Equirus Securities Somany Ceramics Initiating Coveragebsmedia.business-standard.com/_media/bs/data/market-reports/equity... · Polished vitrified tiles (PVT) is the second fastest

November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102) Page 1 of 33

Before reading this report, you must refer to the disclaimer on the last page.

Somany Ceramics Initiating Coverage

Improving product mix to drive

gradual margin expansion

November 29, 2017 Analyst: Pranav Mehta (+91-7574885494)/Dhaval Dama (91- 8128694102)


Before reading this report, you must refer to the disclaimer on the last page.

Somany Ceramics Absolute : ADD

Relative : Benchmark

Initiating Note Regular Coverage 5% ATR in 16months

Improving product mix to drive gradual margin expansion - initiate with ADD on rich valuations Building Materials

© 2017 Equirus All rights reserved.

Rating Information

Price (Rs) 858

Target Price (Rs) 910

Target Date 31st Mar'19

Target Set On 28th Nov'17

Implied yrs of growth (DCF) 15

Fair Value (DCF) 698

Fair Value (DDM) 343

Ind Benchmark BSETCD

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 36,378

Free Float (%) 48.47 %

52 Wk H/L (Rs) 915/470.05

Avg Daily Volume (1yr) 56,317

Avg Daily Value (Rs Mn) 40

Equity Cap (Rs Mn) 85

Face Value (Rs) 2

Bloomberg Code SOMC IN

Ownership Recent 3M 12M

Promoters 51.5 % 0.0 % 0.0 %

DII 20.5 % 1.0 % 10.6 %

FII 7.4 % 0.2 % -9.0 %

Public 20.5 % -1.1 % -1.6 %

Price % 1M 3M 12M

Absolute 3.7 % 6.8 % 62.1 %

Vs Industry -0.3 % -3.8 % 23.6 %

Kajaria 6.4 % 4.3 % 40.3 %

Asian Granito 3.9 % 13.3 % 154.8 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 4.3 5.6 4.8 6.6

EPS (18E) 1.8 5.3 5.9 7.8

Somany Ceramics Limited (SOMC), India’s second largest tiles player with a 7% market

share (14% in organized tile industry) has substantially transformed its product mix

from commoditized ceramic tiles to high-margin vitrified tiles and value-added

products over the last four years, leading to continued improvement in its revenues

and EBITDA margins. Volume growth ahead would be supported by production

ramp-ups at own/JV capacities and a favorable GST rate of 18%. Margin improvement

would continue with focus on product innovation, a higher share of value-added

products, rising contribution from the sanitary-ware & faucet-ware (S&F) segment,

and increased retail penetration among brand-conscious customers. We expect SOMC

to post a 13%/18% revenue/EBITDA CAGR and a 129bps expansion in consolidated

EBITDA margins over FY17-FY20E. Initiate coverage with ADD and Mar’19 TP of Rs 910

set at a 30x TTM EPS of Rs 30.32.

High-margin tiles to drive revenue growth, margin improvement: SOMC’s tiles

business posted a 15% revenue CAGR over FY12-FY17 as it moved away from low-

margin and commoditized ceramic tiles (39% of FY17 revenues vs. 67% in FY12) and

increased the share of higher-margin value-added products, including vitrified tiles

(53% in FY17 vs. 30% in FY12). It also ramped up its manufacturing capacity from

24.5msm to 49.5msm via expansion and JVs over the last five years. Going forward,

we expect SOMC to post a tile volume/revenue CAGR of 12%/11% over FY17-FY20E

with contribution from vitrified tiles increasing from 53% to 59% during this period.

Contribution from sanitary-ware & faucet-ware to increase gradually: While SOMC

has been present in S&F since FY08, it contributed 8% to FY17 revenues (34%

revenue CAGR over FY10-FY17) as the company increased focus on this segment only

over the last 3-4 years. The company has recently expanded its sanitary-ware JV

capacity from 0.3mn to 1.15mn pieces/annum. It is also considering setting up a JV

for manufacturing bath fittings given similar operational dynamics as sanitary-ware,

with an opportunity to capitalize on the Somany brand. We expect the S&F segment

to deliver 24% revenue CAGR over FY17-FY20E and contribute 10% to FY20E revenues

with margins improving due to a better margin profile of products.

ROIC improvement to be led by better product mix, JV capacity addition: SOMC will

continue to add capacity via JVs and taking up majority stakes in them as (a) the

capital commitment is normally 1/5th of that required for setting up an own unit, and

(b) there is excess capacity available in Morbi. Also, EBITDA margins are expected to

improve by 129bps as the product mix turns in favor of high-end vitrified tiles and

value-added products. Due to these factors, we expect core ROIC to improve gradually

over FY17-FY20E. Key risks include slower-than-expected pick-up in real estate

demand and higher competition from unorganized and new branded players.

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 18,110 18,908 22,432 26,293

EBITDA 1,915 1,930 2,540 3,118

Depreciation 350 379 428 481

Interest Expense 233 257 276 293

Other Income 151 160 96 98

Reported PAT 931 936 1,286 1,627

Recurring PAT 971 967 1,286 1,627

Total Equity 5,212 5,975 7,005 8,326

Gross Debt 2,744 2,922 3,211 2,816

Cash 1,290 915 716 554

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 22.9 22.8 30.3 38.4

Book Value 123 141 165 196

Dividends 2.7 3.4 5.0 6.0

FCFF 2.6 -5.5 -4.5 16.5

P/E (x) 37.5 37.6 28.3 22.4

P/B (x) 7.0 6.1 5.2 4.4

EV/EBITDA (x) 20.1 20.2 15.6 12.6

ROE (%) 20% 17% 20% 21%

Core ROIC (%) 15% 13% 15% 16%

EBITDA Margin (%) 11% 10% 11% 12%

Net Margin (%) 5% 5% 6% 6%

Somany Ceramics Absolute – ADD Relative – Benchmark 5% ATR in 16 months


Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 22.8 22.8 0 %

FY19E 30.3 31.8 -5 %

Sales FY18E 18,908 18,550 2 %

FY19E 22,432 21,899 2 %

PAT FY18E 936 935 0 %

FY19E 1,286 1,347 -5 %

Our Key Investment arguments:

1. Higher contribution from GVT & value-added products to improve margins over

FY17-FY20E: SOMC’s revenue mix is changing towards high-margin GVT and value-

added products, which is likely to improve its margins by 129bps over FY17-FY20E.

2. 18% GST rate, E-way bill implementation to be a game changer for organized

players: GST rate revision to 18% is expected to boost consumer sentiments as

purchase costs will come down. Additionally, a gradual shift from unbranded to

branded players, due to lower price differential, would lead to better volume growth

for players like SOMC. Besides, E-way Bill implementation would increase compliance

costs for unorganized players.

3. Expect EBITDA/PAT CAGR of 18%/20% over FY17-FY20E due to a changing product

mix and increased contribution from higher-margin products.

Risk to Our View:

1. Lower level of GST compliance by Morbi-based players

2. Slower recovery in real estate demand

3. Any strain in relationship with JV partners

Key Triggers

Growth of the real estate sector and affordable housing

GST leading to higher compliance costs for unorganized players

Sensitivity to Key Variables % Change % Impact on EPS

Revenues -1 % -3 %

EBITDA -1 % -8 %

- - -

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.8 % 0.8 11.6 % 3.0 % 6.0 %

- FY18E FY19E FY20-22E FY23-27E FY28-32E

Sales Growth 4 % 19 % 13 % 12 % 4 %

NOPAT Margin 6 % 6 % 7 % 8 % 8 %

IC Turnover 2.22 2.18 2.30 2.30 2.30

RoIC 13.0 % 15.1 % 18.8 % 19.7 % 19.0 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 211 261 429 562 603

Valuation as of Mar'19 245 302 496 651 698

Based on DCF, assuming 15 years of 4% CAGR growth and 19% average ROIC, we derive

our current fair value of Rs 603 and a Mar’19 fair value of Rs 698.

Company Description:

SOMC was incorporated in 1968 and is currently India’s third largest tiles player in value

terms. It has a tile manufacturing capacity of ~50msm (own capacity ~24msm and JV

capacity ~26msm) while it has outsourced capacity of 9msm. Its own plants are located in

Gujarat and Haryana. The company’s retail segment contributes ~65% to its total

revenues and it has ~1,720 dealers and ~10,000 touch points. SOMC is also present in

sanitary-ware (JV capacity: 1.15mn pieces/year) and bath fittings (100% outsourced).

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY16A FY18E FY17A FY18E FY19E FY17A FY18E

Somany Ceramics ADD 858 36,378 910 31st Mar'19 22.9 22.8 30.3 37.5 37.6 28.3 122.9 6.1 20 % 17 % 20 % 0.3 % 0.4 %

Kajaria Tiles REDUCE 729 115,786 647 31st Mar'19 15.9 16.1 21.6 45.8 45.3 33.8 73.9 9.0 24 % 21 % 25 % 0.4 % 0.8 %

Asian Granito NR 504 15,154 NR NR 13.0 17.6 23.8 38.7 28.6 21.2 133.3 3.8 10 % 10 % 12 % 0.1 % 0.1 %



Investment Rationale

Continues to move up the value chain on higher vitrified tile revenues

The glazed vitrified tiles (GVT) segment is currently the fastest-growing segment in

India’s tile industry. In volume terms, the segment grew from 20msm to 80msm over

CY10-CY16 (26% CAGR), while from Rs 10bn to Rs 42bn (27% CAGR) in value terms.

Polished vitrified tiles (PVT) is the second fastest growing segment after GVT; in volume

terms, the segment grew from 170msm to 275msm over CY10-CY16 (8% CAGR), and from

55bn to 115bn (13% CAGR) in value terms. For SOMC, revenue contribution from vitrified

tiles (both PVT and GVT) jumped from ~19% in FY10 to ~53% in FY17. The company’s

ceramic/PVT/GVT revenues have grown at 7%/33%/65% CAGR over FY10-FY17 due to (a)

consistent focus on improving the sales mix and (b) more value-added product launches,

in line with the industry leader Kajaria Ceramics (KJC), to meet changing consumer

preferences. As a result, SOMC’s blended realizations grew at 7% CAGR over FY10-FY17.

Currently, most of SOMC’s new capacity expansion is in the vitrified segment as it aims to

move up the value chain. With production ramp-up at its 4mnsqmGVT line at Kassar

which become operational in FY17, and higher contribution from JVs over the next three

years, we expect SOMC’s vitrified segment to see a 16% CAGR over FY17-FY20E. We

expect PVT/GVT revenues to constitute 36%/23% of total revenues by FY20E vs. 33%/20%

in FY17, leading to a margin improvement. However, revenue growth would mostly be

volume-driven with realization growth likely at 1% CAGR over FY17-FY20E.

