ICICI Securities has issued a BUY recommendation for Somany Ceramics with a target of Rs 550 in the next 12 months, recognizing promising recovery prospects despite recent operational hurdles. The research report underscores Somany's resilience as the second largest producer in India's tiles market, its ability to navigate one-off disruptions, and the expectation of margin improvement as demand for real estate strengthens. Investors are encouraged by mid- to-high single-digit growth forecasts, a favorable product mix shift, and consistent operational enhancements, positioning Somany as an attractive investment for sustainable returns.

Somany Ceramics: BUY Recommendation and Target Price

Somany Ceramics is rated BUY with a target of Rs 550 for a 12-month horizon. The company’s current price levels reflect an opportunity for investors to benefit from expected recovery in tile volumes and margin improvement backed by strong real estate demand and operational efficiencies.

Q2FY26 Performance Overview

The quarter was impacted by significant one-off challenges: A 25-day production outage at the Kassar plant due to a gas pipeline leak, severe rainfall in North India affecting demand, and a 40-day planned shutdown at a joint venture (JV) plant for product-mix realignment. These factors pressured EBITDA margins down by approximately 120-125 basis points. Tile volumes remained flat year-on-year at 17.8 million square meters, while tile revenues increased marginally by 0.4% to Rs 570.6 crore. Overall revenue rose 2.9% to Rs 680.5 crore despite the operational setbacks.
Looking ahead, management projects H2FY26 margin improvement: Increased plant utilization (rising from 75% to around 85-87%), stable gas prices, and efficient cost controls are expected to drive a 150 basis point expansion in EBITDA margin, aiming for a double-digit margin by half-year end.

Growth Prospects and Strategic Drivers

Mid- to high single-digit revenue growth is expected for FY26: Somany anticipates tiles revenue to grow at a CAGR of 8.7% between FY25 and FY27, reaching Rs 2,665 crore, propelled by a 7.8% CAGR volume increase to 82.3 million square meters. The overall revenue is forecasted to grow at an 8.5% CAGR to Rs 3,115 crore over the same period.
Structural margin expansion is a key investment thesis: The company is successfully shifting its product mix toward higher-margin glazed vitrified tiles (GVT), which already contribute 41% of sales and are expected to cross 50% within 12-18 months. Bathware and sanitaryware segments are also poised for robust double-digit growth, targeting over 20% revenue contribution within two years. EBITDA margins are forecasted to increase from 8.4% in FY25 to 9.1% in FY26 and 9.5% in FY27. Earnings CAGR is projected at 37.2% from FY25 to FY27, driven by volume recovery and margin expansion.

Financial and Valuation Highlights

Summary of key financial metrics and stock targets:

The stock is valued at a 20x price-to-earnings multiple on FY27 estimates, presenting an attractive entry point.

Segmental Insights and Operational Initiatives

Bathware and sanitaryware segments maintain steady growth: These non-tile businesses rose by 9% in revenue during Q2FY26. Currently, sanitaryware accounts for 60% of this segment’s revenue, with bath fittings making up the remaining 40%. Management plans to achieve a balanced 50:50 revenue split between these categories to drive margin expansion through economies of scale and stronger brand equity.
Joint Ventures’ operational turnaround underway: The Max JV reported losses due to a suboptimal 50% capacity utilization but is expected to break even by Q4FY26 as utilization improves to 75-80%. The Vintage JV experienced a planned production pause for product mix realignment and has resumed full operations, with steady performance improvement anticipated.

Export Revival and Market Dynamics

Morbi-led tile exports show signs of recovery: Exports grew by 7% in the first five months of FY26, with projected full-year exports rising to Rs 19,000-20,000 crore from Rs 17,000-17,500 crore the previous year. This export rebound is expected to ease domestic competitive pressure by diverting volumes overseas, thereby benefiting branded players like Somany Ceramics.

Risks and Operational Efficiency

Risks include demand slowdown and gas price volatility: A sustained weak demand environment or unexpected spikes in gas costs could undermine earnings recovery and margin expansion.
Working capital and distribution network improvements: Somany reduced its working capital cycle to 14 days from 17 days in the prior quarter and expanded its dealer network by 119 in H1FY26, totaling approximately 3,000 dealers. Exclusive brand showrooms increased to about 520, enhancing retail penetration and brand visibility.

Bottomline: Strategic Investment Opportunity

Somany Ceramics is positioned to capitalize on India's growing real estate cycle and evolving product demand mix. With anticipated volume growth, margin enhancement driven by product mix amelioration, and operational leverage, the stock presents a compelling BUY proposition at current valuations. Investors seeking reliable exposure to the infrastructure and real estate sectors should consider Somany as a promising investment for medium-term capital appreciation.