Credit Analysis

Somany Ceramics

Subject : Principles Of Bank lending

Prof. : Dr M Manickaraj

Anurag Agrawal
Roll no. 08

PGDM 16-18
About Company - Somany Ceramics

The company was incorporated in 1969 by collaborating with Pilkington's Tiles Limited,
U.K having main focus on manufacturing and dealing in glazed tiles. It was named Somany
Pilkington Ltd (SPL). In 1995, the Pilkington tiles ltd divested its entire stake in favour of Mr. H
L Somany Group, giving them entire control over the company. The name of company was
changed to Somany Ceramics Ltd in 2007.
The company has 2 big Manufacturing Units at Kadi (Gujarat) and Kasara (Harayana). It
also has other joint ventures plants generating a production capacity of 41 MSM P.A (Million
square meter per annum).

Products

The company is primarily a manufacturer and marketer of tiles and offers a wide range of
sanitary ware and bath fittings. The Company is engaged in manufacturing ceramic/vitrified wall
and floor tiles. Its product categories include polished vitrified tiles, glazed vitrified tiles and
digital tiles. Its floor tiles include durastone, polished vitrified and slip shield. It offers wall tiles
for kitchen, bathroom, bedroom, home, office and hotels wall in India. Its chrome plated (CP)
fittings include faucets, showers, body of hi-flow divertor, body of regular divertor, brass beauty
solution, cloth liner, echo bottle trap round and urinal spreader. Its tile laying solutions include
Ezy Fix, Tile Master and EZY Grout.

Industry Risk Analysis

During the last two decades, the Ceramic Tile Industry has recorded a phenomenal
growth. The industry is largely dominated by family-owned and managed units.

According to a report by care ratings, Indian ceramic tile industry was the worlds third
largest manufacturer of ceramic tiles at 825 million square metres (MSM), after China and
Brazil. India is also the third largest consumer of tiles in the world

Morbi (Gujarat) is Indias largest ceramic tile-making cluster with over 600 units
manufacturing glazed tiles, sanitaryware and vitrified tiles. Approximately 70% of Indias total
production of tiles is done by units located in this region.

The industry have grown at a steady rate despite a slowdown in economic

So, the overall industry risk is low industry has grown at

Business Risk Analysis

The company has developed and patented a breakthrough technology called 'Veilcraft
technology', that creates a special layer on the tiles that keep them free from abrasion, scratches
and stains, these tiles retain the original glaze and finish for years. The VC Shield tiles made
from this technology, are the world's most durable floor tiles.

The management has also brought in some groundbreaking technologies into the Indian
market. Their highly advanced Rotocolour Machine has the capacity to decorate ceramic tiles
with glazes, using a serigraphic decorating system that employs silicon cylinders. This integrated
system that optimizes decoration of tiles enables any kind of random design and also a marble
effect. This has helped Somany to set new industry benchmarks in quality and production
standards for ceramic tiles.

The company is very aggressively marketing its products from last 5 years. The company
has started many Somany Studio Showroom at various metropolitan cities like Kochi, Indore,
Bangalore to attract the premium customers. It has also started a global exclusive showroom at
Ahmedabad, Delhi, Gurgaon, Ludhiana, Mumbai and Pune to give access to its customers high-
end international quality imported tiles and sanitary ware products. The company has come up
with innovative marketing strategies like Somany Design Studio on wheels which is a bus a
carrying all new products and designs of company. With a aim to expand its reach, the company
has a plan to travel over 13,000 kms covering 80 cities across India in the next 1 year.

The Kadi plant at Gujarat has the prestige of the first plant in the Ceramic Tile industry in
the world to be certified with ISO 14001, a standard that helps company to align its operations to
minimize the negative effects on environment.

The company exports products to over 50 countries approximately six continents

Management Risk Analysis

Mr. Shreekant Somany, Chairman & Managing Director of company is son Mr. H L Somany, the
Founder of company. He has done his graduation in Science from Kolkata University. He has
been trained at SIMILOR in Geneva, Switzerland in Foundry Practices and Machine Shop and
worked at companies like Soma Plumbing & Fixtures Limited and Hindustan Sanitaryware &
Industries Ltd.

