Somany Ceramics Ltd Management Discussions

MANAGEMENT DISCUSSION & ANALYSIS

Global Economy

The global economy has depicted resilience, with steady growth and a notable slowdown in inflation, despite facing significant challenges. This resilience has been evident amidst supply-chain disruptions post pandemic, an energy and food crisis due to the Russia-Ukraine war, and a surge in inflation, followed by coordinated tightening of monetary policies.

Global growth, which reached 3.2% in 2023, is expected to remain stable in 2024 and 2025. However, this is below the historical average of 3.8%, attributed to cautious monetary policies, reduced fiscal support, and sluggish productivity growth. On the other hand, global inflation is forecasted to ease, decreasing from an average of 6.8% in 2023 to 5.9% in 2024 and further to 4.5% in 2025.

This decline is primarily driven by a more immediate reduction in advanced economies, where inflation is expected to return to pre-pandemic levels sooner compared to emerging market and developing economies.

Advanced economies are anticipated to experience a slight increase in growth, driven mainly by the Euro Areas recovery, with growth rates projected to rise from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. In contrast, emerging markets and developing economies are expected to maintain stable growth at 4.2% during 2024 and 2025, albeit with regional variations, including a moderation in Asia offset by growth in the Middle East, Central Asia, and sub-Saharan Africa.

Source: World Economic Outlook - April 2024

The global economic landscape is currently stable, but uncertainties remain. Geopolitical tensions, such as those in Ukraine, Gaza, and between Iran and Israel, pose risks to Middle Eastern energy exports, potentially resulting in elevated crude oil prices. This could, in turn, lead to higher interest rates and lower asset valuations. Disparities = in the pace of price declines among major economies could induce I = currencyffuctuations.affectingfinancialmarkets.The conffuenceof elevated interest rates, household indebtedness, and adaptations to Rs.S fixed-ratemortgagescouldstressfinancialstability.

Performance of Major Economies

The United States

The United States economy grew by 2.50% in CY 2023. Economic projections indicate the growth rate to reach 2.70% in CY 2024 and then decline to 1.9% in CY 2025.

(Source: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/worlC- economic-outlook-april-2024)

China

China experienced a growth rate of 5.20% in CY 2023. Economic projections indicate the growth rate to decline, to reach 4.60% in CY 2024 and then decline to 4.10% in CY 2025.

(Source: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/worlC- economic-outlook-april-2024)

United Kingdom

The UK economy experienced a growth rate of 0.1% in CY 2023 and is expected to experience increase in growth rate to reach 0.5% in CY 2024 and 1.5% in CY 2025.

(Source: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/worlc- economic-outlook-april-2024)

Europe

Europe experienced a growth rate of 1.40% in CY 2023. Economic projections indicate an upward trend, with growth rate expected to reach 1.60% in CY 2024 and 2.00% in CY 2025.

(Source: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/worlc- economic-outlook-april-2024)

Germany

The German economys real GDP in CY 2023 depicted a growth rate of (0.30)% and is projected to experience increase in growth in CY 2024, rejecting a growth rate of 0.2%. However, in CY 2025, the real GDP is expected to undergo an upturn, with a projected increase of 1.3%.

(Source: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/worlC- economic-outlook-april-2024)

Indian Economy

Indias economy is projected to expand by 7.6% in 2023-24, a jump from the 7.0% growth seen in 2022-23. This anticipated growth is expected to be powered by improved performances in key sectors such as mining and quarrying, manufacturing, and selected areas of the services sector. The Indian economys resilience can be attributed to increased public sector investment, a robust financial sector, and significant growth in non-food credit.

India has experienced several significant developments over the past year that have greatly boosted foreign investor confidence. Due to progressive government reforms and growing investor faith in Indias growth narrative, Indias Nifty 50 index reached a new peak, expecting to register a 16% growth in 2024-25. As on 28 March, 2024, Sensex and Nifty ended the last day of trade 2023-24 on a bullish note, driven by heavy buying in power, auto and banking stocks amid a positive trend in global markets. Sensex jumped 655.04 points or 0.90% to settle at 73,651.35, while Nifty climbed 203.25 points or 0.92% to end at 22,326.90.

