Why Analyst Sees This Small Cap Stock Going Up 40% Even As Profit Slumped 30% In Q1

Somany Ceramics saw net profits slump around 30% to ₹14.57 crore in the June quarter, but analysts at ICICI Securities believe that the company has near-term demand and margin tailwinds.

The Somany Ceramics Analyst: Arun Baid-led analyst team at ICICI Securities maintained the ‘buy’ rating on the stock raising the price target to ₹939 from ₹896. The revised target indicates an around 40% upside from the stock’s last closing price of ₹670.60.

The Somany Ceramics Thesis: The brokerage firm noted that the company’s management had stated that demand was subdued in Q1, but it has seen significant improvement in July. The company expects demand tailwinds to continue and has guided for double-digit volume growth in FY24.

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Talking about the positives in the June quarter, the brokerage said both the company’s revenue and EBITDA margin saw growth. The housing solutions company reported consolidated revenue growth of 4.9% year-over-year in ₹586.5 crore, driven by tile volume growth of 8.1% YoY. The company’s consolidated EBITDA margin expanded 59 basis points YoY to 8.6% primarily due to lower raw material expenses.

The analysts however noted that the company’s operational margin performance in the June quarter was below their expectations. But as analysts see the company having near-term demand and margin tailwinds due to a pick-up in the domestic housing market it remains bullish on the stock.

Price Action: Somany Ceramics’ share price was up 1.11% to trade at ₹676 in early trade on Friday.

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