| Somany Ceramics Limited | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings’ ratings on the bank facilities of Somany Ceramics Limited (SCL; a part of the Somany group) continue to reflect the Somany group's established market position in the domestic tile industry, its well-diversified geographical reach and customer base, and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition and cyclicality in the real estate segment, and fluctuations in prices of raw material and natural gas. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of SCL, its joint ventures and associate companies -- Amora Tiles Pvt Ltd (ATPL), Somany Fine Vitrified Pvt Ltd (SFVPL), Somany Sanitary Ware Pvt Ltd (SSWPL), Amora Ceramics Pvt Ltd (ACPL), Acer Granito Pvt Ltd (AGPL), Vicon Ceramic Pvt Ltd (VCPL), Vintage Tiles Pvt Ltd (VTPL), Somany Bath Fittings Pvt Ltd (SBFPL), Sudha Somany Ceramics Pvt Ltd (SSCPL) and Somany Piastrelle Private Limited (SPPL). This is because SCL has investments in all these entities, and purchases finished material from them, to be marketed under its own brand. All the entities are collectively referred to as the Somany group.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The Somany group is a leading player in the Indian tiles industry, with annual capacity of over 63 million square metres (MSM) per annum. Over the years, the group’s management has established several brands, including Somany, Somany Vitro, Somany Duragres, Somany VC, and Somany French Collection. These brands cater to various price ranges, and enjoy a strong recall.
The group in recent past has also been focussing on improving revenue from sanitary ware and bath ware segments which achieved revenue of Rs 164.8 crore in fiscal 2021 against Rs 170.3 crore in fiscal 2020.
The group has over 8,000 touch points across India, with about 2,000 active dealers and 328 showrooms/experience centres. It has further expanded its reach to the Tier-II, III and IV cities, fueled by rapid urbanisation and enhanced branding and marketing activities.
The group caters to dealers and institutional sellers, with the latter accounting for 30-35% of overall sales. In the retail segment, the group sells tiles to about 2,000 active dealers, and plans to add 100-150 dealers every year, to reduce customer concentration risk.
Capital structure is healthy, with gearing of 0.53 times as on March 31, 2021 vs 0.64 times a year ago. This is because of healthy accretion to reserves, efficient working capital management, and focus on asset-light expansion. Working capital is efficiently managed as reflected by a drop in receivables to 51 days, from 64 days as on march 31, 2020, with enhanced collection discipline and channel financing facility offered to customers and distributors.
Debt protection metrics were also healthy, with interest coverage and net cash accrual to adjusted debt ratios at 5.08 times and 30%, respectively, in fiscal 2021. Repayment of existing debt and absence of any large debt funded capex plans should strengthen the financial risk profile in the medium term.
Weakness:
The ceramic tiles industry is intensely competitive, and dominated by unorganised entities. However, with changes such as closure of ceramic units running on coal gasifiers, and implementation of the Goods and Services Tax (GST) and Real Estate (Regulation and Development) Act, 2016 (RERA), the market share of organised players has expanded in recent times.
Despite being a leading player, the Somany group too faces significant competition from reputed brands such as Kajaria Ceramics Ltd, H & R Johnson (India) (a division of Prism Cement Ltd), Asian Granito India Ltd, and Orient Bell Ltd (rated ‘CRISIL A-/Negative/CRISIL A2+’). Intense competition restricts profitability, given the delay in passing on cost hikes to customers. Further, any moderation in demand from real estate companies results in pricing pressure and lower offtake.
Thus, the group has reported flat revenue in the range of Rs 1600-1750 crore over the five fiscals ending March 31, 2021, owing to muted demand in the wake of government reforms such as demonetisation, GST and RERA. Despite the Covid-19 pandemic, revenue remained in similar range as demand from lower tier cities picked up significantly from the second quarter.
Power and fuel cost forms 15-25% of SCL’s operating income. For example, in fiscals 2018 and 2019, increase in gas prices, following the sharp rise in crude oil prices, and flat realisations led to a dip in profit for the Somany group. However, from last quarter of fiscal 2021, the prices have again increased compared to their historical average and the group has been absorbing this increase in cost till now but may be passed on in the future. |
Liquidity: Superior Bank limit utilisation was negligible, averaging around 7% over the six months ended January 31, 2021. Expected cash accrual of over Rs 100 crore, should suffice to cover the term debt obligation of Rs 55 crore in fiscal 2022 and Rs 40 crore in fiscal 2023. Current ratio was moderate at 1.23 times as on March 31, 2020. The healthy cash balance and liquid investments worth Rs 130 crore as on September 30, 2020, aid overall liquidity. Low gearing and moderate networth support financial flexibility, to raise additional debt in case of any adverse business scenario. |
Outlook: Stable CRISIL believes the Somany group will continue to benefit from its established market position, strong distribution network, and enhanced financial risk profile. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Group SCL was incorporated in 1968, as Somany Pilkington’s Ltd (SPL), promoted by Mr H L Somany in collaboration with the UK-based Pilkington’s Tiles Plc (PTP). The Somany family purchased PTP’s stake in SPL in 1971 and the name was changed to the current one. SCL is listed on the Bombay Stock Exchange and National Stock Exchange. Mr Shreekant Somany is the chairman and managing director, and Mr Abhishek Somany, the Managing Director.
SCL manufactures ceramic tiles and glazed vitrified tiles, and trades in polished vitrified tiles, along with sanitary ware and bathroom fittings. SCL group has a combined tile manufacturing capacity of 63 MSM p.a. as on 31st December, 2020. SCL group has two of its own manufacturing units at Kadi (Gujarat) and Kassar (Haryana); seven ancillary units of associates / subsidiaries and arrangements with other manufacturers. Own manufacturing accounts for approximately 50% of the total production, remaining is contributed by JVs and arrangement with other manufacturers. The company sells products under brands such as Somany, Somany French Collection, Somany Vitro, Somany Duragres, Somany VC, Somany Signature, Somany Glosstra, and Somany Slip Shield.
Majority-owned subsidiaries, ATPL and ACPL, manufacture ceramic wall glazed tiles, while SFVPL manufactures vitrified floor tiles. AGPL, in which SCL has a 26% stake, manufactures soluble salt and double charge vitrified tiles. All these subsidiaries/joint ventures have plants in Morbi (Gujarat). The plant under SSCPL (60% stake held by SCL) also commenced production on March 27, 2019, at Andhra Pradesh, and manufactures glazed vitrified tiles. In May 2018, SCL also acquired 51% stake in SBFPL, which manufactures and sells bath fittings such as faucets and showers. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 35 | HDFC Bank Limited | CRISIL AA-/Stable |
| Cash Credit | 15 | ICICI Bank Limited | CRISIL AA-/Stable |
| Cash Credit | 35 | Kotak Mahindra Bank Limited | CRISIL AA-/Stable |
| Cash Credit | 75 | Punjab National Bank | CRISIL AA-/Stable |
| Letter of Credit | 15 | HDFC Bank Limited | CRISIL A1+ |
| Letter of Credit | 5 | ICICI Bank Limited | CRISIL A1+ |
| Letter of Credit | 15 | Kotak Mahindra Bank Limited | CRISIL A1+ |
| Letter of Credit | 35 | Punjab National Bank | CRISIL A1+ |
| Proposed Fund-Based Bank Limits | 140.23 | Not Applicable | CRISIL AA-/Stable |
| Term Loan | 54.77 | HDFC Bank Limited | CRISIL AA-/Stable |
This Annexure has been updated on 16-Dec-2021 in line with the lender-wise facility details as on 14-Dec-2021 received from the rated entity.
Criteria Details
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