(Source: https://www.livemint.com/market/stock-market-news/nifty-50-expected-to-deliver-16-earnings-growth-in-2024-25-small-cap-likely-to- outperform-report-11710950900083.html

https://www.thehindubusinessline.com/markets/stock-market-highlights-28-march-2024/article67997974.ece)

Foreign investment in Indian Government bonds saw a substantial increase in the last quarter of 2023, rejecting heightened global confidence in Indias economic prospects. As of 5 April, 2024, Indias foreign exchange reserves hit a record high of USD 648.56 billion, surging by USD 2.98 billion. India is entering a crucial phase of the S-curve, marked by a significant acceleration in urbanization, industrialization, household incomes, and energy consumption.

The Governments economic policy agenda has focused on revitalizing Indias growth potential. This includes revitalizing the financial sector, streamlining business conditions to stimulate economic activity, and significantly improving both physical and digital infrastructure to enhance connectivity and boost the competitiveness of the manufacturing sector. In line with this vision, the Government has implemented a series of economic reforms to promote a business-friendly environment, improve quality of life, and strengthen governance systems and processes.

(Source: https://economictimes.indiatimes.com/news/economy/indicators/ indias-forex-reserves-up-by-2-98-bn-to-hit-fresh-peak-of-648-56-bn/ articleshow/ 109247363.cms Rs.from=mdr)

Simultaneously, the unemployment rate for males in India reached a historic low of 3.2% in 2023, down from 6.1% in 2018, indicating significant improvements in the labor market.

(Source: https://www.drishtiias.com/daily-updates/daily-news-analysis/ unemployment-in-india-3)

Sectors like financial services, real estate, and professional services are projected to grow by 9.7% in 2023-24, from 18.8% in 2022-23. The manufacturing sectors gross value-added growth accelerated to 6.7% in 2023-24 from 4.2% in 2022-23. Construction gross value- added growth is expected to remain robust at 10.1% in 2023-24, following an 18.7% increase in 2022-23. The largest component of services (trade, hotels, transport, and communication) is likely to expand by 6.3% due to a higher base.

(Source: https://pib.gov.in/PressReleasePage.aspx Rs.PRID=2010223)

Indias Consumer Price Index (CPI) inflation eased to 4.85% in March 2024 from 5.09% in February 2024. The Government aims to moderate CPI inflation and align it with a specified target consistently for the economys best interest.

(Source: https://pib.gov.in/PressReleaseIframePage.aspx Rs.PRID=2017771)

India has made substantial progress in enhancing its infrastructure in recent years. The Government allocated Rs.23 Lakh Crores for infrastructure spending over the three-year period of 2021-22 to 2023-24. Infrastructure development is evident as the capital spending to GDP ratio nearly doubled from 1.6% of GDP in 2018-19 to 3.2% in 2023-24.

Interim Union Budget 2024-25

With the guiding principle of Sabka Saath, Sabka Vikas, and Sabka Vishwas and the nationwide approach of Sabka Prayas, the Interim Union Budget 2024-25 concentrates on the upliftment of four major segments: the Garib (Poor), Mahilayen (Women),

Yuva (Youth), and Annadata (Farmer). The Indian Government increased the infrastructure outlay by 11.11% from Rs.10 Lakh Crores to Rs.11.11 Lakh Crores, contributing 3.4% of the GDP and aiming to contain the fiscal deficit within the 4.5% threshold by 2025-26.

The Government is also planning to revamp various schemes such as Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) and Smart Cities Mission, which are expected to be reintroduced.

(Source: https://pib.gov.in/PressReleasePage.aspx Rs.PRID=2001130)

A new scheme is proposed to be launched to strengthen deep-tech technologies for defense purposes, accelerating atmanirbharta (self-reliance). In 2014, the Indian Government faced the critical task of reviving the economy and improving governance. To achieve this, their focus was on attracting investments, garnering support for necessary reforms, and instilling hope among the people. Through a strong belief in nation-first principles, the Government successfully tackled these challenges and is further focussing on enhancing the robustness of the Indian economy.

