Anyone looked at Somany Ceramics

Stock Opportunities Untested - but worth a good look
42

Hi,
What do you think about the current valuation of this company?
At this CMP is it a value buy?

Ev/EBITDA greater than historical median
PE is also greater than historical median

However compared to peer it looks value
Thanks

43

I am inclined to buy at CMP

Its a personal view, not a recommendation

44

The corporate structure has become more and more complicated over the years. In 2012, there were only 2 subsidiaries - SR Continental and Somany Global both of which were 100 % WOS. But in FY23, there are 11 subsidiaries and 3 associates / JVs. And many of these subsidiaries are NOT 100 % WOS.

Almost Rs.131 crore have been invested in these Subsidiaries / JVs so far, but the returns from them are nil. While Standalone revenues are almost same as Consolidated, Standalone profits are significantly higher. Look at the table given below:

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While almost entire revenues are coming from Standalone, a large part of the costs (Rs.382 crore of Other Expenses!) are stuffed away in subsidiaries. What is happening here? This pattern would have been okay if these were 100 % WOS, but now I think someone is saving on taxes at the cost of listed company’s shareholders.

Another issue is every year there are exceptional items, that too for reasons as bizarre as losing money in employee fraud or broker defaults and so on:

  • Loss on disinvestment of a subsidiary Rs.2.18 crores has been shown under the head Exceptional Item in FY23
  • Rs.18 crores invested in bonds of SREI which went bust was shown as an exceptional loss in FY21
  • Rs.26 crore lost due to a broker default was shown as an exceptional loss in FY20
  • Rs.16 crore fraud was committed by an employee shown as an exceptional item in FY19
  • Rs.4.4 crore loss on discard of certain plant and wage settlement of previous years shown as exceptional item in FY18
  • Rs.4.06 crores impairment of certain plant and machinery shown as an exceptional item in FY17
  • Rs.4.43 crores being payment of Rs.3.83 crores to GAIL India Limited towards one time settlement of ‘Pay For If Not Taken Obligation’ for calendar year 2014 and loss of inventory of Rs.60 lacs due to fire in FY16 shown as exceptional item
  • Rs.77 lacs for diminution in the value of subsidiaries shown as exceptional item in FY12

If you have an exception every year, it is no longer an exception, it is a rule.

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