Exhibit 1:Revenue mix shifts from ceramic towards vitrified tiles over FY10-FY17

Source: Equirus Securities, Company

Exhibit 2:Realizations on an uptrend with rising sales contribution from vitrified tiles


Exhibit 3:Revenue mix - SOMC & KKC

A. Ceramic tiles – Moving away from commoditized, low-margin products


4.2 4.7 5.4 5.8 6.4 7.0 7.1 6.9 7.0 7.6 8.2

0.9 1.9

2.4 2.7 3.7

5.2 6.1 6.6 6.6 8.0

9.5

0.1 0.3

0.6 1.6 1.9

2.3 2.9

3.4 3.8

4.8

6.0

0

5

10

15

20

25

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Ceramic (Rs bn) PVT (Rs bn) GVT (Rs bn)

0

50

100

150

200

250

300

350

400

450


Blended Realizations (Rs/sqm)

79%

72% 67%

58%

51% 46%

41% 39%

61%

50% 46% 44% 44%

40% 37% 37%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Somany Kajaria



B. PVT - Sharply higher contribution post formation of JVs, expansion of own capacity


C. GVT – SOMC’s fastest-growing segment but still some catching up to do with KJC


In tiles, Ceramic wall/floor tiles generate margins of11-12%, while PVT generates around

10% due to stiff competition and the product’s commoditized nature. GVT generates

around 13-14% margins. Apart from these, value-added products like polished ceramic

tiles, unique designer tiles and larger-sized tiles also generate higher margins. Over the

years, customer aspirations for a better lifestyle have evolved due to increased

urbanization, brand consciousness and rising disposable incomes; this has led branded tile

companies to change their product mix towards higher-margin vitrified and value-added

tiles. We expect this trend to intensify in the mid-to-long term, with larger tile

companies focusing more on innovation and value-added products.

Currently, the percentage contribution of value-added tiles to revenues is 43-45% for

SOMC vs. KJC’s 60%. We expect contribution from value-added products to reach ~60%

over the next 3-4 years, thereby boosting margins for SOMC.

Value-added products, higher own manufacturing/JVs to drive margins

SOMC has historically seen lower margins vs. KJC on account of the following reasons:

Reason for margin

difference

KJC SOMC

Brand perception KJC enjoys strong recall value among

customers due to its continuous focus

on higher A&P spends

SOMC too has been increasing focus on

stepping up its A&P spends, but still has

some catching up to do for creating the

kind of consumer recall enjoyed by KJC

Pricing differential Strong retail presence due to higher

A&P and brand positioning has

ensured a slight premium

Current pricing differential: 5-7% lower

than KJC

Product innovation &

first-mover

advantage

KJC’s product innovativeness and

first-mover strategy has always led to

market disruption and creation of

new markets, helping it clock better

realizations

SOMC has typically been more reactive to

changing customer preferences. That

said, it has the largest collection of tiles

in the market.

Revenue mix As a product innovator, KJC has

historically had a higher proportion of

value-added and higher-margin

products in its revenue mix

SOMC has seen higher contribution from

ceramic tiles in its revenue mix though

contribution from value added products

has improved over last 3-4 years

Share of own

manufacturing

Higher share of own manufacturing Equal contribution from JVs and own

manufacturing

Stake in JVs KJC owns majority stakes (51%) in all

its JVs, and is able to book the entire

margin in its P&L

Since SOMC has a 26% stake in most of its

JVs, it is able to retain only trading

margins on its books, leading to lower

margins


17%

21% 23% 23%

29%

33% 35% 33% 33%

35% 37%

39% 38% 37% 36%

33%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


Somany Kajaria

2% 4%

7%

15% 15% 15% 17%

20%

6%

14% 15% 15%

17%

22% 23%

25%

0%

5%

10%

15%

20%

25%

30%


Somany Kajaria



Over the last five years, SOMC has been aggressively closing the gap with KJC in terms of

revenue contribution from value-added tiles. Before FY11, contribution from third-party

outsourcing in SOMC’s tile volumes was very high as it sourced most of its ceramic and

low-end vitrified product requirements from Morbi-based players. As against this, KJC has

focused on higher contribution from own manufacturing, though the share of JVs has also

increased in its overall production mix post FY12.

Since FY11, SOMC has increased focus on sourcing from JVs, due to which the share of

outsourcing has gradually declined; the percentage of volume/revenue contribution from

outsourcing in the tiles segment has come down to 12%/15%in FY17 from 41%in FY11.

Going forward, we expect the outsourcing volume/value share to decline further to

8%/10% with higher contribution from own manufacturing and JVs. We expect the share

of own manufacturing volumes/revenues to increase from 44%/39% in FY17 to 45%/41% by

FY20 while JV volume/revenues to increase from 44%/47% in FY17 to 45%/47% by FY20.

We expect SOMC’s production mix to remain skewed towards JVs as the company is

setting up a plant in Andhra Pradesh (AP) with a local partner.

Exhibit 4:Production mix: Own manufacturing and JVs to continue to contribute

equally for SOMC


Exhibit 5:KJC’s production mix historically dominated by own manufacturing; trend

to continue ahead


Higher utilization, upgrades to improve operating leverage/product mix

Over the last eight years, SOMC has increased available capacity by 3.6x via a mix of own

manufacturing and JVs, or outsourcing from Morbi-based players. The company’s first JV

was formed in FY12, and it currently has six JVs with a combined production capacity of

25.7msm as against its own manufacturing capacity of~23.8msm. SOMC has recently

expanded its value-added PVT (double-charge) capacity from 2.99msm to 4.80msm.

Additionally, the company has undertaken de-bottlenecking and a minor brownfield

expansion at its own manufacturing units at Kassar and Kadi respectively.

At the Kassar plant, de-bottlenecking would lead to ~10% additional manufacturing

capacity; the company is also replacing some of its existing lines with new equipment for

manufacturing value-added wall tiles. These new products would increase costs by 10% but

realizations from these products would by ~20-25% higher than existing products. At the

Kadi plant, SOMC is replacing one of its existing lines (~20% of capacity) from manufacturing

commodity products to high value-added products (ceramic polished large tiles).

The de-bottlenecking and expansion projects will together cost around Rs300mn-350mn

vs. Rs 500mn-550mn for any similar greenfield project, as land and other necessary

infrastructure is already in place. The first phase of upgrade has been completed in

early-2Q18 while the second phase would be completed by 3Q18. This upgrade would

57% 51% 51% 44% 43% 44% 43% 44% 45%

1% 9% 17% 34% 41%

44% 43% 45% 45%

42% 40% 32%

22% 17% 12% 13% 11% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Own Manufacturing JVs Outsourcing

68% 59% 54% 51% 51% 55% 58% 58% 59%

6% 18% 26% 31%

37% 33% 31% 32% 31%

26% 23% 19% 18% 12% 12% 12% 11% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Own Manufacturing JVs Outsourcing



enhance the ratio of value-added products and increase SOMC’s operational capacity by

~7%.

SOMC has also increased its stake in Vintage Tiles, an associate company, to 50% from

26% earlier to capitalize on the latter’s recent expansion in value-added PVT tiles.

Besides, SOMC intends to set up a 5msm/annum vitrified tile plant in Andhra Pradesh (AP)

through its associate company, Sudha Somany Ceramics Pvt. Ltd. (51% stake),for a total

capex of ~Rs 1bn. The plant, likely to be commercialized by FY19-end, would have a peak

turnover of Rs 1.8bn-2bn. The end product mix is yet to be finalized by the company.

SOMC has a rolling capex of Rs 1.5-1.7bn planned over the next three years, most of

which would be funded through internal accruals. We expect revenue contribution from

own manufacturing and JVs to remain at these levels going forward, with the ratio tilting

slightly in favor of JVs post commissioning of the new AP plant.

Exhibit 6:Own/JV capacities have grown at CAGR of 6%/37% over FY12-FY17


Exhibit 7:JV contribution to overall capacity has steadily increased over the years


Brand investments, higher retail penetration to continue yielding results

Over the past five years, SOMC has nearly doubled its advertisement and brand promotion

spends, from 1.3% (as a percentage of sales) in FY12 to 2.6% in FY17.The company’s

marketing efforts include: (a) increasing visibility through print, electronic and other

advertising media, (b) participation in exhibitions and outdoor promotions, (c)training

sessions for masons under ‘Tile Master’ program– a first in the industry - and recognizing

them with certificates post completion, and (d) creation of a wide network of exclusive

franchisee showrooms and display centers to gain more traction in the retail segment. It

has recently launched its new TV commercial as well.

As a result of these efforts, the brand Somany now competes for the no. 2 slot (after

brand Kajaria) along with HR Johnson in the tiles industry. However, due to delivery

issues and lower focus from HR Johnson, the Somany brand has gained more consumer

mindshare over the past 2-3 years. The company’s marketing expenses as percentage of

sales are likely to increase to 2.9-3% over the next three years. Historically, SOMC has

been perceived more of a project brand vs. a retail brand; however, it is now focusing on

creating brand awareness in the retail chain by opening more large-format stores and

giving a complete customer experience. Currently, the retail segment contributes ~65%

to SOMC’s topline, higher than the industry average of 50% but lower than KJC’s 75%.

19.2 19.2 19.2 19.2 21.6 25.6 25.6 23.8

2.7 5.3 5.3

15.5

21.0

25.7 25.7 25.7

0

10

20

30

40

50

60

FY11 FY12 FY13 FY14 FY15 FY16 FY17 2Q18

Own Manufacturing JV

88% 78% 78%

55% 51% 50% 50% 48%

12% 22% 22%

45% 49% 50% 50% 52%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 2Q18

Own Manufacturing JV



With SOMC’s improving product mix and increased focus on branding and advertisements,

the retail contribution should increase going forward, leading to improved realizations

and higher margins. However, the company is not looking at any celebrity tie-ups and will

focus more on other advertising mediums. Over the next 4-5 years, SOMC targets to take

its retail contribution to 75% (from ~65% currently). A higher proportion of retail sales

along with a better product mix would enhance pricing power and brand visibility.

Exhibit 8:Brand spends (% of A&P) to increase amid focus on improving retail visibility


Allied products complement existing business, to aid revenue and margins

Though SOMC has been present in the sanitary-ware business since FY08 and bath fittings

since FY10, both businesses picked up significantly only over the last three years with

improved focus on developing these brands. The sanitary-ware and faucet-ware (S&F)

division contributed 8% to total revenues in FY17. As both sanity-ware and faucet-ware

products are also sold through the tiles dealer network, this leads to savings on branding

& promotion and thus better margins. Initially, the company tested the market for both

products by way of importing/outsourcing from domestic/international suppliers, but is

now looking at a JV model or a Greenfield project.

The S&F segment posted a robust 37% CAGR over the last five years. Total revenue from

sanitary-ware/faucet-ware stood at Rs 802mn/Rs 573mn in FY17 vs. Rs 189mn/Rs 96mn in

FY12, with outsourcing contributing around 65-70%/100%. The company has historically

focused on penetrating the mid-end market with comparatively higher share of

institutional sales and lower presence in the premium category. Though SOMC offered

products ranging from Rs 350-18,000/unit in this segment, we believe average

realizations would have been on the lower side vs. other established players like Jaguar,

HSIL or Cera due to lower management focus and limited consumer awareness. On the

pricing front, SOMC’s products are priced at par with Cera and HSIL.

To cater to high-end premium consumers, SOMC has recently launched the ‘French

Collection’ range of sanitary-ware (smart and intelligent toilet market), which is the

company’s most premium offering till date. This collection has 28+ products including

water closets, urinals, and wash basins, under 11 different series (Jazz, Dior and Ace). Each

series follows a particular theme with different patterns of technology integration. Ace

series is the star of the French Collection, having the first high-IQ toilet designed to ensure

minimum pressure points and enhance overall comfort. The price range starts from

Rs 7,990/unit for the Quest Art Basin to Rs 165,000/unit for the Ace Automatic Toilet.

For the sanitary-ware division, SOMC procures products either from its JV Somany

Sanitaryware Private Limited (SSWPL, 51% stake) in Morbi, Gujarat, or procures them

directly from third-party suppliers. It also imports premium-end sanitary-ware products.

To capitalize on a growing market and increase the proportion of JV manufacturing,

SOMC has recently expanded its sanitary-ware capacity in SSWPL from 0.3mn to 1.15mn

pieces/annum. At peak capacity, the new plant would generate revenues of Rs650mn-

700mn/annum.

