Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of Somany Ceramics Limited and SKP Securities to this financial results conference call.

We have with us Mr. Abhishek Somany, MD & CEO, Mr.

Shrivatsa Somany, Head - Bathware, Mr. Ameya Somany, DGM, and Mr.

Sailesh Raj Kedawat, CFO. We'll have the opening remarks from Mr.

Somany followed by a Q&A session. Thank you, and over to you, Abhishek.

Thank you. Good evening, ladies and gentlemen.

Welcome to the earning calls of Somany Ceramics for Q3. I'll take you through the broad highlights and then transfer the call to Mr.

Sailesh Kedawat, our CFO, for the numbers. The domestic demand saw gradual improvement in Q3 on account of reducing pressure from exports, and also has seen some uptake of the tiles off-take from the building sector, where buildings are getting completed.

We've been talking about it, more and more material is going there, and we will keep seeing this increased off-take over the next whole year. We are hoping that the export would be close to the 19, 19.5 thousand crore level, which is approximately up by about 8% to 9% from last year, which is really helping a lot of the off-take from the Morbi industry.

For us, specifically, sales growth has been 6% in Q3. We would have expected it to be slightly better, but it's at 6% in Q3.

Gross margins obviously improved as a result of that by 2.2% from last quarter. Capacity utilization decreased in Q3 Y-o-Y from 85% to 80%, but there is an increase of approximately 4% from 76% on quarter-on-quarter.

Gas price remained largely stable, and we are seeing the future of the gas pricing also going to be largely stable. The JV loss is primarily on account of Somany Max due to lower capacity utilization.

It's still continuing, although it is slightly lower, and the steps taken to get that under control has been already augmented. We will see production coming in in February and March.

That itself would start showing some results in quarter four. Like we had indicated in the last call, in the next year this loss would be brought down very significantly, or probably we completely turn around the plant.

Depreciation impact was approximately 5 crores in Q3 compared to Q3 '25 on account of reduction of life of certain key assets. As far as advertising was concerned, we have been on track, and our brand spend is at that 2.5% level.

What you see on the report is at 2%, because we have reduced the expenditure this quarter of Mr. Salman Khan, who is no longer associated with the brand.

That's been a reduction, and certain expenses around him has been a reduction. Therefore you see this, but otherwise, every other thing has been maintained, and this will remain at that 2.5% of sales.

Working capital marginally increased by three days as compared to 14 days as compared to FY '25 of 11 days. However, the receivable cycle has been slightly better, and the net dealer addition was approximately 170 in nine months, taking the total to about 3,050, and the showroom count is up to 530 now.

There is no change in our guidance. We remain with the same guidance of a decent single-digit growth for the year, and EBITDA margin should improve by 1%, 1.5% in Q4 FY '26.

This is as far as the broad highlights are concerned. Specifics of these highlights will be taken by Mr.

Sailesh Kedawat. I'm passing the call on to Sailesh.

Thank you, Abhishek. This quarter this quarter, our sales grew by 6%.

Consolidated sales were ₹677 crore. There was a 16% EBITDA growth, from ₹53 crore it became ₹62 crore.

EBITDA as a percentage was 9.2%, 80 bps improvement in EBITDA. Our PBT, from ₹19 crore grew to ₹25 crore, around a 28% improvement in PBT.

PAT almost doubled from ₹9 crore to ₹18 crore. As far as vertical-wise breakup goes, we grew close to 12.5% in bathware.

We grew close to around 35% in adhesive and waterproofing vertical. Tiles growth was 3.6%.

Overall growth, which is around 6 7%, 6%. The tiles segment constitutes now around 83.5% of our overall business against 80 85.3% of our overall business.

The GVT segment continues to grow. There's a 4% improvement in GVT over last year.

From 38%, it's become 42% now. The gas price is predominantly remained stable.

Outlook also the gas price remains stable. Our debt continues to reduce.

Our total outside debt, which was ₹288 crore at the beginning of the year, reduces to ₹231 crore now. Of this, ₹121 crore is the term loan and working capital is at ₹95 crore, predominantly which is in two entities: Sudha and Max.

The term loan of ₹121 crore gets paid majority in next three years. By '29, we'll pay majority of this debt.

On the Max front, the plant is getting stabilized. The losses, which was around ₹7.5 crore in previous two quarters, have reduced to ₹6 crore on account of improvement in capacity utilization.