(Source: https://pib.gov.in/PressReleasePage.aspx Rs.PRID=2001130)

Global Ceramic Tiles Industry

The global ceramic tiles market was valued at USD 186.70 billion in 2023 and is anticipated to register a CAGR of 7.4% from 2024 to 2030. The market growth is primarily fuelled by the increasing demand for aesthetically pleasing, durable, and high-quality wall and ffoor covering solutions, driven by evolving consumer preferences in ffoor design. Additionally, the expansion of offices and workspaces, improvement in consumer lifestyles, and rapid urbanization have further bolstered market growth. In CY 2023, the Asia Pacific region held the largest market share, accounting for 54.1%, and is expected to maintain its dominance throughout the forecast period. Within the market, the porcelain tiles segment led with a share of 53.2% in 2023.

(Source: https://www.grandviewresearch.com/industry-analysis/ceramic-tiles- market)

The ceramic tiles market is experiencing significant expansion, driven by several factors. Changing consumer preferences, coupled with a growing demand for a variety of designs, sizes, and styles, as well as an increase in renovation activities, have all contributed to this growth. Moreover, the rising utilization of ceramic tiles in public construction projects, including airports, stations and schools, alongside their popularity in residential settings, further propels market growth.

(Source: https://www.thebusinessresearchcompany.com/report/ceramic-tiles- global-market-report)

Anti-Dumping Duty on Indian Ceramic Tiles

The Tile Council of North America (TCNA) announced that nine U.S. ceramic tile manufacturers, forming the Coalition for Fair Trade in Ceramic Tile and representing 90% of U.S. tile production, have petitioned the Federal Government for anti-dumping and countervailing duties on ceramic tile imports from India. These petitions seek substantial tariffs to address the harm caused by unfairly low-priced imports, which have injured domestic manufacturers and ffooded the market with uncertified porcelain tiles.

In 2023, India experienced significant growth in ceramic tile exports to the US, with a 42.6% increase compared to 2022. India became the major exporting country to the US in terms of volume, holding a 20.3% share of total US tile imports. This growth was notable as India was one of the few countries to register a positive percentage variation in its sales to the US during that period. Over the last 10 years, sales of tiles from India have shown remarkable growth, increasing from 3,44,000 square feet (32,000 m2) in 2013 to nearly 405 million square feet (37.6 million m2) by the end of 2023.

This substantial increase highlights Indias growing presence and competitiveness in the US tile market.

The anti-dumping petition from the U.S. ceramic tile manufacturers seeks tariffs ranging from 408% to 828%. Additionally, the countervailing duty petition aims to address the impact of various subsidies provided by the Indian Government, seeking the imposition of additional tariffs.

(Source: https://ceramicworldweb.com/en/economics-and-markets/us-ceramic- tile-manufacturers-petition-anti-dumping-and-countervailing-duties)

Trends in Global Tile Sector

Large Format Tiles

Large-format tiles are gaining popularity in interior design due to their striking visual impact. By minimizing tile joints, particularly with light colours, they create a sense of expansiveness, lending a sleek and sophisticated ambiance. Furthermore, these tiles offer versatility in styles and finishes, ranging from natural stone aesthetics to vibrant colours and geometric patterns, enabling bold and captivating design statements across various spaces.

Digital Transformation in Retail

The digital revolution is reshaping the ceramic tiles shopping experience for consumers. Virtual showrooms, augmented reality (AR) apps, and online platforms are providing customers with tools to visualize how various tiles will appear in their homes. This digital transformation is not only improving the overall shopping process but also empowering consumers to make more educated decisions.

Germ-free tiles

Consumers focus on health and hygiene has surged, significantly influencing their preferences. In response to this heightened awareness, germ-resistant tiles have been introduced to the market. These tiles are treated with an antimicrobial solution, inhibiting the growth of bacteria, fungi, and other microorganisms.

Increasing Innovation

The ceramic tiles market is undergoing a wave of innovation, marked by the introduction of advanced technologies and creative designs by manufacturers. Digital printing methods, in particular, are transforming the appearance of tiles, enabling intricate patterns, lifelike textures, and vivid colors that were previously unattainable. This shift is redefining how consumers use and appreciate ceramic tiles in homes and businesses alike.