For faucets & other bath fittings, SOMC has outsourced its requirements from Morbi-

based players till now; however, it intends to actively explore opportunities for forming a

JV with some existing player or setting up a Greenfield project. The quantum and mode

of investment has yet to be decided by management.

SOMC aims to double its S&F revenues over the next 3-4 years. We expect the division to

register 24% revenue CAGR over FY17-FY20E with sanitary-ware/faucet-ware revenues

growing at 27%/20% over this period and their overall contribution to revenues increasing

from 8% to 10%. Sanitary-ware growth would mainly be led by higher utilization of the

recently-expanded capacity at the JV, while faucets and other bath fittings would also

continue to see strong growth led by higher management focus and increased visibility

among customers.

58 125 111 152 196 289 344 481 529 651 789

1.1%

1.7%

1.3% 1.4% 1.6%

1.9% 2.0%

2.7% 2.8%

2.9% 3.0%

0%

1%

1%

2%

2%

3%

3%

4%

0

100

200

300

400

500

600

700

800

900


A&P Expenses (Rs mn) A&P as % of Sales



Exhibit 9: S&F segment sees strong growth over last 3 years; revenue contribution to

increase to ~10% by FY20E

Source :Equirus Securities, Company

Distribution channel rationalized to improve revenue per dealer, market visibility

SOMC’s transformation from a manufacturing-driven company to a customer-driven brand

has been influenced by a change in its distribution strategy – from a conventional make-

and-sell approach to a relatively de-risked seed-to-sell strategy. SOMC’s current

customer mix consists of 65% retail and 35% institutional clients. It has 1,720 dealers

(1,600 active dealers as on 1H18) and a total of 10,000 touch-points (avg. of 3 retail

touch points/dealer) which is one of the highest in the tiles industry. The company added

223 net dealers in FY17 and 150 in 1H18.

Currently, SOMC has 19 sales depots and 18 display centers. Total sales generation from

depots has been declining over the years due to SOMC’s strong focus on increasing

revenue generation from retailers due to better margins and lower working capital

requirements vs. projects. The company plans to add 100-150 dealers every year over the

foreseeable future. We think SOMC has significant scope for improving its revenue

generation per dealer, which stands at merely ~40% of KJC’s.

Exhibit 10:Scope to improve revenue/dealer with distribution channel rationalization


SOMC has more number of dealers vs. KJC, and has been facing issues of price

undercutting among dealers. To address this, the company has started streamlining its

dealer network and is focusing on dealers who have not been active in the past few

years. At the same time, it is adding more dealers in tier III & IV cities and towns in order

to strengthen its distribution network.

176 189 285 350

496

792

1,121

1,375 1,418

1,907

2,629

3.2% 2.6%

3.2% 3.3% 3.9%

5.1%

6.5%

7.6% 7.5%

8.5% 10.0%

0%

2%

4%

6%

8%

10%

12%

0

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013 2014 2015 2016 2017 FY18E FY19E FY20E

Sanitaryware + Faucetware Revenues % of Sales

4.8 5.4 5.9 6.0 7.0

12.1 11.5 10.5

11.8

14.4

18.8

21.0 22.4

25.3 24.6 26.0

0

5

10

15

20

25

30


Somany (Rs mn/dealer) Kajaria (Rs mn/dealer)



Exhibit 11:SOMC, with historically higher dealers than KJC, is now rationalizing its

channel to make more dealers active in pushing products


As of 1H18, SOMC has 300showrooms of which 282 showrooms are franchisee-managed.

During 1H18, 62 new showrooms were added. Management targets to increase the

number of showrooms to325+ in FY18, 450 in FY19 and 575 in FY20.In FY17, it also

commissioned the high-end Worli store, showcasing GVT to address the needs of South

Mumbai corporates, interior designers and HNIs.

SOMC’s showrooms can broadly be classified into following categories - Grande, Exclusive

and Studio.

Exhibit 12:SOMC’s showroom product portfolio

Exclusive showrooms Products Dedicated area

Somany Grande Entire range of products including S&F 2,500+ sq.ft.

Somany Exclusive Different mix of GVT, PVT, ceramic tiles and

allied products

1,500–2,500 sq.ft.

Somany Studio Ceramic wall & floor tiles 1,500 sq.ft

Duragres Studio Glaze vitrified tiles 1,000 sq.ft

Somany Vitro Studio Polished vitrified tiles 225-250 sq.ft

Somany Bath Studio Sanitary-ware, faucet-ware & bath fittings 400 sq.ft

SOMC believes there is a large difference in the national appetite for tiles; since only a

few brands service this need, nearly 80% of the market remains underpenetrated,

particularly in tier II/III cities & towns. In contrast, metros and tier I cities have been hit

due to a lull in the real estate industry. With tier II/III cities and towns emerging as new

consumption centers, the company has been aggressively focusing on increasing its

distribution reach and brand visibility in these markets over the past five years.

Consequently, sales from these cities increased to 76% in FY17 from 70% in FY10; we

expect the momentum to continue ahead due to higher disposable income and

aspirations, as well as increasing brand awareness among tier II/III consumers.

Exhibit 13:Revenues led by strong growth in tier II/III cities & towns over last 3-4 years


Focus on asset-light model to continue, to shore up ROE & ROIC

Tiles, being a commodity, are essentially a volume play, due to which players need to

keep expanding their capacities. However, due to a downturn in real estate demand

over the last 3-4 years, capacity utilization has fallen, particularly for Morbi-based SMEs

who only compete on prices; this has enabled larger players to tie up with Morbi-based

SMEs for product supply, while they concentrate on marketing and branding. Therefore,

most companies have slowed down on adding own capacities and are forming JVs with

smaller unorganized players. Such tie-ups have several benefits. Organized players get

readily available capacity at one-fifth or one-fourth of the cost of setting up new, own

1,125

1,334

1,490

1,768 1,800

1,272

1,497

1,720

650 700 750 825

900 950

1,100 1,100

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000


Somany Kajaria

27% 26% 25% 24% 21% 21% 20% 19%

70% 72% 73% 72% 75% 75% 76% 76%

3% 2% 2% 4% 4% 4% 4% 5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017

Tier I Tier II & III Others



capacity with revenue contribution flowing in immediately, thus lowering the payback

period. Unorganized players, on the other hand, get a guarantee on offtake of nearly

100% of their production, while learning best production practices and technology

knowhow from organized players.

Till 2011, SOMC was completely focused on either own manufacturing or plain vanilla

outsourcing and did not enter into any JVs. In fact, around 41% of its sales volumes and

revenues, from mainly low-value commoditized products, were being outsourced from

Morbi-based players. Post 2011, the company shifted focus on increasing revenue

contribution from vitrified tiles (both PVT & GVT) due to higher demand vis-à-vis

commoditized ceramic tiles. However, instead of making high capital commitments in

its own manufacturing capacity, SOMC made investments in JVs with established Morbi-

based players who were lacking their own brand but had requisite production capacities

and capabilities. The agreement gave SOMC rights to buy the entire annual production

from JVs and resell under its own brand name. As a result, the company has been able

to quickly ramp up production capability and product mix, as per changing consumer

preferences. Over FY12-FY17, core ROIC improved by 290bps as the company effectively

utilized its JV capacities to improve EBITDA margins and profitability.

Exhibit 14:Expect return ratios to improve 100bps by FY20E due to increased

volumes & higher contribution from better margin products


SOMC started off by taking minority stakes of 26% in JVs; however, since the last three

years, it has also acquired a 51% stake in some JVs. The company’s production capacity

has increased to 49.5msm from 21.8msm over FY12-1H18, with JV/own capacity

growing at a 37%/6% CAGR. Currently, SOMC owns a 26% stake in three JVs with a

combined capacity of 13.8msm, 51% in two JVs with a combined capacity of 8.9msm,

and 50% in one JV with a capacity of 4.8msm.Of the total JV capacity of 27.5msm,

around 69% is high-margin vitrified tile capacity. The total investment in all JVs is Rs

295mn while avg. capacity utilization in the tile segment stood at ~83% in FY17.

SOMC also recently expanded its sanitary-ware JV capacity (stake 51%) from 0.3mn

pieces per annum to 1.15mn pieces per annum by incurring a capex of Rs 350mn, of

which SOMC’s contribution was limited to 51% with a revenue generating potential of

1.5x investment. It also expanded its capacity at its Vintage tiles JV by 1.8msm via

debottlenecking. Moreover, the company has finalized the process of setting up a

vitrified tile plant with a capacity of 5msm in Andhra Pradesh in a JV with a local player

(company stake 51%); the plant, to be set up for a total capex of Rs 1bn,is expected to

generate revenues of Rs 1.8bn-2bn.

SOMC has been successful in keeping the impact of cost/msm of incremental capacity

addition via JVs on cash flows to 1/5thof a Greenfield capacity addition, while reporting

revenue growth and improving profitability (vs. pure outsourcing) at the same time. The

company believes this to be a better option for incremental capacity addition as it

requires lower capital investment, leading to faster payback and quicker access to

capacity. Going forward, we expect the company to take on a 51% stake in future JVs

instead of 26% earlier so as to maintain better operational, quality and technological

control and increase profitability. We expect ROIC/ROE to improve by

153bps/77bpsfrom 14.8%/20.5% in FY17 to 16.3%/21.2% by FY20E.

Product innovation focus to enhance brand recall among retail consumers

SOMC is among the few tile companies in India which continues to focus on R&D and

introduce niche value-added products. It is currently the only tile company accredited

with the first patent in the Indian tile industry for its ‘VC Shield’ tiles (launched in

2008).It then launched the ‘Slip Shield’ tile, which has a unique coating giving anti-skid

properties to ceramic tiles, again a first in the industry. It was also the first Indian

company to launch 80x120cm double-charge vitrified tiles.

13% 12% 12% 13%

10%

13% 14% 15%

13% 15%

16.3%

28% 26%

22% 23%

15%

19% 20% 20%

17%

20% 21.2%

0%

5%

10%

15%

20%

25%

30%


ROIC (%) ROE (%)



Since the last 2-3 years, SOMC has become very aggressive in launching larger-format

tiles along with new designs to compete with KJC and other branded players. The

company has one of the largest product portfolios in the country and has recently

launched a high-end ‘French Collection’ under the premium segment of its sanitary-ware

products which would compete with foreign brands in domestic market. SOMC has also

launched Duragres Planks, a range of faux wooden tiles that are exceptionally durable.

The main advantage these tiles enjoy over real wooden planks is ease of installation,

higher durability, resistance against natural wear & tear and low susceptibility to

chemicals.

All these launches have helped SOMC generate consumer interest and gain brand

visibility. Additionally, as the share of such value-added tiles increases in the overall

product mix, SOMC’s margins would also improve.

Exhibit 15:Key innovations in tiles over the years

Key innovation Year of

launch Remark

Product description

VC Shield tiles 2008 Patented Veil Craft technology for abrasion-resistant tiles

Slip Shield tiles 2014 Anti-skid properties

Glosstra tiles 2014 Ultra gloss technology for extra glossy surface

Optimatte tiles NA Tiles having matt finish

Stone16 NA 16mm thick tiles for meeting outdoor requirements

Antibacterial tiles 2011 Eliminates the risk of growth of microbial organisms

Active tiles 2012 Tiles which purify the air, leading to healthier floors


Expect power & fuel costs to increase in FY18, but remain stable in medium

term

For tile companies, power & fuel costs are the second-largest cost component after raw

materials. At the standalone level, FY17 power & fuel costs (as a percentage of revenues)

stood at 8%/10% for SOMC/KJC and at11%/17% at the consolidated level; power & fuel

costs were higher for SOMC since it does not consolidate these costs for~50% of its JV

capacity (as in case of KJC) as it holds 26% stake in these JVs. For its own manufacturing

capacity, SOMC consumes ~50mn cbm of gas annually, which it procures on fixed-contract

basis (10% APM, balance from GAIL/Sabarmati Gas/IOCL for its Kassar and Kadi facilities).