Quarter four, we should see these losses coming down substantially. We are open for questions now.

good evening, sir, and thanks a lot for the opportunity. Just a couple of questions from mine.

Firstly related to domestic demand. You have mentioned in your PPT that you have seen signs of export demand improving, and domestic oversupply easing.

Can we actually see some light at the end of tunnel in the domestic market itself? Because the volume growth still seems to be on a muted side.

Yes, there is light at the end of the tunnel. We're seeing better walk-ins, been in the market recently, and also spoken to many dealers.

There's been an improved walk-in, there is clearly a light at the end of the tunnel.

Sure, that's in the retail side. Can you also get some flavor on what's really happening in the projects market?

How has the demand been for projects for you? Where do we stand now as a percentage of sales in projects?

Retail still is significant portion, and it will remain so, although the project is increasing. Projects don't increase overnight.

It's a whole cycle of getting it approved and sample flats and then the material going in in the projects over the next two years. Currently, our retail is approximately 70

7% ya

77%, 78%. Therefore, probably in the next year you would be looking at about 75%, which means that the private project would go up and also the government would go up a little bit.

Understood. Understood.

Lastly, on the debt repayment cycle, could you repeat the numbers and where would we see this number falling to in FY '27, some guidance there would be helpful?

Debt number, exact what would it fall to? '27 and '28?

Our outside debt today is ₹231 crore. What we pay in this year is around ₹9 crore.

We pay around ₹70 crore in FY '27 and '28. This number will come down to around ₹50 crore at the end of FY '28.

That was helpful. Thanks.

Thanks a lot team and all the very best. This is our term loan,

Sneha. The working capital remains there.

There's a small amount of working capital which we utilize in our subsidiaries, so that will remain. That's around ₹100 crore to ₹150 crore hanging between this.

Sure.

Sure. Thanks.

Hi, thank you for the opportunity. Sir, currently, how is your gas and propane mix right now?

It depends. In the north plant, we're using natural gas.

There are three different kinds of gas which we get. Also, we're using a lot of biofuel.

In the Morbi plants, we are using depending on which month propane is cheaper and which month gas is cheaper, they're both fungible. Currently, I'm not sure actually.

It's exactly the same price, I don't remember exactly whether we are on gas or propane. In the south plant, we are completely on natural gas.

Understood. Got it.

If I remember correctly, earlier we were not sort of expecting Max to break even in FY '26. Now the revised guidance stands that Q4 there would be a substantial reduction in loss, and we possibly might have some losses in FY '27 also.

Looks like it's taking a lot more than what we anticipated to stabilize. How

No, I think we had mentioned that in FY '26 the losses would be in the same range. In FY '27, we had said that the losses from 25, 26 crores will be down to below 10 crores.

We continue with that guideline, and we will demonstrate that from a moving average in quarter four itself. You would be able to extrapolate what that would be next year.

Obviously, quarter one is a poor figure, it's the lowest figure, but you would be able to see where we'll be. We're very, very confident of lowering these losses or turning around in FY '27.

Understood. Got it.

One last question from my side. You were planning to take some sort of price hike.

How is that shaping up?

No, we had not really said any price hike. We had said that we will control more on discounting.

That is work in progress. As and when the market opens and becomes slightly better, we get a better reason to reduce the discounting and hence increase the prices from that point of view.

We're continuing to do that alongside value addition which is happening. This is as far as tile is concerned.

Of course, bath fittings, we're taking a very substantial price increase. That would be known on the 1st of February.

I would not wish to talk about it right now. Which will be largely in line with the industrial leaders.

Understood. Got it.

That is helpful. Thank you so much.

Hi, sir. I'm seeing that gross margins have reduced from 60% plus levels during the FY '17, '24 period to now

Hello, can you hear me now?

Hi. Your gross margins during the FY '17 to 20 2024 period were upwards of 60% and have now gone down to 50%, 55%, despite introduction of higher margin products like GVT tiles, etc.

What could be the reason for this?

Two things: one is, when you calculate gross margins, you have to calculate taking power and fuel cost also. I think you are only calculating it in material cost.

That's one correction you have to do. What has happened from '17 to '25 is, there's a substantial reduction which has happened like-to-like.

If I do inflation adjustment, the prices of tile should actually not gone up, but they've actually Actually

come down.

