from Morbi. There is a little bit of excess supply, but that's not held us back from reducing prices. We've been holding our prices a complete path through, and yet we've been able to grow in a fairly healthy way. We don't export very much, so we didn't get hit on that front. There is one positive development other than freight. America has kind of banned all engineered marble, is what we hear from the news, which means engineered marble and quartz, which means that tiles from India, the big tiles, may get a good opportunity to be exported in the U.S.

Speaker 7

Okay, great, great. Thank you so much, sir, and wishing you a very happy one, too.

Abhishek Sumani, CEO

Thank you. Thank you so much.

Operator

Thank you. Our next question comes from the line of Sagnik Satkar with SKP Securities. Please go ahead.

Sagnik Satkar, Analyst — SK Securities

Yeah, thanks for the opportunity, sir. So, I just wanted to know the GBT mix currently that we are doing. Thank you. What kind of GBT means we are targeting and will that result in some margin expansion going forward?

Abhishek Sumani, CEO

So, this question is becoming more and more irrelevant going forward because everything is moving to GBT. There's a very thin line between what we're doing now in various different levels. But anyway, I will answer your question. We're currently at 45% of GBT mix, up from last year at about 40%. And the next 16 million odd square meters which we are putting in to production in the next 12 months, All of that is GVT, which means that GVT will become significantly higher, and the minute GVT becomes significantly higher, obviously that contributes even to the bottom line and to EBITDA. So, I believe in the next two to three years, GVT would become close to 65 to 70 percent.

Sagnik Satkar, Analyst — SK Securities

Okay, and what kind of margin expansion will this result in?

Abhishek Sumani, CEO

No, GBT does not specifically give margin expansion. It does have a slightly better margin, but then GBT also has a non-margin trading business. But overall, we are guiding for a 2-2.5% margin increase this year, and obviously we would better that for next year.

Sagnik Satkar, Analyst — SK Securities

Sir, another question on the KPEX front. So in the past, I think you have mentioned about the Nepal JV KPEX, which I think was stalled in between. So any plans of reviving that or is it scrapped as of now?

Abhishek Sumani, CEO

We are currently doing a KPEX. Where we are buying a couple of CAPEXs on the card. One CAPEX is the buying extra shares, making our sanitary wear JV. We will go up to 76% from current 51%. That is one CAPEX. The other CAPEX is the Ceravid plant, which is our south JV, where we are expanding. We're doubling that plant. Currently, we had announced a 9 million square meter expansion, but we believe we will be able to add approximately 11 to 12 million square meters in the south. So that is the other expansion which we're taking place. I think Silesh can take you through the numbers of what this expansion will entail. Over the next 12 months. So, not everything is in this financial layer. Over to you, Salish.

Sailesh Raj Kedawad, CFO

So, the Ceravit total capex would be close to around 150 crore now, which has increased income, which we are talking. We are funding this through a 50% mix of debt and 50% mix of equity as of now. So, our capex would be in the range of around 60 crore from some money side in that. Besides that, there are two other Capex which we announced last time. There is a modernization happening in Sudha, for which we are going to invest around 15 crore rupees, and there is a modernization happening in Vintage, where we are going to invest around 8 crore rupees. So this is all in Capex, which is there as of now with us. And we do a routine of around 70 to 80 crore Capex in Sumani, standalone, towards augmentation of our equipment. This is a normal routine in Capex.

Abhishek Sumani, CEO

So, Routine Sudha, Routine Vintage, and our increase of shareholding, that is all funded from internal groups.

Sagnik Satkar, Analyst — SK Securities

Okay, thanks.

Abhishek Sumani, CEO

Thank you.

Operator

Our next question comes from the line of Dwanit Savla with Savla Family Office. Please go ahead.

Dwanit Savla, Analyst — Savla Family Office

Hi, sir. Am I audible?

Abhishek Sumani, CEO

Yes, yes, absolutely.

Dwanit Savla, Analyst — Savla Family Office

Sir, I have just one question. I know that you have covered it right now, but is there a particular gas price level from the current prices where it will not become viable for us to, you know, produce or, you know, halt our production? And just wanted to know in the going quarter, what has been our utilization of our capacity, both for our individual and the GV?

Abhishek Sumani, CEO

Yeah, so capacity utilization is optimum, which is all the plants which were running were running at 100% capacity. Like I said, that we had certain plants for 20 days and 15 days in August and July, which were getting upgraded. So minus that, we've been running at optimum level. As far as gas pricing is concerned, because tiles is the cheapest material for any floor covering and also for wall covering, We don't believe that scenario would unfold where prices become so expensive that there is an alternate material. In fact, even if tiles go up by 50% from the current prices, hypothetically, it would still be extremely viable for a consumer to buy tiles over any other material, any other building material. So that eventuality, fortunately for the industry, is not posing any threat currently.