Currently, APM gas costs around ~Rs 9/scm while the rest around Rs 25/scm. However,

the recent increase in crude prices suggests a likely jump in RLNG prices for 2HFY18.

Natural Gas prices are already up 10% in last 3 months. Additionally, Haryana govt. has

not yet decided on providing any VAT subsidy on Gas (which other state governments

have done) due to which SOMC’s Kassar plant is still paying 13.2%-15% vs. 4.2% earlier

thereby increasing company’s gas costs by Rs 8mn/month. So we expect higher gas prices

to partially offset the margin improvement (due to a changing product mix) in FY18.

Exhibit 16:Natural gas procurement breakup

Supplier Name % procured

GAIL 65%

Sabarmati Gas (GSPC) 19%

IOC 6%

APM Gas 10%



Financial profile to improve; expect gradual re-rating of stock

Margins to improve on higher capacity utilization, improving product mix

For FY17, SOMC’s EBITDA margins came in at 10.6% vs. 19.5% for KJC. One key reason for

this, apart from higher operating leverage, strong brand recall and premium pricing

enjoyed by KJC, was that SOMC was able to retain only trading margins from its JVs due

to a minority (26%) stake. In comparison, KJC owns a majority stake in most of its JVs and

was thus able to book the entire margin in its P&L. Most other branded tile companies

have also invested for =>50% stake in their JVs, facilitating higher EBITDA margins.

Currently, SOMC has a 26% stake in three of its JVs which form 26% of its entire existing

capacity and 50% of its JV capacity. Additionally, close to 100% of its PVT and 34% of its

GVT capacity comes from JV partners; in contrast, KJC’s 71% PVT capacity is from JV

partners while GVT is completely from own manufacturing. Vitrified tile manufacturing

involves higher costs and controlling them becomes difficult in case of outsourcing vs.

own manufacturing, leading to lower margins from JVs.

We believe increased contribution from JVs will lead to margin improvement for SOMC, in

line with that of KJC, once it increases stake in its three JVs from 26% currently to 50%+,

the timeline for which however is yet to be disclosed. Note that SOMC has increased its

stake from 26% to 50% in Vintage Tiles JV during FY17. Therefore, we expect consolidated

EBITDA margins to improve from 10.6% in FY17 to 11.9% by FY20E on higher capacity

utilization and an improving product mix.

Exhibit 17:Margins moving in tandem with higher contribution from vitrified tiles


Expect 13%/18% revenue/EBITDA CAGR over FY17-FY20E

SOMC posted revenue & EBITDA CAGR of 19% over FY10-FY17 led by higher utilization of

incremental JV capacity and product mix changes towards higher-margin vitrified tiles.

The company’s revenue growth has easily outperformed industry CAGR of 12-13% over the

same period. However, over FY15-FY17, SOMC’s revenue CAGR moderated to 8% due to a

slowdown in the real estate market and the impact of demonetization in 2HFY17.

Though 1H18 has been hit due to demand disruption and a transitional shift post GST

implementation, we think that 2HFY18E might see dealer-level re-stocking returning due

the downward revision in the GST rate to 18%. However, overall consumer demand still

remains muted and growth should start improving in housing sector by 4Q18.We expect

revenue CAGR of 13% over FY17-FY20E though EBITDA would grow at an 18% CAGR over

this period led by higher revenue contribution from value added products and increased

contribution from the sanitary-ware & bath fittings division.

Exhibit 18:Expect consolidated revenue/EBITDA CAGR of 13%/18% over FY17-FY20E


40.4%

33.2%

29.7% 28.6%

25.1% 26.0% 29.0%

34.7% 34.8% 35.1% 35.1%

10.3% 9.4%

8.4% 8.1%

6.4% 7.0%

8.3%

10.6% 10.2%

11.3% 11.9%

0%

2%

4%

6%

8%

10%

12%

14%

10%

20%

30%

40%

50%

60%


GM (%) EBITDAM (%) - RHS

5.4 7.2 8.8 10.5 12.6 15.4 17.2 18.1 18.9 22.4 26.3

10% 9%

8% 8%

6% 7%

8%

11% 10%

11% 12%

0%

2%

4%

6%

8%

10%

12%

14%

0

5

10

15

20

25

30


Revenues (Rs bn) EBITDAM (%)



Working capital cycle to remain steady

SOMC’s receivable days have increased sharply in the last two years, with FY17 seeing a

big jump from 67 to 83 days. We believe this increase was led by a general slowdown in

real estate demand over the last two years and demand disruption in 2HFY17 post

demonetization; note that KJC has also seen a sharp increase in receivable days for the

last two years. Even in FY18E, we expect receivable days to remain slightly stretched due

to GST-related issues at the dealer level, and believe an improvement in working capital

days would start reflecting from FY19 onwards. Overall cash conversion cycle is expected

to improve by four days by FY20E with a reduction in receivable days.

Exhibit 19:WC days to start improving from FY19E once industry demand stabilizes


Return ratios to improve fromFY19E, CFO to pick up with rise in profitability

SOMC’s cash flows are set to gradually improve over FY18E-FY20E due to higher

utilization at both owned and JV plants. We expect a 20% PAT CAGR over FY17-FY20E as

margins and profitability improve due to a better product mix. The company’s D/E will

continue to improve from current levels of 0.53 to 0.34 inFY20E due to strong cash flow

generation and enough cash availability on its books. Core ROIC is expected to improve

by 153bps over FY17-20Edue to focus on value added tiles& increased contribution from

sanitary-ware & faucet-ware.

Exhibit 20:Core ROIC to improve once major capex is over, MDF unit stabilizes (FY19E)


Exhibit 21:CFO to improve gradually on better profitability from changing product mix


58 61 62 61 67 83 84 82 80

42 42 26 32 29

30 32 32 31

46 56

52 49 43

46 46 47 46

54

46

37 44

54

66 70 67

65

0

10

20

30

40

50

60

70

0

20

40

60

80

100

120

140

160

180

200


Receivable Days Inventory Days Payable Days Working Capital Cycle 0.3 0.3 0.3 0.5 0.7 1.0 1.0 1.3 1.6

22% 23%

15%

19% 20% 20%

17%

20% 21%

12% 13%

10%

13% 14% 15%

13% 15%

16%

0%

5%

10%

15%

20%

25%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8


PAT (Rs bn) ROE (%) Core ROIC (%)

576 447

-187

11

-1,168

112

-234 -192

702 786 707 738

248

596

946 1,007 1,156

1,494

-1,500

-1,000

-500

0

500

1,000

1,500

2,000


FCF (Rs mn) CFO (Rs mn)



Exhibit 22:D/E expected to improve going forward


Forecast: Key Assumptions & Sensitivity

Revenue Contribution FY16 FY17 FY18E FY19E FY20E FY21E

Ceramic 41% 39% 37% 34% 31% 29%

PVT 35% 33% 35% 36% 36% 36%

GVT 17% 20% 20% 22% 23% 24%

Sanitary-ware 4% 4% 5% 5% 6% 6%

Faucet & Other Fittings 3% 3% 3% 4% 4% 5%

Valuation

SOMC has been changing its product mix towards more value-added and higher margin

PVT/GVT products. It remains well-positioned to capture the demand shift from

unorganized to the organized sector aided by favorable GST rates of 18% and

implementation of the E-way Bill from Apr’18. We expect tiles segment to contribute to

volume and revenue growth over FY17-FY20E, while value-added tiles, sanitary-ware and

faucet-ware divisions would drive some margin improvement over this period. We expect

SOMC to post revenue/EBITDA CAGR of 13%/18% over FY17-20E. The stock is currently

trading at 28x FY19E EPS of 30.3 and 22x FY20E EPS 38.4 respectively. We arrive at a TP

of Rs 910 by assigning a target multiple 30x on our Mar’19 TTM EPS. We expect ROIC to

improve by 153bps over FY17-FY20E and expect EPS CAGR of 20% over FY17-FY20E.

Exhibit 23:TTM P/E vs. two-year forward EPS growth


Exhibit 24:TTM EV/EBITDA vs. two-year forward EBITDA growth


Exhibit 25:TTM P/B vs. two-year forward RoE


1.72

1.32

1.06

0.76 0.74

0.57 0.53 0.49 0.46 0.34

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

0%

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0200400600800

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Investment risks & concerns

Demand slowdown in tier/III cities: SOMC has focussed aggressively on increasing

revenue contribution from tier II & III cities/towns over the past 3-4 years as metros and

tier I cities are seeing a demand slowdown post demonetization, a situation further

exacerbated by GST implementation. If demand recovery takes longer than anticipated,

the company’s sales may get hit, leading to lower profitability and dampening the overall

financial profile.

Any strain in relationships with JV/outsourcing partners to increase cost of operations

and capital investments: Since FY11, SOMC has forged strong relationships with mid-

sized Morbi-based players leading to a win-win situation for all parties involved.

However, maintaining this relationship is very challenging, particularly when the second

line of branded players are emerging from Morbi itself. If relationship with any JV partner

is strained due to some reasons, SOMC may have to immediately look for another partner

with a similar capacity or set up its own plant - which would take both, time and money,

thereby impacting company’s operations.

Competition from unorganised/second-tier organized players: Historically, the tile

industry in India has been dominated by unorganized players since majority of the market

is price-sensitive due to which it becomes a low-price, high-volume play. While the share

of organized players has increased in the recent years, unorganized players continue to

remain a formidable threat. Additionally, second tier companies like Varmora, Simpolo

and Sunheart have become national players and are continuously strengthening their

brand visibility and distribution reach. Thus, unorganized players and second tier national

players can seriously impact growth of bigger companies like SOMC or KJC.

Unfavourable price movement in natural gas: Power & fuel form the second largest cost

component for tiles companies after raw materials. For the last two years, NG prices

have corrected largely in line with that of global crude prices. However, crude prices

have bounced back over the last six months due to which NG prices might also increase

going forward. Any unfavourable change in RLNG prices will severely impact margins of

tile manufacturers, particularly of branded players like SOMC.

Dumping from Chinese manufacturers: Though the Indian government had recently

imposed an anti-dumping duty of US$ 1.87/sqm on tile imports from China, it was lower

than industry expectations and kept out of its ambit four Chinese manufacturers with a

large capacity base. Consequently, Chinese imports may restart once the domestic

demand scenario stabilizes, hitting sales of branded companies like SOMC and KJC.

Corporate Governance

• SOMC has paid a dividend of Rs 2.7/sh for FY17. Its dividend pay-out ratio is at 12%

currently, and the seven-year average dividend pay-out ratio of 13%.

• As on Mar’17,the Board of Directors comprised nine directors. Of these, five are

independent directors while the remaining non-independent directors. Mr. Shreekant

Somany, Chairman & Managing Director of the Company is the spouse of Mrs. Anjana

Somany, whole time director, and father of Mr. Abhishek Somany, Managing Director.

• 50% of Directors have attended all four board meetings held during the year. Three

out of five independent directors had attended all the four board meetings.

• Till Mar’17, M/s. Lodha & Co., Chartered Accountants were the company’s statutory

auditors. They have not made any adverse comments in SOMC’s FY17 annual report.