‘Green¹ Construction

With the rise of environmental awareness, the ceramic tiles market is undergoing a transition towards sustainable practices. Manufacturers are embracing eco-friendly production methods, incorporating recycled materials, and exploring energy efficient technologies. This focus on sustainability not only supports global environmental objectives but also resonates with consumers who value environmentally conscious options in their home decor.

Indian Ceramic Tiles Industry

The ceramic tiles market in India was valued at Rs.59,500 Crores in CY 2023 and is projected to grow to Rs.70,700 Crores by the end of CY 2025, reflecting a robust CAGR of 13.6% from 2023 to 2025. Exports account for 30% of this market, standing at approximately Rs.17,900 crore. This export figure is anticipated to nearly double, reaching close to Rs.30,400 crore by the end of 2025.

(Source: https://www.livemint.com/market/stock-market-news/stock- picks-in-tiles-sector-kajaria-somany-as-nirmal-bang-expects-12-13- growth-11696564754416.html)

In the last decade, Indias ceramic tile industry has garnered global recognition due to its remarkable growth in export activity. This expansion has been consistent across all continents, highlighting the industrys increasing global presence. In 2013, India exported 55 million square meters of tiles, ranking as the ninth largest exporter globally. However, by 2023, this figure surged to 590 million square meters. More than half of this total was shipped outside Asia, propelling India to the position of the second largest exporter of ceramic tiles worldwide.

(Source: https://ceramicworldweb.com/index.php/en/economics-and-markets/ indian-ceramic-tile-exports-2023)

The urban population in India has increased nearly fourfold from 1970 to 2018, reaching 460 million. As the second-largest urban community globally, India is expected to add another 416 million people to its cities by 2050, with an urban share of the population projected to reach 50%.

This rapid urbanization, driven by migration, necessitates city expansion. The Indian Government is actively involved in this endeavour, focusing on improving road networks, urban transport, water supply, housing, power infrastructure, smart cities, and urban management. These developments significantly impact the residential and commercial construction markets, consequently driving growth in the Indian ceramic tiles market in the foreseeable future.

(Source:https://www.niti.gov.in/5ite5/default/hles/2022-05/Mod_CE0G_

Executive_Summary_18052022.pdf

The ceramic tiles market in India is likely to be on a steady rise, driven by the resurgence of the construction sector following a prolonged downturn. The construction industry plays a pivotal role in driving the expansion of the ceramic tiles market. Furthermore, the Government of India (GOI) has launched several programs and investments aimed at promoting infrastructure development, thereby fuelling market growth. Initiatives like the Pradhan Mantri Awas Yojana (PMAY) and the Smart Cities Mission are expected to substantially increase the demand for ceramic tiles in India.

The Indian ceramic industry is on track to become the worlds largest ceramic producer in the coming years. It has already established itself as a significant global player in the ceramic tile market, ranking second only to China in terms of manufacturing, consumption, and export. This growth is being propelled by Indias increasing urbanization and construction activity, which has led to a surge in demand for various types of tiles, especially glazed vitrified tiles. These tiles are favored by consumers for their durability and visually appealing appearance. The development of glazed vitrified and full-body vitrified tiles has provided a significant boost to the industry, with vitrified tiles often being hailed as the ‘tiles of the future.

(Source:https://www.thetilesohndia.com/)

Global Sanitaryware and Bath Fittings Market

The global sanitaryware market is estimated to be valued at USD 53.59 billion in 2024, with projections indicating growth to USD 74.80 billion by 2029, rejecting a CAGR of 6.89% during the forecast period (2024-2029). North America dominated the sanitary ware market share in 2023, while the Asia-Pacific region is expected to witness the fastest growth during 2024-2029.

The global sanitaryware and bath fittings market is experiencing robust growth, driven by several factors. These include increasing infrastructure development, the rising popularity of smart homes, and evolving trends in residential interior design. The market is also expected to expand with the introduction of smart bathroom fittings offering unique features like water ffow control, adjustable lighting, and integrated music systems. Growth is further fueled by related sectors such as hospitality, where infrastructure development is boosting demand for bathroom fittings. Additionally, the use of innovative materials like plastics, metals, and glass in sanitaryware production is contributing to market expansion. According to the World Health Organization (WHO), poor sanitary hygiene contributes to a significant number of deaths each year, particularly due to diarrhoea-related illnesses. Consequently, there is a growing awareness of the importance of sanitary and personal hygiene for maintaining good health, driving demand for bathroom accessories.