Dwanit Savla, Analyst — Savla Family Office

Okay, sir, just try to follow up on this, please. Firstly, I just wanted to know that is there any planned maintenance or something which we are planning for this year, or we plan to run all the plants going forward also at full capacity? Okay, and secondly, by pricing, I just wanted to know that, like, in Unicom, there is an increase in the gas prices, so there is a good chance that we will be able to pass the power source to the consumer, correct?

Abhishek Sumani, CEO

Yes. Yes. So that eventuality of passing on cost is not an issue. The issue comes when there is no availability of gas, and we've been given to understand from all gas authorities in India and the government that there is more than enough gas available. The question is the price. As far as the first question is concerned, there are always routine maintenances which happen, but the plants which were taking an upgradation like in vintage last quarter and in one of our other plants last quarter and this quarter in the month of October, one of our plants in the north, one of our lines in the north was going through a massive upgradation to reduce costs and also increase capacity. All of those were over and above the routine maintenance. I do believe that the H2 would have lesser disruptions because generally... We plan all our maintenances in the first quarter, because that's the leanest quarter. Obviously, this year, nobody could predict that the first quarter, there would be such a situation like the war. But other than that, most of our maintenance are behind us. So, we would be running at optimum capacity and 100% capacity from that point of view going forward.

Dwanit Savla, Analyst — Savla Family Office

Okay, fair enough. Thank you very much, sir, and festive greetings for the year. Thank you.

Operator

Thank you. Thank you. Our next question comes from the line of Sneha with Nuwama. Please go ahead.

Speaker 10

Good evening, and congrats on good set of numbers. Now, while, you know, margin expansion is really appreciated, what I basically wanted to understand is, you know, everything is going good. You know, we are getting market share from Mordi. You know, you've been mentioning that, you know, demand growth is good both on the retail and the projects. Frank, then why only a 5% volume growth number? Leader this particular quarter has, you know, at least a 10% kind of a double-digit number. When can we see a scenario when even we move to the double-digit growth that we used to do it at once?

Abhishek Sumani, CEO

I don't think anybody has gone to a double digit. There's been high single digits and close to 10%. I think we'll be there close to that in the second quarter. We should be anywhere between 7-8%. The first quarter was in a little bit of a dampener because a lot of our products were morbid in our JVs and the outsourcing. Our next quarter, this quarter, we had certain plant maintenances and also upgradation to improve capacity. This is going to play out in a very positive way in terms of margin and in terms of volume growth. So not very worried. We could have easily done a percent and a half more this quarter if we had those plants up and running, which were out for 20-20 days in the month of July and a little bit in August. So I think we're home. We're obviously very concerned with not selling cheaper products, so we are very cognizant of the fact that we keep our realizations up. So if you see our gap is reducing from the industry leachers in terms of our realization fairly significantly, And we keep decreasing from the industry leaders going forward in terms of making sure that we sell a better value-added product and also augment more capacity for our business.

Speaker 10

The second two data points is what I needed. Our GVT share last year same time as well as now, and our project shares last year same time and now.

Abhishek Sumani, CEO

GVT has gone up by 5%, Sneha. Project is, I don't have the figure offline, but I think it's gone up by about 2-3%. 2-3% is the project. I believe GVT will further go up by another 5% and project will go up another 2%.

Speaker 10

This is the next tier thing.

Abhishek Sumani, CEO

Last year, retail was at 80.5. This year, retail is approximately 76. So, that 4-5% difference will be there in favor of projects.

Speaker 10

Similarly, can I get the numbers for GVT?

Abhishek Sumani, CEO

GVT are 45% currently, up from 41%.

Speaker 10

Go ahead. Thanks a lot.

Abhishek Sumani, CEO

It could significantly go up because 100% of the expansion which is going up on today's base is all GVT. So 16-70 million square meters are going to come only in GVT. So obviously it's going to push up that share, fairly significantly escalate that share over the next 12-18 months.

Speaker 10

Okay, well, last one is for me. Could you help us with the deadlines for the expansion? I'm sorry if you've already answered this and I missed this.

Abhishek Sumani, CEO

Yeah, I think the deadline for the expansion is exactly the same time. Next year, we should be firing in Proxure, which means about September. Not really November, but September.

Speaker 10

Understood. That was pretty helpful. Thanks a lot, team.

Operator

Ladies and gentlemen, to ask a question, you may please press star and one. Our next question comes from the line of Shruti Mulchandani with Ikigai Asset Management. Please go ahead.

Speaker 10

Hi, Adishulgi. Good evening. Good evening. A couple of questions from my side, especially in the call growth. So, I think you mentioned that in Q2, we had some maintenance related, you know, disruptions that affected the volume that we saw. But, you know, historically, if I see Q3 has been a seasonally low quarter in terms of absolute volume that we do. And I think that kind of impacts our margin as well, because we are seasonally low in terms of volumes, we are seasonally low in revenue, and hence the margins, because the populous is a little bit lower there. So, because I think we'll have the added capacity from the B bottlenecking and because there won't be any disruptions, do we see this trend reversing in this year Q3 versus what we have been saying historically?