His son Mr. Abhishek Somany is Joint Managing Director of Somany Ceramics Limited and he
has done BBA from UK.
Mr G. G. Trivedi, MSC, AICWA, LLB serves as the Chief Executive Officer of Somany
Ceramics Limited. Mr. Trivedi has been associated with Somany Ceramics Ltd since 1987 and
served as Chief Executive Officer of its Kadi Unit. He served as the President of LMP Precession
Engineering Limited for 21 years.

The management is both qualified and experienced.

Financial Risk Analysis

The Company is riding high on strong financials. There is increasing trend in sales and
profit. The company has outperformed industry in terms of growth in sales. The company has
grown at CAGR of 14.25% during last 5 years. Though profitability is marginally less than the
industry but growth is very high as compared to industry.

Return on assets is healthy (5.4% average over 5 years) and is at comparable level with
industry while return on equity is very good ( 19.5% average over 5 years)

Inventory period is lower as compared to industry indicating that company is more

efficient than industry at managing its inventory.

There is consistent downtrend in total debt/equity ratio indicating that company has
reduced its debt burden over the last 5 years. It is also reflected in increasing trend of interest
coverage ratio.

Summary

A growing industry, diversified business by having presence in cp fittings, stable financial

ratios having healthy growth in sales and profit, upbeat management pursuing new technologies
& strategies to expand its business and the management determination to adhere to
environmental laws provide positive outlook towards the company. Hence overall risk of lending
is low.

Recommendation for Credit Decisioning

Looking at positive outlook about the company, high interest coverage of company and no
history of default, I would recommend lending loan to the company.
Appendix

Profit & Loss Statement

Somany Ceramics Ltd. Profit And Loss - Standalone - Actual - Abridged- [INR-
Crore]
Mar- Mar- Mar- Mar-
DESCRIPTION 16 15 14 13 Mar-12
INCOME :
1799. 1608. 1329. 1112. 923.9
Gross Sales 38 03 47 42 7
Less: Excise Duty 68.68 66.98 69.79 62.28 50.74
1730. 1541. 1259. 1050. 873.2
Net Sales 70 05 67 15 3
EXPENDITURE :
Increase/Decrease in Stock 6.21 -35.08 28.26 -16.08 0.30
1086. 988.8 718.7 635.7 505.2
Raw Material Consumed 22 2 1 1 6
160.6 177.6 164.7 130.5 109.1
Power & Fuel Cost 2 3 2 8 7
111.6
Employee Cost 4 95.36 82.29 73.62 65.52
Other Manufacturing Expenses 63.39 61.46 57.81 28.08 21.95
General and Administration Expenses 47.75 37.88 31.99 27.88 23.95
126.5 114.9
Selling and Distribution Expenses 1 0 89.83 84.09 71.63
Miscellaneous Expenses 5.38 3.84 4.41 0.98 1.78
1607. 1444. 1178. 964.8 799.5
Total Expenditure 70 80 03 6 7
123.0
Operating Profit (Excl OI) 0 96.25 81.64 85.29 73.67
Other Income 9.21 7.83 2.74 1.76 1.07
132.2 104.0
Operating Profit 1 8 84.39 87.05 74.73
Interest 16.33 16.31 18.30 19.98 20.65
115.8
PBDT 7 87.78 66.08 67.07 54.08
Depreciation 20.57 22.27 22.06 20.40 18.22
Profit Before Taxation & Exceptional
Items 95.31 65.51 44.02 46.67 35.86
Exceptional Income / Expenses -4.43 -0.17
Profit Before Tax 90.88 65.51 44.02 46.67 35.69
Provision for Tax 29.82 21.13 15.99 15.08 10.94
Profit After Tax 61.06 44.38 28.03 31.59 24.75
153.2 122.6 104.4
Profit Balance B/F 6 2 1 80.87 61.82
214.3 167.0 132.4 112.4
Appropriations 1 1 4 5 86.57
 115.0 100.0
Equity Dividend % 0 0 75.00 60.00 40.00
Earnings Per Share 14.41 11.43 7.22 9.16 7.18
Adjusted EPS 14.41 11.43 7.22 9.16 7.18

