Update on the Indian Equity Market:
On Wednesday, NIFTY ended higher at 18,162 (+0.9%) as it closed near the intraday high level of 18,198. Among the sectoral indices, AUTO (+3.4%), METAL (+1.5%), and IT (+1.2%) ended higher, whereas REALTY (-0.2%) was the only sector which ended lower. Among the stocks, TATAMOTORS (+21%), M&M (+5.2%), and TATACONSUM (+4.3%) led the gainers while MARUTI (-2.6%), ONGC (-2.2%), and SBILIFE (-1.8%) led the losers.
Excerpts of an interview with Mr. Abhishek Somany, MD, of Somany Ceramics (SOMANYCERA) with CNBC TV18 on 12th October 2021:
- About 1000 plants that manufacture ceramics and are located in Morbi, Gujarat have decided to increase prices as the gas prices have gone up. There has already been a price increase this week and there will be a further price increase in the next 15-20 days. When this happens, Somany Ceramics will increase prices again.
- The gas price constitutes 25-28% of the company’s cost. The industry has increased price by ~Rs 2-3 a square foot. The industry passed on a reasonable increase in gas prices. As the gas prices stabilise, the industry will be able to pass on 80+% of the prices to its customers.
- The company is at 100% capacity utilisation though the prices have gone up. The demand is back, at least for brand new players. It is good news for the industry as the demand for the real estate sector has picked up.
- Tile is not a very large renovation market. About 18-20% is used in renovation, rest is used in the new application.
Asset Multiplier Comments
- As the demand for real estate is picking up, this will prove as a tailwind for Somany Ceramics in the near to mid-term, as the company’s product (tiles) is used largely in new applications.
- The company’s margins may improve as the raw material prices stabilise, along with an increased price of company’s products.
Consensus Estimate: (Source: market screener website)
- The closing price of SOMANYCERA was ₹ 830/- as of 13-Oct-2021. It traded at 33.7x/23.5x/18.3x the consensus earnings estimate of ₹ 25/35/45 for FY22E/FY23E/FY24E respectively.
- The consensus target price of ₹ 810/- implies a PE multiple of 17.9x on FY24E EPS of ₹ 45/-.
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