It has come down. Whereas the cost of material has not come down, though companies have done a lot of R&D, we have done a lot of R&D and we have reduced cost of input material.

The reduction in cost is not in same proportion as the prices of tiles that have come down. You see a reflection of that in margin, and that's ultimately gets reflected into EBITDA numbers also.

What we're doing is, we are on trajectory now wherein we've worked on our cost. We're also working on the product mix, bringing more value addition.

You'd see our EBITDA coming up. I think that's the correct metrics to see and not the gross margin.

When you are taking gross margin, please adjust it for power and fuel also.

Also ROCE for that period was upwards of 20%, this would be the same reason for the declining ROCE numbers?

Yeah. Of course.

In absolute profit is down, ROCE, ROE is going to come down. It's ultimately a function of profit and capital employed.

All right. Thank you.

Hello. Thank you so much.

Sir, can you please tell me when we can see the Max plant will be neutralized from their loss prospective?

Can you please repeat?

Max plant getting neutralized?

Sorry, could you please repeat the question? Sir,

my question is when we can expect the Max plant loss can be neutralized, and we can see at least breakeven point from that plant?

Hopefully, 18 months from today. We will be able to reduce the loss of 26, 27 crores this year to less than 10 crores for next year for sure.

That itself will add to EBITDA, and I'm talking which is something which is absolutely a given. We will try to achieve better than that.

Next year '27, '28, this would be in a profit situation.

Okay. Sir, our EBITDA margin is slightly improved in Q3, which is more than 9%.

Can we expect it is on a growth trajectory or we can also expect in Q4 double-digit EBITDA margin?

Yes, I mentioned in my opening remarks, we are expecting another percent, percent and a half in Q4.

Sir. Sir, any guidance of volume increment?

There is slight improvement as far as volume is concerned. I would not want to quantify it specifically, but there is slight improvement as far as volume is concerned.

You can see that on our capacity utilization. Okay.

Okay. Thank you, sir.

Thank you so much.

Thank you.

Hi, good evening. Thanks for the opportunity.

Sir, just two questions. Further on to the fuel mix side, you mentioned in north plant you have natural gas and biofuel, and Morbi you have propane and gas.

I believe there is some spike in Henry Hub pricing probably because of a snowstorm, and that should have some linkage with the natural gas which you are sourcing in the northern plants. Just wanted to understand does that impact the short-term, long-term contract?

Second also is that Gujarat Gas, I think, cut pricing for gas for Morbi, I think, last month. Net-net, what is really happening on the fuel side, a bit more detail will really help.

Could you just explain that? Thanks.

Sure.

We have four kinds of formulas in the north plant, therefore, we're kind of insulated when the Henry Hub goes up. We have a Henry Hub.

We have RasGas pricing, which is linked to Brent, sorry, is linked to crude, crude, crude. It's linked to crude, which is from the Qatar gas.

We have JCC, and we have the HP HT gas. GAIL has basketed all of that.

One going up, the other becomes cheaper, therefore, we're kind of insulated as far as that is concerned. Henry Hub specifically spiking is really not mattering to us as we speak.

This is as far as the Kassar plant is concerned. As far as the Gujarat plant is concerned, which is the our plant in Ahmedabad city and also Morbi, both put together, there has been a slight reduction in prices by rupee, rupee and a half.

Now propane and natural gas is kind of the same. No major difference.

It went up by rupee, rupee and a half, now it's come down by rupee, rupee and a half. The total difference is approximately ₹3 from from from a extreme point of view, from from a quarter and a half to two.

No major, major difference.

Let's say third quarter '26, what was the average fuel price for Somany overall for all manufacturing? Gas Gas was ₹44.

₹44. This is only gas pricing.

This does not include anything which we do on the biogas. Some of the industry people report it as a consolidated price where they mix up the biofuel and the natural gas pricing.

What I'm giving you is only the gaseous fuel, which is a south plant, west plant, and north plant, which we get from GAIL, GSPC, IOC.

Right. This number, you're saying the swing factor was ₹3 a SCM, we should see ₹41 for the fourth quarter.

Is that understanding correct?

No, we should see approximately 42.5, 43 as a blend of all three locations. Because Gujarat going down, the other locations if they go up, then it kind of compensates.

We should look at it about 42 and 43 and not 41.

Get that. Therefore,

I think there is no significant impact of gas. Yeah.

