Somany Ceramics: Buy

Investors with a long-term perspective can buy shares of Somany Ceramics, the largest player in the organised market for tiles in India after H&R Johnson and Kajaria Ceramics. Capacity expansion, an increase in revenues from high value vitrified tiles and the recent acquisition of Sonec Sanitary Ware should help the company.

The stock is trading at 18 times its expected earnings for 2015-16 (Kajaria Ceramics trades at 20 times). In the last five years, the Somany stock’s price-to-earnings band has been in the range of 3-11 times.

It has seen a re-rating this calendar year, thanks to equity infusion by a private equity firm and the company’s sound growth prospects.

The company’s earnings have grown at a compounded annual rate of 27 per cent in the last five years. The current year and the next may see much higher growth, given the company’s new acquisitions and its growing reach.

Its capacity will increase by about 8 million square metres (msm) this year to 42.5 msm following expansion of manufacturing facilities at its own plants and joint venture units.

In the last five years, the Indian tile industry has grown at around 12-14 per cent annually.

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