This Multibagger Stock Surges 118.29% In 1-Year, Buy Says ICICI Securities

Somany Ceramics Ltd (SCL) is a small-cap tile manufacturer company with a market capitalization of Rs 3,535.50 crore. The multibagger stock has risen 118.29% in a year and 16.10% in the last six months. On a year-to-date (YTD) basis, however, the stock is down -8.44 percent in 2022 till now. ICICI Securities has issued a buy recommendation on the stock, with a target price of Rs 1000. After the company's Q3FY22 results, the brokerage forecasts significant upside on Somany Ceramics shares from the current market price of Rs 839.00 as of 4 February, 3:30 pm IST.

Q3FY22 results of Somany Ceramics according to ICICI Securities

• SCL reported a mixed bag performance.
• The topline was up 19.3% YoY at Rs 587 crore led by tiles revenues (up 19.7% YoY) at Rs 512 crore with ~5% volume growth and ~14% realisation uptick).
• The earnings before interest, taxes, depreciation and amortization (EBITDA) were at Rs 62.4 crore down 1.5% YoY. The resultant margins were at 10.6%, down 223 bps YoY owing to higher gas prices.
• Profit after tax (PAT) was at Rs 32.2 crore, up 14% YoY, aided by lower interest and taxes.

Key triggers for future price performance of Somany Ceramics according to ICICI Securities

• New capacity of 10 MSM (with potential to generate ~Rs 250-300 crore worth of additional revenue at full capacity) and incremental margin of 100-150 bps will come by Q4 end/Q1FY23. Additionally, it has also announced the setting up of a greenfield manufacturing facility of large format/ slab tile of ~4 MSM/annum in Gujarat, which is expected to commence production during Q4FY23 at capex of ~Rs 170 crore.
• We expect 13% compound annual growth rate (CAGR) in tiles volume and realisations CAGR of ~2%, resulting in tiles revenues CAGR of 15% over FY22-24 to Rs 2473 crore.
• Any respite in gas price rise to aid margins.

Buy For A Target Price of Rs 1000

The brokerage has said in a report that "SCL's share price has grown by 40% over the past five years (from ~Rs 620 in January 2017 to ~Rs 865 levels in January 2022). With strong underlying demand and likely improvement in margins when gas price cools off, we upgrade from HOLD to BUY. We value Somany at Rs 1000/share at 26x FY24 P/E."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.