If you are only a Morbi player, then there was a difference of about ₹3, ₹3.5, but because we're a national player and we get gas in the south and the north and the blended does not go or move that much.

Very clear. Secondly, you mentioned about price hikes happening on the bath fitting side.

This is largely driven by the brass cost or is there anything else?

Shrivatsa here. It's largely driven by the brass cost.

What kind of inflation are we seeing on the brass side? Sorry, pardon me, I didn't really follow that.

Just in terms of ballpark, what is the inflation we're seeing on the brass side?

If I give you an idea, in April, we were buying brass at around 570, 580 per kg. Now we're doing 780.

770. It's about a 20%, 22% hike.

This entire pass-through is not really happened since April, that's what you mean, right? Hello?

Sorry, can you repeat? It was not clear.

You've not passed through since the hike increase.

Yes, because it's been a gradual increase since then. There is a very large player in the industry without which the prices don't increase, and they have increased prices only 15 days ago, and therefore, everybody will follow suit.

Okay.

Okay. Got it.

Very clear. Thank you so much and best of luck.

Thank you.

Hi, sir. Thanks for the opportunity.

Couple of questions. Sir, first is how do we measure our distribution efficiency?

Is our distribution strategy very different from the peers? Have we already resorted to bundling given that we have new growth engines already in place?

That's the first question, sir.

No, bundling what? I'm sorry.

Bundling say tile adhesives with tiles, whether we incentivize the channel to cross-sell or to sell together?

Right. I think there's two parts to this question: how do we do the efficiency and the bundling.

The efficiency part, obviously, it's a legacy company, we've been dealing with dealers and not distributors. It is different from various peers.

I don't know which peers you would look at. There are some people in the industry which have larger distributors, which means that let's say they have more dealers of a larger size.

We have more number of dealers, but smaller in size. One could argue which is a better way.

I personally believe that time-tested is that you have many more outlets, even though they are small, because in case a proprietorship has to go down, you're well-diversified. There are some other people in the industry which are newcomers, they are working with the principle of one dealer in one town.

That has certain limitations. Once they grow beyond the size of that dealer, then they will have to make more dealers, which means the specific dealer which was enjoying a lot of the margins would go down and then they would be in the same boat as us.

Our principle and our efficiency, how we measure this is how many net additions we've made to our Platinum Club, which is an X number of crores and above, how many net additions we have made to our Gold Club, which is slightly lower than the Platinum Club, and there is another club which is lower than the Gold Club. How many additions which we made, that is one metrics.

What is our total sale from these three club dealers as part of our total sale, and how we're increasing that. The second metrics which we do the efficiency is when we add a dealer, for example, if we add 100 dealers what in the entire year, I'm only giving you an example, huh?

If we add 100 dealers in a particular year, what is my sale contribution from those new 100 dealers and how do we see those new 100 dealers going forward in the next year? The third metrics is that how we are seeing our exclusive dealers as to how many of them are growing and at what pace they're growing.

The other metrics is of course to basically see the some dealers which cease to be our dealers as to why they cease to be our dealers. These are the four metrics which we use on a continuous basis to see how we are moving in the path.

This is the first question. The second question is bundling.

Yes, we completely try to bundle as much as possible. However, as far as sanitaryware is concerned, all the other brands in India are also legacy brands, the top three brands of India and the other two foreign brands of India who are in India, which have been around for the last 25, 30 and the other legacy brands have been there for 60 and 70 years, they have the same relations with the dealers, which means that it is that much more difficult for me to get that sanitaryware counter.

Right now, our growth has happened where approximately 25% of our tile counters are bathware counters. Now that we've grown very large in bathware and formed our relations and proven to the market that we are excellent in quality and excellent in product, it is becoming easier for us to bundle this going forward with our tile dealers.

The same is the case with adhesives. Again in adhesives, it is becoming more and more easier for us to bundle this with our tile dealers.

Yes, our endeavor is to bundle as much as possible and milk the same counter as much as possible. I hope I'm able to answer the questions.

Yes, sir. Thanks for this.

Sir, just a clarification on the first part of the answer. Are there any variables beyond the spread of dealers, something like turnaround time, or say basically, does the material directly go from the factory to the dealer or do we have depots on a pan-India basis, and is that business model consistent with other players or is it any different?

Kind of consistent with the other players. It goes from factory directly to dealer.

There are some depots. Pre-GST, we used to have 19 depots, and now we have how many?

