In my last update to you in 2017, I had pointed out that the Important variables to track for this company are
- Topline growth
- Return on Capital not impacted due to tiles expansion – Currently, it is about 30%
- New business growth
- No further declines in PAT margins (Somany’s margins are low – Pure Tiles player)
- Continued investment in branding and promotions
Let’s revisit all of them
- Topline growth has de-grown for the first time in many years in Mar 2020, management indicated in call that this was due to COVID lockdown in the last few days in March, the overall quarterly trend for last 2-3 years is also not inspiring
2. ROCE is steadily declining from ~30% to ~25%, part of the blame is tiles division, the other part is excess cash retained in the business (INR 230 crores)
3. Tiles business has grown from INR 170 cr topline to INR 265 Cr from 2017 to 2020 and they have added a new category called Wellness which caters to high margin audience
4. PBT margins are stable as per the above graph
5. These expense has been trimmed down and the company indicated in concall that they can save about INR 40 crores from their savings and cost optimization programs
Future
- 2021 will be the year of survival and many of the organized players will survive, there is no point in doing topline and bottom-line prediction
- The company management has excellent financial management prudence and has always made good capital allocation decisions
- Excluding cash, the company sells for 25 times profit which is expensive given how the real estate industry is still grappling with inventory overhang
We will hold it in Scorecard, however, I will continue to track it and see if things don’t turn around quickly then it may be prudent to deploy and capitalize on gains made