The global market for sanitaryware and bath fittings is experiencing significant growth, with the Asia Pacific (APAC) region poised for substantial expansion in bathroom accessories. This growth is driven by urbanization, changing demographics, and increased investments by millennials in home improvement products and modern interior designs across developed and developing economies. The regions strong economic growth, along with government initiatives and advancements in manufacturing, is expected to further drive market expansion.

(Source: https://www.mordorinteHigence.com/industry-reports/sanitaryware- market)

Indian Sanitaryware and Bath Fittings Market

The Indian sanitaryware industry is currently facing a soft demand environment, marked by subdued market activity and cautious consumer spending. Several factors contribute to this scenario, including economic uncertainties and inflationary pressures. While the long-term growth prospects remain positive due to urbanization and rising standards of living, the immediate market dynamics are challenging. Companies within the sector are focusing on strategic initiatives such as cost optimization, innovation in product design, and expanding distribution networks to navigate this period of tepid demand. Despite the short-term hurdles, the industry continues to invest in sustainable practices and advanced technologies, anticipating a resurgence in demand as economic conditions stabilize and consumer confidence returns.

India was the third largest country in global ceramic sanitary ware market in 2023. This market represents a dynamic and rapidly evolving sector within Indias construction and home improvement industry. Government initiatives like the "Swachh Bharat Abhiyan" (Clean India Campaign) have heightened awareness about sanitation and hygiene, driving increased adoption of modern bathroom fixtures and accessories.

(Source: Global Ceramic Sanitary Ware MarketCountry Comparisons, The Business Research Company)

The India faucets Market size is estimated at USD 2.19 billion in 2024, and is expected to reach USD 3.13 billion by 2029, exhibiting a CAGR of 7.40% during the forecast period (2024-2029). Over recent years, the Indian bath fittings market has experienced steady growth, aligning with the expansion of the housing market and related industry verticals, including bathroom fittings, poised for strong growth in the foreseeable future.

(Source: https://www.mordorintelligence.com/industry-reports/india-faucet- market/market-size)

India is experiencing a significant shift towards improved living standards and swift urban development, leading to a notable surge in demand for high-quality bathroom fixtures. This trend is particularly pronounced in urban areas, where the construction of aesthetically pleasing and technologically advanced residential buildings is on the rise. As a result, consumers are increasingly seeking premium household amenities, including innovative products like sensor taps, smart showers/mixers, and automatic soap dispensers, to elevate the sophistication of their homes.

Indian Real Estate Market

The Indian real estate sector has been a crucial contributor to the countrys economic advancement. It comprises various segments such as residential and commercial properties, retail and industrial spaces, and infrastructure development. Its substantial contribution to Indias GDP has positioned it as a key driver of the nations economic progress.

In 2023, the industry experienced a surge in sales of luxury and ultra-luxury homes, as well as plotted developments, driving overall sales in the top markets to over 2.3 Lakhs units. This trend is expected to continue in 2024, with sales forecasted to increase to 3 Lakhs units. Additionally, the commercial real estate sector is set for a significant rebound, with a particular emphasis on office spaces. As economic activities resume and businesses expand, the demand for office spaces is expected to grow, providing a boost to the commercial real estate segment.

(Source: https://realty.economictimes.indiatimes.com/blog/indian-real-estate- the-transformative-journey-in-2024-and-ahead/106356820)

The Indian real estate industry is undergoing significant changes, driven by new entrants, technological advancements, and regulatory shifts. This sector includes a wide array of players, from small developers to large corporations, making it one of the worlds fastest-growing real estate markets. As economic activities resume and employees return to offices, there is a growing demand for office spaces. The supportive measures outlined in the Central Governments budget are expected to further stimulate the sectors growth.

