3/3/25, 3:18 PM Rating Rationale

Rating Rationale
December 22, 2023 | Mumbai

Sudha Somany Ceramics Private Limited

Ratings Reaffirmed

Rating Action
Total Bank Loan Facilities Rated Rs.156 Crore
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any
ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale
CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings on the bank facilities of Sudha Somany Ceramics
Private Limited (SSCPL).

The ratings factor in strong financial support from the parent, Somany Ceramics Ltd (SCL; rated ‘CRISIL AA-/Stable/CRISIL
A1+’). SSCPL is a critical joint venture (JV) for SCL in South India.

Revenue increased to Rs.188 crore in fiscal 2023 from Rs.119 crore in fiscal 2022 and has achieved revenue of Rs. 101 cr.
till Sep 2023 and is expected to clock revenue of more than Rs. 220-250 cr. in FY24 because of change in the product mix
and also due to increase in the capacity of the company which got operationalised from July-22 onwards.

The ratings reflect the strategic location of the company’s plant, healthy profitability, efficient working capital
management and strong support from the JV partners. These strengths are partially offset by a modest financial risk profile
and low track record of operations.
Analytical Approach
CRISIL Ratings has factored in the support derived by SSCPL from the parent, SCL, by applying the parent notch-up
criteria, as SSCPL is critical to the operations of SCL in South India.

Of the unsecured loan of Rs 39.07 crore provided by the JV partners as on March 31, 2023, 75% has been treated as equity
and 25% as debt.
Key Rating Drivers & Detailed Description
Strengths:
Strategic location: The plant of SSCPL is strategically located in the Chittoor district of Andhra Pradesh, which is near
major metro cities in South India, namely Bengaluru and Chennai. This facilitates easy access to key input raw materials,
contractors and skilled labourers and critical infrastructure, such as gas and power. Since supply of raw materials procured
domestically is also available, the company is able to save on its total cost to the dealer as it saves on transportation cost,
which was earlier higher on account of transportation from its plants in Morbi, Gujarat.

Healthy profitability: SSCPL, which manufactures glazed vitrified tiles of various sizes for SCL, reported operating margin
of 9.75% in fiscal 2023 declined from 16.61% in fiscal 2022 due substantial increase in the gas prices. Operating profitability
is further supported by improved capacity utilisation and stabilisation of input cost.

Efficient working capital management: Gross current assets stood at 110 days as on March 31, 2023, driven by
receivables of 32 days amid extension of the channel financing facility to SSCPL by SCL. Inventory stood at 97 days as on
March 31, 2023, on account of high number of stock-keeping units of finished goods and various kinds of raw material to be
kept at the premises. Working capital is expected to remain efficiently managed despite increase in scale of operations.

Strong support from the JV partners: SSCPL has continued to receive strong support from both the JV partners, as
reflected in timely infusion of equity and unsecured loans. Both the JV partners are expected to continue to provide need-
based funding support.

Weaknesses:
Modest financial risk profile: SSCPL had funded its unit 1 and unit 2 with 65% debt and 35% equity. On account of the
debt-funded capex, capital structure is aggressive, as reflected by total outside liabilities to tangible networth (TOLTNW)
ratio of 3.2 times as on March 31, 2023. In the absence of any major debt-funded capex over the medium term, the

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3/3/25, 3:18 PM Rating Rationale
TOLTNW ratio is expected to improve on account of continued increase in networth, supported by healthy profitability and
strong growth in revenue.

Low track record of operations: Unit 1 of SSCPL commenced operations in March 2019 and unit 2 in June 2022. Unit 1
was easily sold on account of ~25% of the annual revenue of SCL being derived from South India. With the capacities
doubling following commercialisation of unit 2, ramp-up in capacity utilisation levels will be a key monitorable over the
medium term.
Liquidity: Adequate
Bank limit utilisation averaged 82% over the 12 months through Sep-23. The utilisation is moderate because the company
avails of the channel financing facility from SCL, because of which receivables are always moderate. Net cash accrual of
Rs. 10-15 crores vis-a-vis repayments of Rs. 15-18 expected to remain tight which is expected to support by timely fund
infusion.

SSCPL has received support from both the JV partners in form of equity and unsecured loans to fund the ongoing capex.
Having said that, the company’s cushion is improving year-on-year. Net

Current ratio was lower than 1 time as on March 31, 2023, because of higher repayments and is expected to remain at a
similar level over the medium term.
Outlook: Stable
SSCPL will continue to benefit from the support received from SCL and the parent’s healthy relationships with dealers and
distributors in the region.
Rating Sensitivity Factors
Upward factors
Improvement in the credit risk profile of the parent, SCL, by at least one notch
Track record of strong revenue growth of more than Rs 200 crore and stable operating margin leading cash accrual
sufficient to cover the repayment obligations.
Improvement in the financial risk profile, with gearing and TOLTNW remaining below 2 times

Downward factors
Downward movement in the credit risk profile of SCL by at least one notch
Decline in the revenue and margins to below 8% leading to cash accrual below expected
About the Company
Incorporated in 2015, SSCPL is a JV between Somany Ceramics Ltd (60%) and ER Ceramics Pvt Ltd (40%; a subsidiary of
Sudha Agro Oil and Chemical Industries Pvt Ltd).