M/s. Singhi & Co. has now been appointed as Statutory Auditors for five years.

Century Plyboards, Ramkrishna Forgings, Chambal Fertilizers, Gillander Arbuthnot,

Aegon Life Insurance, Skipper Ltd. are some other companies audited by Singhi& Co.

• At FY17-end, SOMC had contingent liabilities and commitments of Rs. 465mn (vs.

Rs 467mn in FY16). Majority of this is on account of capital commitments.



Annexure 1: Industry overview

Global tile industry

Global tile production has grown at a 6.2% CAGR over CY09-CY16 with China, India and

Brazil being the top three producers currently accounting for ~63% of the global output.

Tile consumption has grown at a 6% over this period, again led by China, Brazil and India.

India’s production/consumption has grown at a 10%/6.8% CAGR over CY09-16. China

accounts for nearly 48% of global production while India’s share is 7%.

Exhibit 26:China, Brazil & India contributed ~63% of world’s tile production in CY16


Exhibit 27:China, Brazil and India contributed ~54% of world tile consumption in CY16


India’s exports have grown at a 29% over CY09-CY15 as unorganized Morbi-based players

have increased their focus on export business with Brazil, SE Asia and Middle Eastern

countries imposing steep anti-dumping duty on Chinese imports. This has made Indian

tiles, especially high-volume, lower quality tiles, very competitive. Bigger branded

players in India are therefore focusing on developing their domestic business instead of

going abroad.

Domestic tile industry

The Indian tile industry, the third largest in the world, is currently estimated to be

around 785mn sqm/annum in volume terms and Rs270bn-280bn in value terms. The

industry has been growing at an8-9% CAGR over the last 4-5 years; however, growth has

moderated over the last two years due to subdued real estate demand and impact of

demonetization with FY17 seeing a growth of just 3%.Historically, the tile industry has

been fragmented with about 650-700 units operating in the country, most of them based

in Morbi, Gujarat. The unorganized segment occupies nearly 60% market share in volume

terms and 50% market share in value terms; that said, their share has been declining over

the years as organized players continue to push through by introducing value-added

products and focusing on brand promotion.

National brands, including second-tier players operating out of Morbi, currently account

for nearly 50% of the industry value-wise, with top-10 players accounting for 44% market

share as of FY17. Bigger players like KJC and SOMC have successfully increased their

market share in the overall industry revenue pie from ~11% in FY10 to nearly 18% in

FY17;in the organized segment, their market share has risen from ~22% to 36% over the

same time period. Market share gains have been led by intense focus on manufacturing

premium and value-added tiles in both PVT and GVT segments, while over the years,

Morbi has become an outsourcing hub for these players.

39% 39% 40% 42% 44% 45% 46% 48% 48% 48% 50%

8% 8% 8% 8% 8% 8% 8% 7% 7% 7% 6% 4% 5% 5% 6% 6% 6% 6% 6% 7% 7% 7%

49% 49% 47% 44% 43% 41% 40% 39% 38% 38% 37%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

China Brazil India ROW

33% 33% 34% 36% 37% 38% 39% 39% 41% 40% 43%

6% 7% 7% 8% 7% 7% 7% 7% 7% 7% 6% 5% 5% 5% 6% 6% 6% 6% 6% 6% 6% 6%

56% 55% 54% 51% 50% 48% 48% 47% 46% 47% 46%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

China Brazil India ROW



Exhibit 28:SOMC has increased its share from 5% to 7% in overall market over FY12-17


Exhibit 29:SOMC has increased its market share in the organized space by 300bps

over FY12-FY17and is currently the third largest player in the industry


States such as UP, West Bengal, Andhra Pradesh, Tamil Nadu, Gujarat and Rajasthan are

the main production centers, with Morbi alone contributing 70% of India’s total tile

production. The installed capacity of Morbi (which houses close to 600-650 units) stands

at 700mn-sqm per annum, with nearly 15-20% of it being idle at any point in time.

In FY17, ceramic wall and floor tiles contributed~55% of industry volumes and 42% of

total value, while PVT (including soluble salt vitrified tiles and double-charged vitrified

tiles) accounted for 35% of industry volumes and 43% of industry value. GVT accounts for

10% of industry volumes but 16% of industry value as it remains one of the fastest-growing

segments in the tile market. Revenue growth for the top-ten listed players in the

organized tile industry was only 1% in FY17 vs. 10% CAGR over FY12-FY17 due to

slowdown in the real estate market and demand disruption due to demonetization.

Going forward, we believe organized players would continue to grow faster than the

industry due to their strong brand equity, better marketing and distribution capabilities,

focus on product innovation and reducing pricing differential vs. unorganized players post

GST. Also, there is a strong structural shift in consumer preferences to better value

proposition (vitrified tiles), which would improve profitability of the entire sector, and

branded players in particular.

8% 9% 9% 10% 10% 11%

10% 9% 9% 9% 9% 7%

5% 6% 6% 7% 7% 7%

3% 3% 3% 3% 3% 3%

4% 4% 3% 3% 3% 3%

2% 2% 2% 3% 2% 3%

5% 4% 3% 3% 3% 3%

3% 3% 3% 3% 3% 3%

2% 2% 2% 3% 3%

3%

1% 1% 1% 1%

1% 2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

FY12 FY13 FY14 FY15 FY16 FY17

Kajaria H&R Johnson Somany Asian Granito RAK

Simpolo Nitco Orient Bell Varmora Sun Heart

17% 18% 19% 20% 21% 21%

20% 19% 18% 19% 17% 14%

11% 11% 12% 13% 14% 14%

6% 6% 6% 6% 6% 7%

7% 7% 6% 7% 6% 6%

4% 4% 5% 5% 5% 6%

9% 8% 7% 7% 7% 5%

7% 6% 6% 6% 6% 5%

4% 4% 4% 5% 5%

5%

2% 2% 2% 3% 3% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY12 FY13 FY14 FY15 FY16 FY17

Kajaria H&R Johnson Somany Asian Granito RAK

Simpolo Nitco Orient Bell Varmora Sun Heart



Exhibit 30:Domestic tile consumption grew only 3% in FY17 on subdued real estate

demand and impact of demonetization


Exhibit 32: Volume & value growth in ceramic tiles has been muted over many years

as GVT & PVT have gained more traction in the Indian market

Ceramic Tiles CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

Volume (msm) 334 367 400 415 430 440 425 430

Value (Rs bn) 64 75 90 96 100 105 110 113

PVT CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

Volume (msm) 145 170 200 236 250 276 263 275

Value (Rs bn) 47 55 70 81 90 105 110 115

GVT CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

Volume (msm) 15 20 25 30 38 40 75 80

Value (Rs bn) 9 10 10 18 25 30 40 42

Exhibit 31:Tile demand is driven by first-time purchasers and new housing demand,

while replacement demand is still very low


Exhibit 32:Volume-wise breakup of tiles: GVT has seen strong growth over last two

years while PVT volume growth has stabilized


490 550

617

691 750

825 850 901

494 557

625 681

718 756 763

785

26 28 30 33 51 92 122

159

0

100

200

300

400

500

600

700

800

900

1,000

CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

Production (msm) Consumption (msm) Export (msm)

70%

15%

15%

Retail

Commercial

Replacement

68% 66% 64% 61% 60% 58% 56% 55%

29% 31% 32% 35% 35% 37% 34% 35%

3% 4% 4% 4% 5% 5% 10% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Ceramic Tiles PVT GVT



Exhibit 33:Value-wise breakup of tiles – GVT contribution showing strong growth in

line with volume growth


53% 54% 53% 49% 47% 44% 42% 42%

39% 39% 41% 42% 42% 44% 42% 43%

8% 7% 6% 9% 12% 13% 15% 16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Ceramic Tiles PVT GVT



Industry growth drivers

Tiles penetration in India a long way to go

Though the Indian tiles industry has witnessed decent consumption growth (7.5% over

CY09-CY16), per capita tile consumption in the country (0.61sqm) significantly lags other

comparable countries like Brazil (3.99sqm) and China (3.57sqm). As per the last

government census of 2011, only 11% of Indian households used mosaic and tiles as

flooring, while 47%/31% had mud/cement flooring. In urban India, tile penetration levels

are higher at around 26% due to better understanding of tiles and more awareness.

% of households by material of floor India Rural Urban

Material 1991 2001 2011 2001 2011 2001 2011

Mud 67% 57% 47% 72% 63% 18% 12%

Stone 0% 6% 8% 5% 6% 9% 12%

Cement 21% 27% 31% 18% 24% 48% 46%

Mosaic/Tiles 4% 7% 11% 2% 4% 21% 26%

Others 8% 3% 4% 3% 3% 4% 4%

Over the medium term, we believe tiles should see increased penetration, particularly in

rural India, compared to some other traditional flooring materials due to factors such as

higher durability, good thermal & shock resistance, ease of installation and replacement,

and increasing awareness and availability.

Exhibit 34:Per capita tile consumption in India one of the lowest in the world


Exhibit 35:Per capita tile consumption in India improving over the years


Over the past decade, increase in real estate prices (the cost to own a house) has far outstripped the increase in the retail price of tiles. Even the best quality tiles entail only 15-20% of the total cost of upgrading interiors. The average price of tiles in FY15 was ~Rs30 per square feet, while in urban India, the price per square feet of a house starts at Rs 2,500-3,000 and averages above Rs 5,000. This makes the cost of tiles less than 1% of the cost of a house compared with 2-3% two decades ago. We believe tile affordability would continue to improve, thus increasing the probability of consumers shifting from other flooring options to tiles.

Shortening home renovation cycle to push up replacement demand

India’s home renovation cycle has reduced from 15-17 years a decade back to 9-10 years

now. This should further reduce to 7-8 years due to rising disposable incomes and an

aspiring young population, leading to better demand generation for building materials

products like tiles. Currently, replacement demand in tiles is around 15% of the total tile

demand in India vs. 35-40% in developed countries. With nuclear families becoming a

norm, particularly in urban areas, people are increasingly opting to change their living

space more frequently to remain in sync with new designs and trends. Besides that our

channel checks indicate that the cost of labour in proportion of total cost of furniture has

gone up from 40% around 5 years back to 50% currently and is likely to increase to 60-65%

over the next 5 years. Therefore we expect replacement demand to improve to 20-22%

over next 5 years.

0.61

1.39 1.4

2.7

3.5 3.57 3.99 4.24

9.48

0

2

4

6

8

10

Per Capita tile consumption in sqm

India Indonesia World Egypt Iran China Brazil Vietnam Saudi Arabia

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7


Per capita Tile consumption India (sqm)



GST implementation, E-way Bill introduction to benefit organized players

Post GST implementation, the price gap between branded and unbranded tiles players is

set to reduce by 10-12%, which would further accelerate market share gains for organised

players. Pre-GST, the tile industry was facing 28-30% tax, including excise, VAT and

octroi. Unorganized players were able to evade excise duty and hence keep prices lower

than organized players, leading to a price differential of 25-30%, particularly for lower

category tiles.

Additionally, before GST, many unorganised players were able to avail SSI benefits by

keeping their turnover artificially below Rs 15mn (via under billing/no billing); this

enabled unorganised players to avoid tax payments. On the other hand, unorganised

players with turnover of less than Rs 50mn were exempt up to Rs 15mn, and paid taxes

on the rest. However, under the new GST law, the exemption limit has been bought down

to Rs 2mn, thereby bringing most of the unorganised players under the tax net which

would force them to increase prices and narrow the price differential.

Previously, no input tax credit was available to dealers for excise duty paid on products;

consequently, dealers preferred to push unbranded products wherein they earned higher

margins due to tax avoidance by manufacturers. However, under GST, dealers would be

able to claim input tax credit, which would reduce pricing for both dealers and consumers.