Projections indicate that by 2040, the real estate market in India will soar to Rs.65,000 Crores (USD 9.30 billion), a substantial increase from Rs.12,000 Crores (USD 1.72 billion) in 2019. Moreover, the real estate sectors market size is anticipated to hit USD 1 trillion by 2030, up from USD 200 billion in 2021, contributing significantly with 13% to the countrys GDP by 2025. The residential sector, benefitting from increased supply, is poised for long-term growth. Concurrently, the commercial sector is also expected to flourish. Drivers of this growth include the rise of nuclear families, rapid urbanization, and increasing household income. These factors are expected to fuel growth across all real estate sectors, including residential, commercial, and retail.

Growth Drivers for Tile and Bath Fittings

Residential Sector

• Economical Housing

The increasing demand for affordable housing in India is projected to persist, driven by factors such as declining interest rates, widespread economic progress, and employment opportunities. The Pradhan Mantri Awas Yojana, a ffagship government initiative, plays a pivotal role in promoting affordable housing, with the ambitious goal of ensuring housing for all. Consequently, there is a burgeoning demand for tile and bath fitting products in response to this trend.

• Per Capita Tiles Consumption

India presently maintains one of the lowest rates of per capita ceramic tile consumption, at merely 0.6 square meters, a stark deviation from the global average of 1.4 square meters. This disparity in per capita usage underscores substantial prospects for industry expansion. Enhancements in consumer living standards, along with governmental endeavours such as the Smart City and Pradhan Mantri Awas Yojana initiatives, are anticipated to accelerate industry growth.

Commercial Sector

• Growth in Real Estate Sector

The Indian commercial real estate market is projected to be valued at USD 40.71 billion in 2024 and is anticipated to reach USD 106.05 billion by 2029, with a CAGR of 21.10% during the forecast period from 2024 to 2029. Indias residential real estate market is forecasted to hit USD 35.47 trillion by 2024, with an anticipated annual growth rate of 2.97% from 2024 to 2028.

• Expansion of the Retail Industry

The Indian retail market is projected to achieve USD 1.1 trillion by 2027 and USD 2 trillion by 2032. Between April 2000 and September 2023, the retail trading sector in India attracted USD 4.56 billion in Foreign Direct Investments (FDIs). Accounting for over 10% of the countrys GDP and employing over 35 million individuals, the retail sector contributes significantly to the economy, with expectations to generate 25 million new jobs by 2030.

(Source: https://www.ibef.org/industry/retail-india)

• Expansion of the Hospitality Sector

The hospitality industry is expected to clock 11-13% revenue growth in 2024-25 on account of steady domestic demand and a rise in foreign travellers. This revenue growth will follow a likely 15-17% growth in 2023-24, backed by steady domestic demand and ramp- up in foreign travellers. The strong demand dynamics along with modest new supply will keep the operating performance of the industry healthy over the near term.

Financials

• Increasing Levels of Income

Real GDP at constant (2011-12) prices for 2023-24 has been projected to reach Rs.171.79 Lakh Crores, compared to the provisional estimate of Rs.160.06 Lakh Crores for 2022-23. This growth is anticipated to spur investment in the housing sector, leading to an increased demand for tiles and bath fittings as individuals aim to improve their living standards.

• Increased Home Ownership

In an effort to encourage home ownership and improve access to home loans, the RBI has raised the Loan to Value (LTV) Ratio to 90% for home loans upto Rs.30 lakhs, up from the previous limit of Rs.20 Lakhs. Conversely, for loans exceeding Rs.75 lakhs, the LTV ratio is set at 75%. These initiatives, along with affordable housing choices, favourable tax benefits, and rising household incomes, are expected to fuel growth in the tile market.

Demographical Trends

• Population Growth

India is expected to surpass the 1.5 billion population mark by 2029. Projections indicate a peak in population in 2064 with 1.697 billion people, gradually declining to 1.53 billion by 2100. This surge in population will drive demand for both residential and commercial properties, leading to growth in the real estate sector. Consequently, this growth will also boost the tiles and bath fittings industry.

(Source: https://statisticstimes.com/demographics/country/india- population.php#google_vignette)

• Growing Millennials

Millennials are expected to comprise 50% of Indias population by 2030. On an average, Indian millennials spend about 17 hours online weekly with 11% of time spent on banking including transactions. Indias young population, fuelled by their optimistic and ambitious mindset, plays a pivotal role in driving growth in the real estate industry. This contributes to an increase in demand for real estate properties and materials utilized in home furnishings.