About four? We have four depots, and that also of very small sizes.

What we are keeping in this depot is a high-value product where we can afford the depot. That is how it is.

From 19 depots, we're down to four depots, and I don't think this is really going anywhere. It is going to remain there.

Maybe another depot will come up somewhere where we want to keep more value-added product, but that's it. It goes largely from factory to dealer.

Perfect. This is helpful.

Sir, second question, you did touch upon discounts, and you indicated that probably we will revisit it in next few months. Sir, what do we make of competitive intensity in the marketplace?

There is a specific player called Infra.Market, I think they have tied up a lot of capacity in Morbi. How do you see their influence in the local market?

Has it made any difference to us?

No, not at all. We don't see them in the market.

We haven't seen any competition from that. I can take that offline.

I have my views on that, which may not be right to stay on an open call.

Sure, sir. Thank you so much.

All the very best, sir. Thank you.

Sir, does the EU-India FTA structurally improve the realization for Morbi exporter, or it will be a largely from volume-led opportunity? How this deal eventually impact Somany Ceramics?

The EU deal will take more than a year to come to light. Let's see what happens.

It's too early. It's just an announcement.

Nothing really known on that. I think the volume which has grown in Morbi from 16.5 thousand crores to about 19, 19.5 thousand crores this year of export, that is clearly benefiting the Morbi industry.

Secondly, I think what will benefit more and is likely to happen faster than the EU deal is the Chinese apparently have reduced their VAT on tiles. I'm not sure whether it's 9% or 12%, but they've reduced or taken off the VAT, which means that they have become that much more expensive.

Now the companies there have two choices: either to absorb that cost or then partially absorb the cost and pass it to the consumer. Any which ways, India will become slightly more competitive in the export market wherever China was very significant.

That's something which we think will benefit the Indian industry. As far as Somany Ceramics is concerned, we don't export very much.

It's only about percent and a half to 2% we export, and we think we will be at that figure only. These strategic calls of EU, etc.

doesn't really affect Somany Ceramics immediately.

Okay. My concern is just to understand, if the Morbi export increase, then it will eventually better for us.

Yes, of course, absolutely. With every time the export increases, it's better for the domestic industry and the domestic players, because their off-take then happens in the export market.

You're absolutely right on that effect.

Okay. We can expect that China eventually reduce the price, and so that export will be increased, and that eventually impact Somany at positive front.

China will increase the prices, not reduce the prices. They will increase the prices.

Their VAT has gone, they've become 9% to 12% less competitive.

Okay. Okay.

Sir. Thank you, sir.

Thank you.

Hi, thank you for the follow-up. Sir, how much was the ad spend for this quarter versus last year, and what is the target for this year?

Yes, sure. If you remove the effect of the star which we do not have associated with us anymore and the expenses around that, if we remove that because that happened in this quarter, then it's 2.5%.

If we take that into account, then it's 2%. This will catch up to 2.5%, and we will maintain an ad spend of 2.5%.

That's where we are.

Sorry, I missed you. You said it will be 2.5%.

Before that, I missed what you said.

What I said is that this year this quarter, the effect of the superstar which we had associated with us, we know that's no longer associated, so that money has been not paid out and the expenses around him has not been paid out. Therefore, you see a slightly lower ad expense, but other than that, it will catch up at 2.5%.

Understood. Got it.

One last question from my side. Depreciation has bit inched up, this will be the going forward run rate of ₹28 crore per quarter?

Yeah. This is going to be a run rate.

It's going to be between 26, 27 crores. That's going to be a stable run rate now, unless and until we do some more significant additions.

We adjusted life of some assets in quarter four of last year. That's where you see increased depreciation numbers with corresponding quarter of previous years, but it's going to be a stable run rate.

Got it. Okay.

Perfect. That's it.

Thank you everyone for patiently listening. I think we are looking at better times.

This quarter should be a good quarter on all accounts. A, we should be better in sales, and also we should be able to reduce the losses of Max and very confident of increasing our EBITDA and in line with what we had discussed in our meeting and also in our calls, previous calls, and also this call.

If this quarter goes well, it gives us that much more confidence for the next year, where no investments are coming up, we will be better in capacity utilization, loans will be paid down, and also better on value addition and in our ASP. Overall looking good after a long time.

Very confident of that. Thank you so much.

Until we meet next time for the annual earnings call. Thank you.