Post GST, the movement of goods has considerably eased for the entire industry as check

posts have been removed. However, this has also led to unorganized players dumping

most of their under-billed/no-bill goods in the trade channel, particularly in 1Q18. An

important part of stopping tax avoidance under GST is the introduction of E-way bill

which is expected to track the movement of goods right from the factory to the retailer’s

shop with every detail being filed online by the respective party. Once the E-way bill is

introduced, organized players are expected to benefit significantly as they would already

be complying with all inter/intra-state regulations while unorganized players would have

to move towards this new normal, reducing the quantum of their under-billed revenues.

‘Housing for All’ mission to push demand for low-to-medium category tiles

The Central Government’s ‘Housing for All’ mission launched in Jun’15 under Pradhan

Mantri Awas Yojana (PMAY) has the stated purpose of constructing 20mn houses for the

urban poor by FY22,implying a rate of 3mn houses per year. Financial assistance of

Rs 2trn (US$ 30bn) would be given by the central government for carrying out this

program. Most of these houses would be for the Economically Weaker section (EWS) and

Low Income Group (LIG). This is expected to drive demand for ceramic tiles and soluble

salt PVT tiles due to their affordability. Organized brands are expected to outsource most

of this demand from Morbi JVs/other players and concentrate on volume rather than

realizations as they would be competing directly with unorganized Morbi based players.

Revival in real estate sector, smart cities project to fuel demand further

The real estate sector is the second largest employment generator after agriculture, and

contributes about 6% to India’s GDP. In the last two years, several policy reforms &

initiatives such as relaxed FDI norms, implementation of REITs, and creation of Real

Estate Regulatory Authority (RERA) under Real Estate Regulation & Development bill have

received the central cabinet’s nod. This would pave the way for a more reformed,

regulated and transparent real estate market in the country. The urban/rural housing

shortage was estimated at 19mn/Rs 15mn in 2015. India’s real estate sector’s market size

is expected to grow from US$ 94bn in 2014 to US$ 180bn by 2020 and US$ 853bn by 2028.

Both the central and state governments are spending about US$ 5-6bn annually to

develop the housing sector of India. Residential sector forms nearly 80% of the real estate

sector and would be the main growth driver in medium-to-long term. Additionally, we

think interest subsidies available under Pradhan Mantri Awas Yojana would reduce the

cost of housing loans and help accelerate real estate demand revival, particularly in the

MIG & LIG housing.

Rapid urbanization is going to drive the Smart city growth story in India. The number of

Indians living in urban areas will increase from the 430mn in 2016 to about 642mn by

2031 and 843mn by 2050, in search of better livelihood and lifestyles. The government

has developed the 100 Smart City programme keeping this opportunity in mind. The

investment required for making this program a reality is pegged at US$ 16bn by the

government.

The tile industry will be one of the key beneficiaries of any revival in the real estate

sector. Currently the premium/luxury real estate segments are witnessing a slowdown

due to slower growth in top-end real estate segment. We aren’t building in any

significant numbers in terms of recovery in the segment over the next 2 years, but would

monitor is closely; branded players like KJC, SOMC and others would likely see higher

margins with any significant recovery in premium real estate segment, as they move

towards a more higher-margin value-added product mix.

Dominance of organized players set to grow

In last few years, the preference of tiles in the country has been hugely influenced by

newer designs, durability, strength, and brand positioning by bigger players. The

presence of cheaper low-quality domestic/Chinese products has influenced choices

towards branded and quality products. Branded players have been trying to tap on this

demand by tying up with influencers such as carpenters, designers and builders, and by



spending heavily on advertisements (similar to paint companies). The organized sector

has grown at a 12-13% CAGR over the last six years compared to an industry average of

8-10%. We believe with reduced pricing differential post GST and increasing brand

awareness created by industry leaders via higher ad spending, demand for branded

products would remain strong and only increase further. Additionally, organized players

offer product innovation, wider choice, better quality and warranty, which unorganized

sector cannot match.

Annexure 2: Competitor Analysis

Exhibit 36: Kajaria & HR Johnson remain the leaders in term of available capacities Capacity including JVs (msm) FY15 FY16 FY17

Kajaria 54 69 69

HR Johnson 54 58 61

Somany 43 51 50

Asian Granito 13 28 28

Orient Bell 20 24 24

Nitco 16 16 16

Exhibit 37: HR Johnson leads the pack

No. of Plants (including JVs) FY15 FY16 FY17

Kajaria 7 8 8

HR Johnson 9 10 11

Somany 8 8 8

Asian Granito 7 8 8

Orient Bell 3 3 4

Nitco 2 2 2

Exhibit 38: Most of the JV partners are based out of Morbi and use latest technology

in their plants

No. of JVs/Associate FY15 FY16 FY17

Kajaria 5 5 5

HR Johnson 5 6 7

Somany 5 6 6

Asian Granito 1 2 2

Orient Bell 0 0 1

Nitco 1 1 1

Exhibit 39: Focus on retail segment to remain high due to better margins

Retail Vs. Institutional FY15 FY16 FY17

Kajaria 70%-30% 70%-30% 70%-30%

HR Johnson 70%-30% 70%-30% 70%-30%

Somany 65%-35% 65%-35% 65%-35%

Asian Granito 35%-65% 35%-65% 37%-63%

Orient Bell Higher proportion from Retail Sales

Nitco Higher proportion from Retail Sales

Exhibit 40: Companies are focusing more on exclusive showrooms & display centers

Distribution Network FY15 FY16 FY17

Kajaria Dealers: 950 dealers;

Retail Touch Pts.:

10,000; Showrooms:

50 Kajaria Primas, 12

Kajaria Galaxy & 25

Kajaria Studio

Dealers: 1,100

dealers; Retail Touch

Pts.: 10,000

Dealers: 1,100

dealers; Retail Touch

Pts.: 10,000;

Showrooms: 161

Kajaria Primas & 41

Prima Plus

HR Johnson Dealers: 1,000; Retail

Touch Pts.: 10,000;

Showrooms: 28

Dealers: 1,000; Retail

Touch Pts.: 10,000;

Showrooms: 28


Touch Pts.: 10,000;

Showrooms: 28

Somany Dealers: 1,272; Retail

Touch Pts.: 10,000;

Showrooms: 179


Touch Pts.: 10,000;

Showrooms: 181


Touch Pts.: 10,000;

Showrooms: 225

Asian Granito Dealers: 500; Retail

Touch Pts.: 4,000;

Showrooms: 75

dealers

Dealers: 620; Retail

Touch Pts.: 4,500;

Showrooms: 85

dealers

Dealers: 970; Retail

Touch Pts.: 5,300;

Showrooms: 120

dealers

Orient Bell Dealers: 2,000; Retail

Touch Pts.: 2,500;

Showrooms: 120;

Depots: 25


Touch Pts.: 2,500;

Showrooms: 87;

Depots: 26


Touch Pts.: 2,500;

Showrooms: 95+;

Depots: 28

Nitco Dealers: 1,100; Retail

Touch Pts.: 5,000;

Showrooms:125;

Depots: 26


Touch Pts.: 5,000;

Showrooms:130;

Depots: 27


Touch Pts.: 5,000;

Showrooms:173;

Depots: 17



Exhibit 41: Contribution from Vitrified segment has been increasing for all the players

in line with changing industry trends

Revenue

Contribution

Ceramic PVT GVT Others

FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17

Kajaria 40% 37% 37% 37% 36% 33% 22% 23% 25% 2% 3% 5%

HR Johnson 50% NA NA 50% NA NA 0% NA NA 0% NA NA

Somany 46% 41% 39% 33% 35% 33% 15% 17% 20% 5% 7% 8%

Asian Granito 34% 33% 28% 40% 34% 41% 14% 16% 16% 12% 17% 15%

Orient Bell 70% 69% 68% 30% 31% 32% 0% 0% 0% 0% 0% 0%

Nitco 47% 43% 43% 38% 37% 37% 0% 0% 0% 15% 20% 20%

* Nitco gives Vitrified revenues (PVT+GVT)

Exhibit 42:Own manufacturing is mainly used for value added products by Kajaria

Revenue Contribution Own JV Outsourcing

FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17

Kajaria 51% 51% 55% 31% 37% 33% 18% 12% 12%

HR Johnson 35% NA 30% 65% NA 70% 0% 0% 0%

Somany 44% 43% 44% 34% 41% 44% 22% 17% 12%

Asian Granito 53% 50% 44% 0% 15% 21% 47% 35% 35%

Orient Bell 76% 71% 68% 0% 0% 15% 25% 29% 17%

Nitco NA NA NA NA NA NA NA NA NA

Exhibit 43: KJC’s ad spends are the highest in the industry while Somany has been

spending more over last 3 years

Ad Spends (as % of Sales) FY12 FY13 FY14 FY15 FY16 FY17

Kajaria 2.6% 2.7% 2.4% 3.4% 3.1% 3.9%

Somany 1.3% 1.4% 1.6% 1.9% 2.0% 2.7%

Asian Granito 1.1% 1.0% 0.7% 0.5% 0.9% 1.6%

Nitco 1.1% 1.3% 1.9% 1.9% 1.8% 2.5%

Orient Bell 1.3% 0.8% 0.9% 1.2% 1.6% 2.0%

Exhibit 44: P&F costs remain the 2nd largest costs for Tile manufacturers after RM

P&F (as % of Sales) FY12 FY13 FY14 FY15 FY16 FY17

Kajaria 16.0% 19.4% 20.2% 22.2% 19.9% 17.6%

Somany 12.5% 12.4% 13.1% 13.2% 11.9% 11.3%

Asian Granito 17.7% 17.4% 15.0% 15.5% 12.9% 13.3%

Nitco 4.5% 8.8% 16.6% 16.2% 11.9% 11.6%

Orient Bell 20.1% 21.4% 23.9% 24.0% 21.4% 15.0%

Exhibit 45: Bulky nature of Tiles and geographic proximity of the plants drive

Transportation costs

Transportation cost (as % of Sales) FY12 FY13 FY14 FY15 FY16 FY17

Kajaria 1.1% 0.9% 2.7% 2.9% 3.8% 3.4%

Somany 2.8% 2.7% 2.3% 2.2% 1.7% 1.5%

Asian Granito 4.8% 4.6% 3.4% 3.5% 3.0% 3.9%

Nitco 7.5% 10.2% 6.5% 5.5% 3.9% 3.4%

Orient Bell 4.6% 3.3% 2.9% 2.5% 2.5% 2.6%



Exhibit 46: Kajaria & Somany have seen similar Revenue CAGR over last 5 years; HR Johnson & Nitco have lost their market share to other branded players

Company Organized Revenue Mkt. Share Industry Revenue Mkt. Share Revenue CAGR (%) EBTIDAM (%) PATM (%)

FY15 FY16 FY17 FY15 FY16 FY17 5 Years 7 Years FY15 FY16 FY17 FY15 FY16 FY17

Kajaria 20% 21% 21% 10% 10% 11% 15.2% 20.6% 16.2% 18.9% 19.5% 8.0% 9.6% 9.9%

Somany 13% 14% 14% 7% 7% 7% 15.7% 19.0% 7.0% 8.3% 10.6% 3.0% 4.0% 5.4%

HR Johnson 19% 17% 14% 9% 9% 7% 2.0% 7.0% 3.5% 3.4% 0.4% -ve PAT -ve PAT -ve PAT

Asian Granito 6% 6% 7% 3% 3% 3% 10.3% 11.7% 7.0% 9.1% 11.6% 1.8% 2.5% 3.7%

Nitco 7% 7% 5% 3% 3% 3% -1.7% 9.6% 0.3% 2.3% 3.2% -14.2% -7.3% -4.6%

Orient Bell 6% 6% 5% 3% 3% 3% 3.8% 7.2% 6.6% 6.7% 8.0% 0.7% 0.9% 1.7%

Company Net Block (Rs Mn) D/E (in x) Core ROIC (%) Working Capital Days CFO (Rs mn)

FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17

Kajaria 8,546 11,100 11,667 0.3 0.3 0.1 19.1% 19.8% 18.6% 44 55 60 1,803 3,156 3,377

Somany 2,638 3,796 3,757 0.7 0.6 0.5 12.8% 14.2% 14.8% 44 54 66 248 596 946

HR Johnson NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Asian Granito 1,881 3,918 4,053 0.6 0.9 0.8 5.8% 7.1% 8.6% 60 70 58 1,042 207 652

Nitco 7,124 6,656 6,255 -ve -ve -ve -ve -ve -ve 147 160 186 112 86 289

Orient Bell 2,229 2,090 1,429 0.8 0.7 0.7 9.6% 10.2% 16.0% 49 48 59 469 416 522



Annexure 3: Company Overview

SOMC was initially established as Somany Pilkington Limited (SPL) by Hira Lal Somany in

1968 in collaboration with UK-based Pilkington Tiles. In 1994, Indian promoters bought

the entire stake held by Pilkington and subsequently changed the name to Somany

Ceramics in 2007.SOMC is currently the third-largest player in the Indian tiles industry in

terms of revenues. Its value-wise market share in the organized market is 14% and overall

market share of 7% as on FY17. The company’s product basket includes ceramic wall and

floor tiles, polished vitrified tiles (soluble salt and double charge) and glazed vitrified

tiles (digital glazed vitrified tiles).

SOMC has two plants, one in Kadi (Gujarat) and another in Kassar (Haryana), while it has

five JVs with Morbi-based players. Additionally, it also outsources low-end ceramic and

vitrified tiles from some Morbi players who manufacture tiles in accordance with agreed

quality measures. The company markets its tiles under brand names like Somany,

Durastone, Stone, Duragres, VC Shield, Slip Shield, Somany Vitro and Somany

Sanitaryware. It also has a presence in the sanitary-ware and faucet segments through

the JV/outsourcing model. The current retail to institutional client mix is 65%:35% with

institutional base including corporates, government and builders.

Ceramic wall and floor tiles segment: This segment generated Rs 7.4bn and contributed

39% to FY17 topline. SOMC sources these tiles from its own manufacturing facilities as

well as from its JVs (Vicon Ceramics and Amora Tiles), but majority of the tiles are

outsourced from Morbi manufacturers.

PVT segment: This segment generated Rs 6.4bn and contributed 33% to SOMC’s FY17

topline. Though the company has a presence in PVT since 2001 via trading, it entered

into manufacturing of the same from FY11 when it set up a 2.45mnsqm/annum unit at

Kassar. SOMC has also acquired stakes in four Morbi-based companies, namely

Commander Vitrified, Vintage Tiles, Acer Granito and Somany Fine Vitrified which have

dedicated PVT manufacturing lines. Additionally, the company outsources any

incremental requirement of low-end PVT from other Morbi-based players. The company

has recently expanded its double charge PVT capacity from 2.99 msm/annum to 4.8

msm/annum. SOMC will also set up a ~5msm/annum vitrified tile plant in Andhra Pradesh

by its associate company, Sudha Somany Ceramics Pvt. Ltd.

GVT segment: This segment generated Rs 3.8bn and contributed 20% to FY17 topline.

SOMC manufactures GVT at the Kassar unit and at the Commander Vitrified JV. It had

increased its GVT capacity to 9.17mn-sqm per annum by commissioning a 4mn-sqm GVT

line at Kassar last year.

SOMC is also focusing on the export market though currently it forms a very small portion

of total revenues. The company exports to more than 60 countries, and in some countries

its brand has been gaining some traction in recent years. The percentage contribution of

exports to revenues has doubled from 2% in FY12 to 4% in FY17.

Allied products – sanitary-ware and Faucets: This segment generated Rs 1.4bn and

contributed 8% to SOMC’s FY17 topline. Sanitary-ware contributed Rs 802mn while

Faucets contributed Rs 573mnin FY17. The company outsourced sanitary-ware

manufacturing for many years till it acquired a stake in Somany Sanitaryware, a Morbi

based player which had an initial capacity of 0.3mn pieces/annum (subsequently

increased to 1.15mn pieces/annum).SOMC has gradually increased its stake to51% vs. 26%

earlier. In faucets, the company is looking for either doing a JV with some existing player

or putting up its own manufacturing unit. SOMC expects this segment to contribute 14%

of overall revenues over the next 4-5 years.

Exhibit 47:Details of manufacturing units

Plant Name (msm) Tile Type Stake FY15 FY16 FY17 1Q18

Kadi 8.4 8.4 8.4 6.7

Kassar Ceramic/GVT 13.1 17.1 17.1 17.1

Amora Tiles (51% stake) Ceramic 51% 4.6 4.6 4.6 4.6

Somany Fine Vitrified (51% stake) PVT 51% 4.3 4.3 4.3

Vintage Tiles (26% stake) PVT 26% 2.6 3.0 3.0 4.8

Commander Vitrified (26%stake) PVT/GVT 26% 4.8 4.8 4.8 4.8

Vicon Ceramic (26% stake) Ceramic/Industrial 26% 4.0 4.0 4.0 4.0

Acer Granito Pvt. Ltd (26% stake) PVT 26% 5.1 5.1 5.1 3.3

Total capacities 42.5 51.3 51.3 49.5

Somany Sanitaryware Pvt. Ltd. 51% 0.3 0.3 0.3 1.2



Exhibit 48:Company’s Journey

Source: Equirus Securities, Company AR

Board of Directors

Name Designation

Mr. Shreekant Somany Chairman& MD

Mr. Abhishek Somany Managing Director

Mrs. Anjana Somany Promoter Director

Mr. G.L. Sultania Non-Executive Non Independent

Mr. Salil Singhal Independent

Mr. Ravinder Nath Independent

Dr. Y.K. Alagh Independent

Mr. Siddharth Bindra Independent

Mr. R.K. Daga Independent

Source: Company, Equirus Securities

1965-90

•1st Plant in Kassar (Haryana) capacity - 0.52 MSM in collaboration with Pilkington's Tiles Holdings, UK

•Expanded Capacity by 1.55 MSM by 1974

•Set up 2nd unit in Kadi (Gujarat) with Ceramic Tiles capacity of 0.58 MSM in

•1983 and increased by 0.48 MSM by 1986

1990-2000

•Expanded Tiles capacity by further 7.93 MSM between 1992 & 1998

•Indian Promoter family bought stake of Pilkington's Tiles Holdings Ltd, UK

2001-10

•Expanded Tiles capacity by further 5.64 MSM between 2001 & 2007

•Received patent for its product VC Shield - India's highest abrasion resistant tiles, a 1st in the Indian Tiles Industry

•Expanded Own Capacity in GVT by 2.45 MSM

2011-16

•Received Power Brand Award for 2 years in Row

•Applied for patent for innovative anti skid tiles - SLIP SHIELD

•Received International Recognition for VC Shield Tiles from the American Ceramic •Society

•Expanded Capacity by 20.06 MSM through Asset Light Model in Morbi and 4.0 MSM

•through Own Capacity in Kassar

•Sanitaryware & Bath fittings became a Rs. 100cr + Brand

2017

•Company has accelerated product launches every two months

•The company graduated from number three in the tiles industry to number two

•The proportion of glazed vitrified tiles increased from 16.8 per cent to 19.9 per cent of revenues.

•Company strengthened its distribution network by adding 223 dealers (net)

•Total showrooms/ display centres reached to 225



Standalone Quarterly Earnings Forecast and Key Drivers

Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 4,092 4,411 4,198 5,705 3,338 4,318 5,088 6,469 3,965 5,125 5,977 7,686 18,406 19,213 22,752 26,629

Cost of Materials consumed+Change in Inventories

431 438 369 803 175 537 611 841 416 564 657 922 2,041 2,164 2,560 2,980

Purchase of stock-in-trade 2,140 2,256 2,084 2,786 1,761 2,099 2,518 3,202 2,002 2,562 2,958 3,766 9,266 9,581 11,289 13,226

Employee Expense 331 365 351 360 378 409 356 420 297 384 478 615 1,407 1,564 1,775 1,997

Power and Fuel 329 365 368 378 370 384 407 453 337 436 508 615 1,440 1,614 1,896 2,221

Other Expenses(incl. Stores and spares)

532 579 637 863 493 479 738 970 535 692 807 1,076 2,611 2,680 3,110 3,648

EBITDA 329 408 389 515 162 409 458 582 377 487 568 692 1,641 1,611 2,123 2,558

Depreciation 48 49 66 90 56 64 70 77 77 76 75 76 253 268 304 343

EBIT 281 359 323 426 106 345 387 505 300 411 493 616 1,388 1,343 1,819 2,214

Interest 43 38 44 40 40 45 48 50 50 49 49 48 165 183 195 205

Other Income 40 46 36 30 44 42 36 37 27 25 22 22 151 160 96 98

PBT 277 367 315 415 110 342 376 492 277 387 466 590 1,374 1,320 1,720 2,107

Tax 96 129 113 134 33 115 124 162 91 128 154 195 472 435 568 695

Recurring PAT 181 238 202 281 77 227 252 330 186 259 312 395 902 885 1,153 1,412

Extraordinary 0 0 0 41 17 14 0 0 0 0 0 0 41 31 0 0

Reported PAT 181 238 202 241 60 213 252 330 186 259 312 395 861 854 1,153 1,412

EPS (Rs) 4.27 5.61 4.76 6.63 1.82 5.34 5.94 7.77 4.38 6.12 7.36 9.33 21.27 20.88 27.18 33.30

Key Drivers

Own Manufacturing Revenues 1,592 1,621 1,728 2,210 1,387 1,527 2,100 2,572 1,643 1,832 2,509 3,153 7,150 7,586 9,136 11,028

JV Revenues 2,039 1,899 2,127 2,550 1,550 1,768 2,514 2,910 1,804 2,208 3,003 3,567 8,615 8,742 10,582 12,569

Outsourcing Revenues 618 554 500 1,040 530 989 474 987 519 1,085 464 966 2,711 2,980 3,034 3,032

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue -21 % 8 % -5 % 36 % -41 % 29 % 18 % 27 % -39 % 29 % 17 % 29 % - - - -

Cost of Materials consumed+Change in Inventories

-37 % 2 % -16 % 117 % -78 % 207 % 14 % 38 % -50 % 35 % 17 % 40 % - - - -

EBITDA -21 % 24 % -5 % 32 % -69 % 153 % 12 % 27 % -35 % 29 % 17 % 22 % - - - -

EBIT -22 % 28 % -10 % 32 % -75 % 226 % 12 % 30 % -41 % 37 % 20 % 25 % - - - -

Recurring PAT -32 % 31 % -15 % 39 % -73 % 194 % 11 % 31 % -44 % 40 % 20 % 27 % - - - -

EPS -32 % 31 % -15 % 39 % -73 % 194 % 11 % 31 % -44 % 40 % 20 % 27 % - - - -

Yearly Growth (%)

Revenue 4 % 9 % 1 % 11 % -18 % -2 % 21 % 13 % 19 % 19 % 17 % 19 % 6 % 4 % 18 % 17 %

