HDFC Securities is Bullish on Somany Ceramics

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HDFC Securities is Bullish on Somany Ceramics

By Aditya Raghunath -- Somany Ceramics Ltd (NS: SOCE ) is India’s second-largest tiles company after Kajaria Ceramics Ltd (NS: KAJR ). The stock has already gained over 100% in 2021 as the recovery in real estate in India from Q3FY21 onwards boosted the company’s performance.

HDFC (NS: HDFC ) Securities now feels that the company will continue to grow at 16% CAGR (compounded annual growth rate). It said, “We like it for its increased focus on retail sales through a robust distribution and showroom network across India and expanding share of premium tiles sales.”

Over the past five years, the company has beefed up its distributor count and exclusive showroom network across India, increasing its retail sales share to 75-80% (65% earlier).

Somany has also started tightening its balance sheet. It has gotten its debtor days to below two months (similar to Kajaria’s). This has tightened its working capital. “Having suffered a major write-off on its treasury operations, SOMC is using its surplus cash to debt reduction and expansion. Thus, we expect its balance sheet to remain comfortable while Capex spend could accelerate during FY22-24E,” said HDFC Securities.

The brokerage gas a buy call on the stock with a target price of Rs 940. That’s an upside of over 40%.

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