Abhishek Sumani, CEO

Yes, Q3, I mean, October has gone very well, so we are very hopeful for a better Q3 than even Q2.

Speaker 10

Okay, okay. This was helpful. Additionally, could you just...

Abhishek Sumani, CEO

And those upgradations, which we are doing, it's more from a long-term perspective. So, one of the upgradations, one big one happened in October in the northern plant, but that's all part of the game. We are significantly increasing capacity over there. So, all for the better, which will only be margin credit. But Q3, I don't see any disruption in terms of volume unless any other further geopolitical situation happens. That's a separate issue.

Speaker 10

And Q3 will be better than Q2 in absolute number?

Abhishek Sumani, CEO

EBITDA should be better or maybe the same absolute number yet to be seen as to what the volume growth would be. But yes, I believe the volume would be better than what we have done in H1. So volume targets will be slightly better.

Speaker 10

Understood, understood. And just on the capacity that you added via D-bottom necking, would it be possible to quantify the same?

Speaker 7

Sorry? I'm sorry?

Speaker 10

The capacity that you added via D-bottom necking in Q2, would it be possible to quantify the same?

Abhishek Sumani, CEO

To quantify? Yes, of course, I can. I mean, I can take you plant-wise, probably you can do it offline with Silish. He will take you through. But overall, we would be, in the entire year, annualized capacity will go up by about 4 million.

Speaker 10

Got it. Got it. And just, you know, lastly, from my side, in terms of a medium to long-term outlook, so I think this year, it's been really good for us in terms of margins, because these subsidies have been contributing positively. We have seen a better mix in terms of GBT, and, you know, overall capacity utilization has been very good for us. So, we would be, I think, based on the new guidance, ending the year at 11.5% sort of EBITDA margins. But when I look at F528, F529, I believe we have some more room for improvement. So, where do you see the margins landing maybe two or three years from now?

Abhishek Sumani, CEO

That's a very forward-looking statement, but what I can say is that it will keep increasing and we will keep reducing the gap with the industry leaders. This year has been good, but there has also been a strategic shift where we have got market share. I don't think we're going to be anywhere worse off in capacity utilization because we've augmented more capacity within the same plant, which is absolutely fantastic because the same units are producing now 4 million per meters more. So next year, all of that will go into margin trading. Also, you can do your back-of-the-envelope calculation. This year, our swing of the joint ventures loss versus profit has been 40. Where the first quarter was quite slow, so obviously that will also get added, so our JVs will only perform even better. So, all of that will all go into margins, which will be upwards of 11.5% to 12% is what I'm guiding now. So, it will be upward of that next year. I wouldn't want to immediately look at a three-year scenario, but we do feel that next year also strategically, we should be in a better position. Hopefully, exports will be better. Gas pricing has worked in the favor of the industry, where I believe that the gas pricing, which is currently in Morbi at approximately 80 rupees, a standard cubic meter, if the war had to settle, I don't see that going back to 45. I see that settling anywhere between 60 and 70, which means that strategically, there is going to be a shift and an improvement in realization and pricing. And the organized sector, like you've seen in the last H1, has had a better pricing power. And we will continue to take advantage of that and get market share. The other thing which has happened is that Morbi has become less competitive at this gas pricing. Exports is taking a hit. The land prices have only more shot up. The rupee dollar, rupee euro has shot up. Great rates are shot up, which is making it very difficult for any Morbi operator to expand capacity. So we believe that there is going to be no substantial improvement in increase in capacity in the next 18 to 24 months. In fact, there will be probably a decrease in capacity, which again goes in favor of the... While I say that for Tiles, we are extremely. Thank you very much. Sanitary wear is grown at 20%, and we will grow at 20% for the entire year, and we are looking at 20% again for the next year. Building solutions, again, we started a very large plant in the north last month, and our south plant also started last quarter. All of those will start giving us more value on volume. So both of those which constitute approximately 16-17% of our total revenue is going to be pushed in the next 2-3 years to maybe anywhere between 20-25% of the total value volume we sell in tiles. All of that will come at a slightly better EBITDA margin. So we're looking good in terms of continuously improving our EBITDA year on year.

Speaker 10

Thank you, sir. This sounds really wonderful. Thank you so much, and happy Diwali to you and the team.

Operator

You too. Thank you. Thank you. Ladies and gentlemen, we request that you please restrict yourselves to two questions only. If you have any further questions, you may rejoin the queue. Our next question comes from the line of Karan Bhatalia with Asian Market Security. Please go ahead.