• Urbanization

Indias urban population currently stands at 461 million, growing at a rate of 2.3% annually. By 2031, it is projected that 75% of Indias national income will originate from cities. This upward trend in urbanization is expected to drive increased demand for tiles and related products.

(Source: https://www.urbanet.info/urbanisation-in-india- infographics/)

• Rising Popularity

Large format ceramic tiles are gaining popularity for their contemporary, minimalist look, durability, and low maintenance requirements. With fewer grout lines, cleaning is a breeze. Additionally, their versatility allows for both indoor and outdoor use, maximizing their utility.

• Tailored Fittings

As peoples income and aspirations rise, there is a greater inclination towards high-end products, despite prices remaining relatively stable. This trend is evident in the growing demand for personalized ceramic items such as artisanal tiles.

• Water Stewardship

Heightened awareness of the importance of sustainable water usage has driven a notable surge in consumer demand for water-efficient products. Consequently, numerous companies have introduced eco-friendly sanitaryware and bath fittings to cater to the needs of both individuals and organizations.

This growing emphasis on water conservation has spurred growth of ceramic tiles, prompting the development of innovative and hygienic products that not only satisfy customer demands but also foster sustainable lifestyles.

• Appearance

Aligned with the wellness design movement, ceramic tile designs are undergoing a transformation towards embracing the natural aesthetic of wood. This shift seeks to evoke feelings of tranquillity and a connection to nature. Renowned for their sustainability and adaptability, ceramic tiles provide an outstanding choice for mimicking the appearance of natural stones. The integration of these nature-inspired designs resonates with the current trend towards wellness design, a trend that has seen notable expansion since the pandemics onset.

• SWAHIM Fund

SWAHIM Fund aims to provide financing to stalled midincome and affordable housing projects in India. As of March 2023, SWAMIH has provided final approval to about 130 projects with sanctions worth over Rs.12,000 Crores. In three years since inception in 2019, the Fund has already completed 20,557 homes and aims to complete over 81,000 homes in the next three years across 30 tier 1 and 2 cities.

(Source: https://pib.gov.in/Pre55Relea5ePage.aspx Rs.PRID=1904147)

• PMAY-U

The Pradhan Mantri Awas Yojana Urban (PMAY-U) has made significant strides, sanctioning a total of 1.20 Crore houses and completing over 72.56 Lakh houses as of March 2023. This progress has been supported by central assistance amounting to Rs.1.42 Lakh Crores.

To achieve its goal of constructing over 2.95 Crore durable houses by March 31, 2024, the Government has extended the schemes duration. This extension reffects the governments commitment to providing affordable housing for all, a key pillar of its development agenda.

Opportunities

The upcoming year holds abundant opportunities for the tiles and bathware market, benefiting both the Company and the industry as a whole. One significant factor driving these prospects is the reduction in supply chain disruptions, leading to lower freight costs and enhanced profitability. Additionally, the decline in natural gas prices has contributed to reduced manufacturing expenses, bolstering the competitiveness of market products. The Governments emphasis on infrastructure development, evidenced by increased capital expenditure, will encourage private players to boost their own investments. Moreover, growing awareness of sustainability and eco-friendly materials is expected to drive demand for such building products, offering extensive opportunities for growth. Furthermore, the emergence of new technologies like 3D printing may pave the way for innovative products and more efficient manufacturing processes. Moreover, ongoing urbanization in India will continue to spur demand for residential and commercial construction, consequently increasing the need for building materials. When combined with macroeconomic factors, these elements present significant development potential for Indias building material industry in 2024-25.

Threats

The building material sector in India, especially the ceramic industry and bathware sector, faces various challenges alongside numerous opportunities. One major challenge is competition from the unorganized sector, which threatens organized players. Additionally, the sector deals with unstable input costs that can harm profitability. Macroeconomic uncertainties like currency fluctuations also impact the sector. Environmental regulations and evolving consumer preferences are further challenges. Consumers increasingly favor eco-friendly building materials, potentially shifting demand from traditional materials. To remain resilient, the sector must innovate, seek alternative fuel sources, and diversify revenue streams. It is crucial to maintain flexibility and adaptability to navigate changing economic conditions. The Company must be agile and proactive in addressing present and future challenges.

