IDBI Capital has upgraded Somany Ceramics (SCL) to 'Hold' with a new target price of Rs 615.

Somany Ceramics (SCL) Q4FY21 net sales increased by 58.6% YoY to Rs 5,646 million, while EBITDA came in at Rs 896 million, up by 546.5% YoY. The company reported net profit of Rs 353 million compared to net loss of Rs 90 million in Q4FY20. The management's prudent call on curtailed spends on branding and advertising and saving in operational cost aided impressive EBITDA margin expansion.

Commenting on the result review, the broking firm said, "Somany Ceramics result was in-line with our estimates on net sales and PAT front, while EBITDA was a strong beat. Strong demand traction in retail market continued, which led to healthy sales volume growth for the company.

We believe SCL is well placed to benefit from strong demand traction in retail market of tier-II and smaller towns.Further, the company's capacity expansion plan bodes well to support volume growth in future. To factor in better than earlier anticipated growth outlook, we revise our net sales and PAT estimates by 4.6%/4.6% and 13.1%/14.1% over FY22E/FY23E respectively.

After strengthening of working capital and sustainable growth outlook by the management, the stock is poised to get back to its earlier growth trajectory and command re-rating in earnings multiple. We upgrade the stock to HOLD with a revised TP of Rs 615 assigning 20x PER on FY23E."

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