Balance Sheet
Somany Ceramics Ltd. Balance Sheet (New) - Standalone - Actual - Abridged-
[INR-Crore]
Mar- Mar- Mar- Mar- Mar-
DESCRIPTION 16 15 14 13 12
EQUITY AND LIABILITIES
Share Capital 8.48 7.77 7.77 6.90 6.90
Share Warrants & Outstandings 0.00 0.00 0.00 0.00 0.00
411.2 246.2 212.7 143.8 117.1
Total Reserves 8 4 4 6 2
419.7 254.0 220.5 150.7 124.0
Shareholder's Funds 5 0 1 6 1
Long-Term Borrowings
Secured Loans 83.68 61.33 56.58 61.55 66.85
Deferred Tax Assets / Liabilities 31.18 27.42 27.50 26.18 25.35
Other Long Term Liabilities 20.26 19.13 17.81 14.16 14.20
Long Term Provisions 3.60 3.31 3.02 2.45 2.29
138.7 111.1 104.9 104.3 108.6
Total Non-Current Liabilities 2 9 1 4 9
Current Liabilities
202.7 203.0 174.9 161.1 110.7
Trade Payables 8 6 1 8 5
102.9
Other Current Liabilities 7 86.75 67.89 63.20 56.30
Short Term Borrowings 78.04 79.50 72.82 79.71 83.53
Short Term Provisions 97.47 90.98 74.49 58.36 41.93
481.2 460.2 390.1 362.4 292.5
Total Current Liabilities 7 9 0 5 1
1039. 825.4 715.5 617.5 525.2
Total Liabilities 74 9 3 5 2
ASSETS
Non-Current Assets
543.8 460.7 423.2 403.6 383.1
Gross Block 9 2 3 2 2
 237.2 224.8 207.4 204.0 192.4
Less: Accumulated Depreciation 3 2 1 9 4
306.6 235.9 215.8 199.5 190.6
Net Block 6 0 2 3 7
Capital Work in Progress 5.55 0.81 2.70 9.38 3.30
Non Current Investments 36.11 24.06 21.67 9.20 5.95
Long Term Loans & Advances 19.71 21.02 15.81 4.02 4.54
Other Non Current Assets 3.81 2.51 0.05 0.04 0.05
371.8 284.3 256.0 222.1 204.5
Total Non-Current Assets 4 0 4 6 1
Current Assets Loans &
Advances
Currents Investments 87.62 26.66 37.10
121.2 127.2 118.6
Inventories 0 6 85.75 5 98.51
312.0 253.4 213.0 174.3 138.8
Sundry Debtors 9 7 2 5 4
Cash and Bank 14.69 14.58 32.67 25.23 22.03
Other Current Assets 6.55 3.85 3.48 2.48 2.11
125.7 115.3
Short Term Loans and Advances 6 6 87.46 74.69 59.22
667.9 541.1 459.4 395.4 320.7
Total Current Assets 0 9 8 0 1
1039. 825.4 715.5 617.5 525.2
Total Assets 74 9 3 5 2
Contingent Liabilities 46.76 53.12 60.59 70.54 33.69
Total Debt (Long Term Plus Short 190.0 169.4 152.2 161.9 166.7
Term) 0 9 2 3 7

Financial Ratios
Somany Ceramics Ltd. Financial Ratios
Mar- Mar- Mar- Mar- Mar-
DESCRIPTION 16 15 14 13 12

Margin Ratios
Gross Profit Margin(%) 7.35 6.47 6.35 7.82 8.09
Operating Profit Margin (%) 5.96 5.09 4.69 5.99 6.10
Net Profit Margin (%) 3.39 2.76 2.11 2.84 2.68
Cash Profit Margin(%) 4.54 4.14 3.77 4.67 4.65

Performance Ratios
ROA (%) 6.55 5.76 4.21 5.53 4.93
ROE (%) 18.12 18.71 15.10 22.99 21.86
ROCE (%) 20.75 20.55 18.18 22.09 19.71

