Mumbai: Somany Ceramics Ltd is looking at possible acquisitions of companies making faucets and bath fittings to accelerate its growth in these categories which now fetch less than a tenth of its overall revenues, a senior company official said.
Sales of sanitary ware and bath fittings at the maker of Somany tiles have grown at 46% per annum on an average over the past five years against its core business of tiles, which has grown at 17% per annum during the period.
“We are evaluating a few options for inorganic growth of fitting brands in the faucet space at an enterprise value of Rs50-100 crore," said Abhishek Somany, managing director, Somany Ceramics. He added that while there are many such brands for sale, their valuations are high as most of them also own a lot of land that Somany is not interested in.
However, Somany is also open to setting up a greenfield project if the company is unable to finalize a deal in the next six months, he said. The company is planning to buy land in south India for increasing its manufacturing capacity, but the plans have not been finalized yet, he added.
Ceramic manufacturers have seen a surge in demand following several programmes launched in the past two years by the Union government like Smart Cities Mission, Swachh Bharat Abhiyaan, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Housing for All by 2022.
According to an August report on the Indian Ceramic Tiles Industry (ICTI) by Care Ratings, the total operating income of the top 12 companies including Somany Ceramics grew at a compound annual growth rate (CAGR) of 16% during the four years to financial year 2015. It said that the growth was primarily driven by increase in sales volumes and higher sales realization. Profit after tax margin of ceramic manufacturers also improved from 3.63% during financial year 2012 to 4.21% during fiscal 2015 due to better operating margins, operating income and lower interest cost, the report said.
Since 2 October 2014, shares of Cera Sanitaryware have gained 48.84%, Somany Ceramics 111.99% and Kajaria Ceramics 108.32%.
Currently, Somany Ceramics has a sanitaryware plant under a subsidiary Somany Sanitary Ware Pvt. Ltd, with a capacity of 303,000 pieces per annum, while for tiles, it has a capacity of 60 million sq. m per annum through a mix of outsourcing, its own plants and subsidiary plants.
In fiscal year 2015, Somany Ceramics invested Rs90 crore in capacity expansion. In fiscal 2016, it is investing Rs60 crore and has an outlay of Rs60 crore for fiscal year 2017 too. The company will also have additional investments lined up for the greenfield project.
“We are increasing our manufacturing capacities," said Somany, who feels that the centre’s thrust on affordable housing is generating a lot of growth for this sector.
In the quarter ending June 2016, the company’s net profit grew 80% to Rs18 crore from Rs10 crore in the year-ago quarter whereas revenues grew 5.1% to Rs411 crore.