The company’s manufacturing facility is in the Chittoor district of Andhra Pradesh and has installed capacity of 3.5 million
square per metre (MSM) per annum. Commercial operations began in March 2019. SSCPL capacity has increased by 4.0
MSM
About the Group
SCL was incorporated in 1968 as Somany Pilkington’s Ltd (SPL), promoted by Mr H L Somany in collaboration with the UK-
based Pilkington’s Tiles Plc (PTP). In 1971, the Somany family purchased the stake of PTP in SPL and renamed the
company. SCL is listed on the Bombay Stock Exchange and the National Stock Exchange. Mr Shreekant Somany is the
chairperson and managing director, and Mr Abhishek Somany is the managing director.

SCL manufactures ceramic tiles and glazed vitrified tiles and trades in polished vitrified tiles, along with sanitary ware and
bathroom fittings. The SCL group has combined tile manufacturing capacity of 73 MSM per annum. The group has two own
manufacturing units at Kadi, Gujarat, and Kassar, Haryana, and seven ancillary units of associates/subsidiaries and
arrangements with other manufacturers. Own manufacturing accounts for approximately 50% of the total production, while
the remaining is contributed by JVs and arrangements with other manufacturers. The company sells products under brands
such as Somany, Somany French Collection, Somany Vitro, Somany Duragres, Somany VC, Somany Signature, Somany
Glosstra and Somany Slip Shield.

Majority-owned subsidiaries, ATPL and ACPL, manufacture ceramic wall glazed tiles, while SFVPL manufactures vitrified
floor tiles. AGPL, in which SCL has a 26% stake, manufactures soluble salt and double charge vitrified tiles. All these
subsidiaries/joint ventures have plants in Morbi. The plant under SSCPL (60% stake held by SCL), which commenced
production on March 27, 2019, at Andhra Pradesh, manufactures glazed vitrified tiles. In May 2018, SCL also acquired 51%
stake in SBFPL, which manufactures and sells bath fittings, such as faucets and showers.

SSCPL manufactures glazed vitrified tiles and has installed capacity of 4 MSM per annum. Somany Max Pvt Ltd, an
approximately 80% subsidiary of SCL, is in the process of setting up a manufacturing facility for large tiles/slabs.
Key Financial Indicators: Standalone
As on/for the period ended March 31 Unit 2023 2022
Operating income Rs crore 188.63 119.40
Reported profit after tax (PAT) Rs crore -4.77 4.24
PAT margin % -2.53 3.55
Adjusted debt/adjusted networth Times 2.67 2.32
Interest coverage Times 3.23 1.94

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*CRISIL Ratings Adjusted numbers

Any other information: Not Applicable

Note on complexity levels of the rated instrument:

CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where
applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on
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Annexure - Details of Instrument(s)

Name of Date of Coupon Maturity Issue size Complexity Rating assigned
ISIN
instrument allotment rate (%) date ([Link]) levels with outlook
NA Bank Guarantee NA NA NA 2.00 NA CRISIL A2
NA Cash credit NA NA NA 50.00 NA CRISIL BBB+/Stable
Proposed Fund-
NA NA NA NA 2.15 NA CRISIL BBB+/Stable
Based Bank Limits
NA Term Loan NA NA Sep-27 101.85 NA CRISIL BBB+/Stable
Annexure - Rating History for last 3 Years
Start of
Current 2023 (History) 2022 2021 2020
2020
Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount
CRISIL
Fund Based CRISIL CRISIL
LT 154.0 -- 26-09-22 BBB+/Stable 07-07-21 -- --
Facilities BBB+/Stable / CRISIL A2 BBB+/Stable

Non-Fund
Based Facilities ST 2.0 CRISIL A2 -- 26-09-22 CRISIL A2 07-07-21 CRISIL A2 -- --

All amounts are in [Link].

Annexure - Details of Bank Lenders & Facilities

Facility Amount ([Link]) Name of Lender Rating
Bank Guarantee 2 ICICI Bank Limited CRISIL A2
Cash Credit 30 Axis Bank Limited CRISIL BBB+/Stable
Cash Credit 20 ICICI Bank Limited CRISIL BBB+/Stable
Proposed Fund-Based
2.15 Not Applicable CRISIL BBB+/Stable
Bank Limits
Term Loan 25.99 Axis Bank Limited CRISIL BBB+/Stable
Term Loan 6.5 ICICI Bank Limited CRISIL BBB+/Stable
Term Loan 7.25 ICICI Bank Limited CRISIL BBB+/Stable
Term Loan 37.11 ICICI Bank Limited CRISIL BBB+/Stable
Term Loan 25 ICICI Bank Limited CRISIL BBB+/Stable

Criteria Details

Links to related criteria

CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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