Turnover Ratios
Asset Turnover(x) 1.93 2.09 1.99 1.95 1.84
Inventory Turnover(x) 14.48 15.10 13.01 10.25 9.42
Fixed Asset Turnover (x) 3.58 3.64 3.22 2.83 2.52

Operating Cycle
Receivable days 57.36 52.94 53.18 51.38 52.97
Inventory Days 25.20 24.17 28.06 35.63 38.74
Payable days 23.31 20.54 24.30 34.97 37.17

Growth Ratio
Net Sales Growth(%) 12.31 22.34 19.95 20.26 22.25
EBIT Growth(%) 31.04 31.28 -6.49 18.29 10.83
-
PAT Growth(%) 37.57 58.34 11.26 27.62 5.65

Financial Stability
Ratios
Total Debt/Equity(x) 0.45 0.67 0.69 1.07 1.34
Current Ratio(x) 1.39 1.18 1.18 1.09 1.10
Quick Ratio(x) 1.14 0.90 0.96 0.76 0.76
Interest Cover(x) 6.56 5.02 3.41 3.34 2.73

Somany Ceramics Ltd. Company V/s Industry- [INR-Crore]

Mar- Mar- Mar-
Description 16 Mar-16 15 Mar-15 14 Mar-14
No of Companies 53.00 66.00 145.00
Financials
1730. 12274. 1541. 12198. 1259. 13633.
Net Sales 71 50 05 43 67 73
1739. 12414. 1548. 12365. 1262. 13803.
Total Income 91 00 88 38 42 16
1607. 10742. 1444. 10884. 1178. 12337.
Total Expenditure 70 56 80 79 03 56
132.2 1671.4 104.0 1480.6 1465.6
PBIDT 1 4 8 0 84.39 0
107.2 1190.3
PBIT 1 6 81.82 913.93 62.32 955.91
PAT 61.06 561.09 44.38 266.82 28.03 191.74
Cash Profit 81.63 1020.5 66.65 781.10 50.10 699.13
 0
190.0 4707.1 169.4 5270.3 152.2 6252.7
Total Debt 0 3 9 0 2 4
543.8 9820.6 460.7 9774.1 423.2 10642.
Gross Block 9 7 2 5 3 53
186.6
Net Current Assets 4 356.40 80.90 417.35 69.38 523.87
1039. 13767. 825.4 13656. 715.5 15885.
Total Assets 74 27 9 85 3 09

Key Ratios
Margin Ratios
Core EBITDA
Margin(%) 6.84 11.76 5.99 10.17 6.14 9.05
EBIT Margin(%) 5.96 9.14 5.09 7.07 4.69 6.67
PAT Margin (%) 3.39 4.31 2.76 2.06 2.11 1.34
Performance
Ratios
ROA(%) 6.55 7.78 5.76 3.70 4.21 2.14
ROE(%) 18.12 11.40 18.71 5.90 15.10 3.63
ROCE(%) 20.75 25.23 20.55 17.45 18.18 15.70
Asset Turnover(x) 1.93 1.81 2.09 1.79 1.99 1.60
Sales/Fixed
Asset(x) 3.58 1.36 3.64 1.35 3.22 1.39
Working
Capital/Sales(x) 9.64 60.50 19.88 38.64 19.16 32.58
Efficiency Ratios
Receivable days 57.36 62.05 52.94 60.52 53.18 59.58
Inventory Days 25.20 70.34 24.17 72.07 28.06 80.43
Payable days 23.31 44.80 20.54 44.47 24.30 58.42
Growth Ratio
Net Sales
Growth(%) 12.31 5.51 22.34 13.67 19.95 12.82
EBIT Growth(%) 31.04 29.66 31.28 22.76 -6.49 11.62
PAT Growth(%) 37.57 85.96 58.34 481.18 -11.26 224.70
Financial
Stability Ratios
Total
Debt/Equity(%) 0.45 0.42 0.67 0.54 0.69 0.65
Current Ratio(x) 1.39 1.16 1.18 1.16 1.18 1.15
Quick Ratio(x) 1.14 0.69 0.90 0.68 0.96 0.64
Interest Cover(x) 6.56 3.90 5.02 2.26 3.41 1.71