Somany Ceramics delivered a Q3FY26 performance that largely aligned with IDBI Capital’s expectations, navigating a challenging operating environment while quietly strengthening its earnings quality. Revenue growth remained modest, but margin expansion, disciplined cost control, and early signs of demand revival across housing completions improved investor visibility. Management reaffirmed its full-year guidance, highlighted margin tailwinds from stable fuel costs, and outlined a credible deleveraging path. Importantly, structural export opportunities emerging from China’s reduced competitiveness are reshaping industry dynamics in favor of Indian tile manufacturers. On the back of improving profitability, expanding return ratios, and FY28 earnings visibility, IDBI Capital has upgraded the stock to BUY with a revised target price of Rs504, implying meaningful upside from current levels.

Quarterly Performance: Modest Revenue, Stronger Profit Conversion

Somany Ceramics reported net revenue of Rs6,823 million in Q3FY26, marking a 5.8% year-on-year increase. While sales growth remained measured, it reflected resilience amid subdued real estate activity and pricing pressures. Volumes rose 2.3% YoY to 17.4 million square meters, supported by incremental dealer activity and stable institutional demand.

EBITDA rose 16% YoY to Rs620 million, translating into an EBITDA margin of 9.1%. The margin expansion of nearly 80 basis points year-on-year was driven by better product mix, operational efficiencies, and controlled energy costs. Profit before tax climbed 28% YoY, while reported net profit surged 75.9% to Rs170 million, underscoring strong operating leverage.

Demand Environment: Early Signs of Recovery Gain Credibility

Management commentary indicated a visible improvement in project completions across residential real estate. As more projects enter final construction stages, demand for tiles and related materials is steadily improving. Dealer walk-ins have shown a sequential uptick, pointing toward a gradual normalization in retail demand.

Retail continues to dominate Somany’s revenue mix at 77%, though management expects institutional demand to expand over the medium term. This shift is likely to provide volume stability while improving capacity utilization across manufacturing units.

Export Opportunity: Morbi Cluster Poised to Capitalize

Global trade dynamics are quietly shifting in favor of Indian tile exporters. Recent reductions in VAT rebates on Chinese tile exports have eroded their price competitiveness in international markets. This development presents a strategic opening for Morbi-based manufacturers, including Somany’s supply ecosystem, to gain incremental export share.

Industry estimates peg total tile exports at approximately Rs195 billion, growing at 8–9% annually. For Somany, export-linked demand not only improves capacity utilization but also provides a hedge against domestic demand volatility.

Segmental Trends: Value-Added Products Lead Margin Expansion

The bath fittings and waterproofing segment emerged as a standout, recording 35% growth. In contrast, the core tiles business grew 3.6% YoY but continued to account for 83.5% of consolidated revenue.

The increasing contribution of glazed vitrified tiles (GVT) and premium offerings is structurally improving realizations. Net sales realization improved modestly to Rs323 per square meter, reflecting the company’s deliberate push toward higher-margin products rather than aggressive volume growth.

Cost Structure and Energy Outlook: Stability Supports Margins

Fuel costs remained stable at approximately Rs44 per standard cubic meter during the quarter. Management expects blended gas prices to soften further to Rs42–43 in Q4FY26, creating additional headroom for margin expansion.

Combined with operational streamlining initiatives, these cost tailwinds underpin management’s guidance of a further 1–1.5% improvement in EBITDA margins in the final quarter of the fiscal year.

Balance Sheet Strength: Deleveraging Momentum Continues

Total external debt declined from Rs2,880 million at the start of the fiscal year to Rs2,710 million. Somany remains committed to reducing leverage, with a clear roadmap to repay the majority of term loans by FY29.

Working capital days edged up to 14 days, compared with 11 days in FY25, but receivable cycles improved sequentially—signaling tighter credit discipline. Rising operating cash flows and declining interest costs further strengthen balance sheet flexibility.

Expansion Update: Somany Max Nearing Inflection Point

The Somany Max joint venture continued to report losses due to low capacity utilization. However, management confirmed production ramp-up during February and March, with losses expected to fall below Rs100 million next year from the current Rs260–270 million range.

A full turnaround is targeted by FY27, which could meaningfully lift consolidated profitability and return ratios once utilization stabilizes.

Financial Outlook: Earnings Visibility Improves Through FY28

IDBI Capital has introduced FY28 estimates, forecasting a steady earnings CAGR driven by margin recovery and operating leverage. Return on equity is projected to rise to 13.2% by FY28, while ROCE is expected to improve to 14%, reflecting better asset utilization.

Valuation and Investment Levels: Upside Anchored in Earnings Recovery

IDBI Capital has upgraded Somany Ceramics to BUY, assigning a target price of Rs504. The valuation is based on 16x FY28E earnings, which appears reasonable given improving margins, declining leverage, and rising return ratios.

Current Market Price (CMP): Rs386

Target Price: Rs504

Potential Upside: 31%

52-week Range: Rs373 – Rs623

At FY28, the stock trades at 12.4x forward earnings and 4.6x EV/EBITDA, offering a compelling risk-reward profile for medium-term investors.

Final Takeaway: Patience Rewarded as Fundamentals Rebuild

Somany Ceramics is no longer a turnaround story—it is entering a consolidation-to-growth phase. While near-term volume growth remains modest, structural margin improvements, export tailwinds, and disciplined capital allocation are reshaping the company’s earnings trajectory. For investors willing to look beyond quarterly noise, the improving quality of earnings and balance sheet strength justify IDBI Capital’s upgraded stance and higher valuation confidence.