EBITDA 37 % 46 % 31 % 24 % -51 % 0 % 18 % 13 % 133 % 19 % 24 % 19 % 33 % -2 % 32 % 20 %

EBIT 46 % 55 % 32 % 19 % -62 % -4 % 20 % 19 % 184 % 19 % 27 % 22 % 36 % -3 % 35 % 22 %

Recurring PAT 73 % 81 % 46 % 5 % -57 % -5 % 25 % 17 % 141 % 14 % 24 % 20 % 38 % -2 % 30 % 23 %

EPS 73 % 81 % 46 % 5 % -57 % -5 % 25 % 17 % 141 % 14 % 24 % 20 % 38 % -2 % 30 % 23 %

Margin (%)

EBITDA 8 % 9 % 9 % 9 % 5 % 9 % 9 % 9 % 9 % 9 % 9 % 9 % 9 % 8 % 9 % 10 %

EBIT 7 % 8 % 8 % 7 % 3 % 8 % 8 % 8 % 8 % 8 % 8 % 8 % 8 % 7 % 8 % 8 %

PBT 7 % 8 % 8 % 7 % 3 % 8 % 7 % 8 % 7 % 8 % 8 % 8 % 7 % 7 % 8 % 8 %

PAT 4 % 5 % 5 % 5 % 2 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 %



Consolidated Financials

P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 18,110 18,908 22,432 26,293 Equity Capital 85 85 85 85 PBT 1,442 1,454 1,932 2,442

Op. Expenditure 16,195 16,978 19,892 23,175 Reserve 5,128 5,890 6,921 8,242 Depreciation 387 379 428 481

EBITDA 1,915 1,930 2,540 3,118 Networth 5,212 5,975 7,005 8,326 Others 90 -31 0 0

Depreciation 350 379 428 481 Long Term Debt 2,744 2,922 3,211 2,816 Taxes Paid 445 477 635 803

EBIT 1,565 1,551 2,112 2,637 Def Tax Liability 644 642 753 748 Change in WC -527 -318 -568 -626

Interest Expense 233 257 276 293 Minority Interest 271 310 354 406 Operating C/F 946 1,007 1,156 1,494

Other Income 151 160 96 98 Account Payables 2,301 2,383 2,889 3,314 Capex -710 -1,054 -1,534 -989

PBT 1,483 1,454 1,932 2,442 Other Curr Liabi 953 995 1,068 1,252 Change in Invest -365 -359 0 0

Tax 502 477 635 803 Total Liabilities & Equity 12,126 13,227 15,280 16,862 Others 86 0 0 0

PAT bef. MI & Assoc. 981 976 1,296 1,640 Net Fixed Assets 3,757 4,742 5,814 6,283 Investing C/F -989 -1,414 -1,534 -989

Minority Interest 37 38 44 52 Capital WIP 357 0 0 0 Change in Debt 310 178 288 -395

Profit from Assoc. 27 29 34 39 Others 584 990 1,024 1,064 Change in Equity 35 0 0 0

Recurring PAT 971 967 1,286 1,627

Inventory 1,497 1,658 1,967 2,233 Others -364 -147 -110 -272

Extraordinaires 41 31 0 0 Account Receivables 4,103 4,351 5,040 5,763 Financing C/F -19 32 179 -667

Reported PAT 931 936 1,286 1,627 Other Current Assets 538 570 720 965 Net change in cash -62 -375 -199 -162

FDEPS (Rs) 22.9 22.8 30.3 38.4 Cash 1,290 915 716 554 RoE (%) 20 % 17 % 20 % 21 %

DPS (Rs) 2.7 3.4 5.0 6.0 Total Assets 12,126 13,227 15,280 16,862

RoIC (%) 14 % 12 % 14 % 15 %

CEPS (Rs) 31.2 31.7 40.4 49.7 Non-cash Working Capital 2,884 3,201 3,770 4,395

Core RoIC (%) 15 % 13 % 15 % 16 %

FCFPS (Rs) 2.6 -5.5 -4.5 16.5 Cash Conv Cycle 58.1 61.8 61.3 61.0 Div Payout (%) 14 % 19 % 20 % 19 %

BVPS (Rs) 122.9 140.9 165.2 196.4 WC Turnover 6.3 5.9 6.0 6.0 P/E 37.5 37.6 28.3 22.4

EBITDAM (%) 11 % 10 % 11 % 12 % FA Turnover 4.4 4.0 3.9 4.2 P/B 7.0 6.1 5.2 4.4

PATM (%) 5 % 5 % 6 % 6 % Net D/E 0.3 0.3 0.4 0.3 P/FCFF 326.2 -155.5 -189.4 51.9

Tax Rate (%) 34 % 33 % 33 % 33 % Revenue/Capital Employed 2.2 2.0 2.1 2.2 EV/EBITDA 20.1 20.2 15.6 12.6

Sales Growth (%) 5 % 4 % 19 % 17 %

Capital Employed/Equity 1.7 1.7 1.6 1.5

EV/Sales 2.1 2.1 1.8 1.5

FDEPS Growth (%) 41 % 0 % 33 % 27 %

Dividend Yield (%) 0.3 % 0.4 % 0.6 % 0.7 %

TTM P/E vs. 2 yrs. forward EPS growth TTM EV/EBITDA vs. 2 yrs. forward EBITDA growth TTM P/B vs. 2 yrs. forward RoE

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Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 12,629 15,431 17,177 18,110 Equity Capital 78 78 85 85 PBT 435 681 968 1,442

Op. Expenditure 11,815 14,356 15,748 16,195 Reserve 2,157 2,502 4,197 5,128 Depreciation 224 266 283 387

EBITDA 814 1,076 1,429 1,915 Networth 2,235 2,580 4,282 5,212 Others 180 165 188 90

Depreciation 224 266 283 350 Long Term Debt 1,707 1,912 2,433 2,744 Taxes Paid 134 216 241 445

EBIT 590 810 1,146 1,565 Def Tax Liability 493 513 568 644 Change in WC 34 -648 -602 -527

Interest Expense 185 205 225 233 Minority Interest 44 53 200 271 Operating C/F 738 248 596 946

Other Income 31 77 91 151 Account Payables 1,783 2,079 2,008 2,301 Capex -589 -508 -1,364 -710

PBT 435 681 1,012 1,483 Other Curr Liabi 1,209 707 944 953 Change in Invest -444 105 -596 -365

Tax 170 222 312 502 Total Liabilities & Equity 7,471 7,844 10,435 12,126 Others -5 27 41 86

PAT bef. MI & Assoc. 265 459 700 981 Net Fixed Assets 2,405 2,638 3,796 3,757 Investing C/F -1,039 -376 -1,919 -989

Minority Interest -7 9 30 37 Capital WIP 29 8 63 357 Change in Debt 84 209 420 310

Profit from Assoc. 17 13 22 27 Others 177 402 416 584 Change in Equity 536 0 1,203 35

Recurring PAT 289 464 691 971 Inventory 906 1,364 1,387 1,497 Others -232 -272 -313 -364

Extraordinaires 0 0 44 41 Account Receivables 2,149 2,591 3,172 4,103 Financing C/F 388 -64 1,310 -19

Reported PAT 289 464 647 931 Other Current Assets 1,088 415 537 538 Net change in cash 88 -192 -13 -62

EPS (Rs) 6.8 10.9 16.3 22.9 Cash 717 425 1,064 1,290

RoE (%) 15 % 19 % 20 % 20 %

DPS (Rs) 1.5 2.0 2.3 2.7

Total Assets 7,471 7,844 10,435 12,126

RoIC (%) 10 % 13 % 14 % 14 %

CEPS (Rs) 12.1 17.2 23.0 31.2 Non-cash Working Capital 1,151 1,585 2,144 2,884 Core RoIC (%) 10 % 13 % 14 % 15 %

FCFPS (Rs) -4.4 0.2 -27.5 2.6 Cash Conv Cycle 33.3 37.5 45.6 58.1 Div Payout (%) 18 % 20 % 17 % 14 %

BVPS (Rs) 57.5 66.4 101.0 122.9 WC Turnover 11.0 9.7 8.0 6.3

P/E 126.0 78.4 52.7 0.0

EBITDAM (%) 6 % 7 % 8 % 11 % FA Turnover 5.2 5.8 4.5 4.4 P/B 14.9 12.9 8.5 0.0

PATM (%) 2 % 3 % 4 % 5 % Net D/E 0.4 0.6 0.3 0.3 P/FCFF -194.3 3,451.6 -31.2 326.2

Tax Rate (%) 39 % 33 % 31 % 34 % Revenue/Capital Employed 3.1 3.2 2.7 2.2 EV/EBITDA 47.1 36.2 27.2 0.0

Sales growth (%) 20 % 22 % 11 % 5 %

Capital Employed/Equity 2.1 2.0 1.8 1.7

EV/Sales 3.0 2.5 2.3 0.0

FDEPS growth (%) -10 % 61 % 49 % 41 %

Dividend Yield (%) 0.1 % 0.2 % 0.2 % 0.3 %



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 Sweta Sheth [email protected] 91-22-43320634

Devam Modi Power & Infrastructure [email protected] 91-79-61909516 Viral Desai [email protected] 91-22-43320635

Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Dealing Room E-mail

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Ashish Shah [email protected] 91-22-43320662

Maulik Patel Oil and Gas [email protected] 91-79-61909519 Ilesh Savla [email protected] 91-22-43320666

Praful Bohra Pharmaceuticals [email protected] 91-79-61909532 Manoj Kejriwal [email protected] 91-22-43320663

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Dharmesh Mehta [email protected] 91-22-43320661

Associates E-mail Sandip Amrutiya [email protected] 91-22-43320660

Ankit Choudhary [email protected] 91-79-61909533 Compliance Officer E-mail

Bharat Celly [email protected] 91-79-61909524 Jay Soni [email protected] 91-79-61909561

Harshit Patel [email protected] 91-79-61909522 Corporate Communications E-mail

Meet Chande [email protected] 91-79-61909513 Mahdokht Bharda [email protected] 91-22-43320647 Parva Soni [email protected] 91-79-61909521

Pranav Mehta [email protected] 91-79-61909514

Ronak Soni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

Shreepal Doshi [email protected] 91-79-61909541

Varun Baxi [email protected] 91-79-61909527

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office:

Equirus Securities Private Limited

Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,

N M Joshi Marg, Lower Parel,

Mumbai-400013.

Tel. No: +91 – (0)22 – 4332 0600

Fax No: +91- (0)22 – 4332 0601

Corporate Office:

3rd floor, House No. 9,

Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,

S.G. Highway Ahmedabad-380054

Gujarat

Tel. No: +91 (0)79 - 6190 9550

Fax No: +91 (0)79 – 6190 9560

mailto:[email protected]




























© 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not

be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited

Analyst Certification

I, Pranav Mehta/Dhaval Dhama, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their

securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers

Regulations, 1993 (Reg. No. INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No. IN-DP-324-2017). There are no disciplinary actions taken by any regulatory

authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to

merchant banking services, private equity, mergers & acquisitions and structured finance.

As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for

investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have

received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their

directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in

their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or

Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor

Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or

brokerage service transactions. ESPL has not been engaged in market making activity for the subject company.

The Research Analyst engaged in preparation of this Report:-

(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c)

has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or

services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject

company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject

company.

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research report. Thus, investors should be aware that the firm may have conflict of interest.



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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No

Research Analyst’ or Relatives’ material conflict of interest No

Disclaimer for U.S. Persons

ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a

registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the “Acts”), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended

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soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective contents

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