Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Stable/Crisil A1+’ ratings on the bank facilities of Somany Ceramics Limited (SCL; a part of the Somany group).

 

The ratings continue to reflect the strong business risk profile of the group, backed by its strong brand presence in the organised segment of the ceramic tile industry and its diversified product portfolio.

 

The group has recorded revenue of Rs 1,890 crore in the first nine months of fiscal 2025, and is expected to achieve revenue of Rs 2,600-2,700 crore for the full fiscal, amid muted growth in demand seen across the industry. Overall revenue has grown by 5% to Rs 2,603 crore in fiscal 2024, against Rs 2,481 crore in fiscal 2023, driven by volumetric rise. Operating margin was around 8.4% during the first nine months of fiscal 2025 and is expected to be around 8.5% for the full fiscal (9.7% in fiscal 2024), owing to muted demand, translating into lower capacity utilisation and fixed cost absorption. Sustained growth in sales, driven by timely ramp up of enhanced capacities and improvement in profitability, remains a key rating sensitivity factor.

 

The ratings continue to reflect the established market position of the Somany group in the domestic tiles industry, backed by its strong brand and distribution network and diversified geographical reach and customer base. The ratings also factor in the healthy financial risk profile, aided by efficient working capital management and an asset-light model. 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

On January 15, 2025, SCL announced its plans to sell its entire equity stake of 51% in Amora Tiles Pvt Ltd (ATPL; subsidiary) and 26.05% in Acer Granito Pvt Ltd (AGPL; associate). 

 

Crisil Ratings has revised its analytical approach and combined the business and financial risk profiles of SCL, its joint ventures and associate companies – SR Continental Ltd, Somany Bathware Ltd, Somany Excel Vitrified Pvt Ltd., Somany Sanitary Ware Pvt Ltd (SSWPL), 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 Pvt Ltd (SPPL), SRCL Buildwell Pvt Ltd and Somany Max Pvt Ltd (SMPL). SCL has invested 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.

 

Crisil Ratings has deconsolidated Amora Tiles Pvt Ltd and Acer Granito Pvt Ltd as these companies cease to exist as subsidiary and associate company of SCL.

 

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:

• Established market position, backed by strong brand and distribution network: The group is a leading player in the Indian tiles industry, with an annual capacity of about 62 million square per metre (MSM) and has access to capacity of 80 MSM. Over the years, the 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 healthy brand recall.

 

• Diversified geographical and customer base: The group caters to dealers and institutional sellers. However, institutional sellers form only 20% of the overall sales, and do not exert much pressure on the working capital cycle. In the retail segment, the distribution network includes 14,000 touch points across India, with 3,000 active dealers and 450 showrooms. The group plans to add 100-150 dealers every year. It has a strong reach in northern India, which accounted for over 45% of total revenue in fiscal 2024; followed by the western and southern regions (around 9% and 25%, respectively).

 

• Healthy financial risk profile, aided by efficient working capital management and an asset-light model: Total outside liabilities to adjusted networth ratio is projected to be in the range of 1.2-1.25 times as on March 31, 2025, supported by healthy accretion to reserves. Gross current assets are likely to range from 110 to 120 days as on March 31, 2025 (110 days as on March 31, 2024), driven by receivables and inventory of 40-50 days and 50-60 days.

 

Debt protection metrics were robust, with interest coverage and net cash accrual to adjusted debt ratios projected at 4.1-4.2 times and 0.4-0.5 time, respectively, in fiscal 2025 (5.4 times and 0.47 time, respectively, in fiscal 2024). Despite debt-funded capital expenditure (capex) undertaken recently, the financial risk profile is expected to improve, led by sustained profitability and healthy cash accrual.

 

Weaknesses:

• Exposure to intense competition and cyclicality in the real estate segment: The ceramic tiles industry is intensely competitive, owing to presence of several unorganised players. Despite being a leading player, the Somany group has to compete with other reputed brands. Hence, the ability to pass on any increase in raw material cost remains a key rating sensitivity factor. Any moderation in demand from real estate entities exerts pressure on pricing and reduces the offtake.

 

• Vulnerability to fluctuation in prices of raw material and natural gas: Raw material comprises 30-35% of total operating cost, while gas and power forms 30-35%. Hence, even a slight increase in input prices can drastically impact profitability. The group also intends to absorb raw material cost through higher operational efficiency and judicious price hikes. Hence, improvement in the operating margin will remain a key monitorable.

Liquidity: Superior

Bank limit utilisation was minimal, averaging 1-2% over the 12 months ending January 31, 2025. Expected cash accrual of over Rs 150 crore should suffice to cover the term debt obligation of Rs 40-50 crore in the near term. The company had free cash and bank balance of Rs 35 crore as on December 31, 2024. Low gearing and moderate networth offer financial flexibility to withstand adverse conditions or downturn in the business.

Outlook: Stable

Crisil Ratings believes the Somany group will continue to benefit from its established market position in the domestic ceramic tiles industry, its strong distribution network, and healthy financial risk profile.

Rating sensitivity factors

Upward factors:

• Sustained growth in revenue and improved profitability, resulting in return on capital employed (RoCE) improving to over 15% on a sustained basis
• Prudent working capital management

 

Downward factors

• Decline in operating income or operating margin (below 7%), resulting in significantly low cash accrual
• Any major debt-funded capex, increase in working capital requirement, weakening the financial risk profile

About the group

SCL was incorporated in 1968, as Somany Pilkington’s Ltd (SPL), by Mr HL Somany, in collaboration with the UK-based Pilkington’s Tiles Plc (PTP). In 1971, the Somany family purchased the stake of PTP in SPL, and renamed the company.

 

SCL is listed on the Bombay Stock Exchange and the National Stock Exchange. Mr Shreekant Somany is the chairperson and managing director, and Mr Abhishek Somany is the managing director.

 

SCL manufactures ceramic tiles and glazed vitrified tiles, and trades in polished vitrified tiles, along with sanitaryware and bathroom fittings. The group has a combined tile manufacturing capacity of 62 MSM per annum (access to capacity upto 80 MSM).

 

It has two of its own manufacturing units at Kadi (Gujarat) and Kassar (Haryana); six ancillary units of associates/subsidiaries and arrangements with other manufacturers. Own manufacturing accounts for approximately 50% of the total production, and the balance comes via joint ventures and arrangements 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.

 

In May 2018, SCL also acquired 51% stake in SBFPL, which manufactures and sells bath fittings such as faucets and showers.

 

SSCPL manufactures glazed vitrified tiles and has an installed capacity of 7.08 MSM per annum.

 

SMPL is a subsidiary with approximately 80% shareholding. SMPL has set up a manufacturing facility for large tiles/slabs and it started commercial production in January 2024.

Key Financial Indicators*

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	2603.3	2481
Reported profit after tax	Rs crore	99.4	66.9
PAT margin	%	3.8	2.7
Adjusted debt/Adjusted networth	Times	0.41	0.55
Interest coverage	Times	5.4	4.7

*Crisil Ratings adjusted financials

Any other information: Not Applicable