| Somany Ceramics Limited | ||||||
| Ratings reaffirmed at ‘CRISIL AA-/Stable/CRISIL A1+’ | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities of Somany Ceramics Ltd (SCL; a part of the Somany group).
The rating factors in the upcoming capital expenditure (capex), announced by SCL on March 17, 2021. The company is slated to contribute Rs 177 crore out of the total project cost of Rs 205 crore, and will rely on internal sources of funds internally, as it has a healthy cash balance. All the projects announced should commence operations from the last quarter of fiscal 2022.
The ratings 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: Established market position in the domestic tiles industry, backed by a strong brand and distribution network 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 110.9 crore and Rs 59.5, respectively, crore in fiscal 2020 and Rs 120.4 crore and Rs 67.6 crore, respectively, in fiscal 2019.
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.
Well-diversified geographical and customer base 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.
The North region accounted for the highest sales (44.3%), followed by the South (26.4%) in the third quarter of fiscal 2021. Share of exports was minimal, at 4.7% for the same period.
Healthy financial risk profile, marked by efficient working capital management and asset-light model Capital structure is healthy, with total outside liabilities to adjusted networth (TOL/ANW) ratio estimated at 1.1 times as on March 31, 2021. This is because of healthy accretion to reserves, efficient working capital management, and focus on asset-light expansion. Gross current assets reduced to 151 days as on March 31, 2020, from 161 days a year before. This was driven by a drop in receivables to 64 days, from 89 days over the same period, 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 2.66 times and 12%, respectively, in fiscal 2020. Repayment of existing debt and absence of any large capex plans should strengthen the financial risk profile in the medium term.
Weakness: Exposure to intense competition and cyclicality in the real estate segment 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, 2020, owing to muted demand in the wake of government reforms such as demonetisation, GST and RERA.
Revenue is likely to be in a similar range even in fiscal 2021, despite the Covid-19 pandemic, as demand from lower tier cities has picked up significantly from the second quarter. Revenue of Rs 1086 crore was achieved in the first nine months of the fiscal, against Rs 1254 crore achieved in the corresponding period of the previous fiscal, notwithstanding the adverse impact on sales in the first quarter.
Vulnerability to fluctuations in prices of raw material and natural gas Power and fuel cost forms 15-25% of SCL’s operating income. 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, decline in gas prices, starting from the last quarter of fiscal 2019, should continue and have a positive impact on margin of tile manufacturers. |
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 Ratings 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 complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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