Company Overview

Somany Ceramics Limited, a renowned manufacturer of ceramic tiles, sanitaryware, and bath fittings, has established itself as a globally recognized company. It specializes in offering a wide array of products catering to both residential and commercial markets, positioning itself as a premium brand known for its innovative and high-quality solutions. The Companys product range includes ceramic and vitrified tiles, sanitaryware and bath fittings, available in various textures, shapes, and sizes, catering to customers diverse needs. The Company has taken a major leap forward launching Somany Max Coverstone Collection, which combines cutting-edge technology, diverse designs, and a commitment to sustainability, thereby redefining spaces and offering an immersive experience in dimensions.

Standalone Financial Overview

In 2023-24, the Companys revenues from operations experienced a growth of 3.8%, amounting to Rs.2,53,448 Lakhs, compared to Rs.2,44,270 Lakhs in the year 2022-23. Other income of the Company, which was Rs.2,812 Lakhs, contributed 1.1% to the total revenues, indicating the Companys focus on its core business operations.

The Companys total expenses increased by 3.1% from Rs.2,34,750 Lakhs in 2022-23 to Rs. 2,41,976 Lakhs in 2023-24, which was aligned with the Companys growth. Material costs (including purchases of traded goods) which constituted 63.9% of the Companys revenues, increased by 0.6% from Rs.1,61,101 Lakhs in 2022-23 to Rs.1,62,043 Lakhs in 2023-24.

The Companys employees expenses, accounting for 9.6% of the revenues, increased by 11.6% from Rs.21,713 Lakhs in 2022-23 to Rs.24,239 Lakhs in 2023-24. Additionally, the Companys power and fuel costs decreased by 24.6% from Rs.31,984 Lakhs in the 2022-23 to Rs.24,128 Lakhs in 2023-24.

Analysis of the Balance Sheet

Sources of Funds

As of year, ending on 31st March 2024, the Companys capital employed decreased from Rs.98,176 Lakhs in 2022-23 to Rs.76,230 Lakhs in 2023-24. Additionally, the Companys net worth decreased from Rs.78,321 Lakhs to Rs.72,317 Lakhs in the same period, due to buy back of equity shares. The Company had 4,10,03,620 equity shares of Rs.2/- each at the end of fiscal year under review.

Furthermore, the Companys long-term debt decreased by 49.6% to Rs.403 Lakhs on 31 March, 2024. The long-term debt-equity ratio reached 0.01 in 2023-24. Additionally, the Companys finance cost reduced by 1.3%, from Rs.787 Lakhs to Rs.777 Lakhs in 2023-24.

Applications of Funds

The Companys gross block (including CWIP) increased by 3.1% from Rs.67,074 Lakhs as of 31 March, 2023, to Rs.69,153 Lakhs as of 31 March, 2024, due to investments in production capabilities. Additionally, the depreciation and amortization increased by 7.0% from Rs.4,357 Lakhs in the year 2022-23 to Rs.4,663 Lakhs in 2023-24.

Investments

The Companys non-current investments increased from Rs.13,160 Lakhs on 31 March, 2023 to Rs.30,716 Lakhs on 31 March, 2024 primarily because of investment in subsidiaries

Working Capital Management

As of 31 March, 2024, the Companys current assets reduced by 10.8% to Rs.60,573 Lakhs from Rs.67,881 Lakhs in the previous year. Further, the inventory levels of the Company, which include raw materials, work-in-progress, and finished goods, decreased by 13.3% from Rs.22,125 Lakhs to Rs.19,177 Lakhs in 2023-24. The inventory turnover cycle decreased to 28 days in 2023-24 from 33 days in 2022-23. However, the Companys debtors turnover cycle increased from 39 days to 45 days, with a total of Rs.31,056 Lakhs in 2023-24 compared to Rs.26,184 Lakhs in 2022-23.

However, the loans and advances made by the Company decreased by 71.9% from Rs.480 Lakhs as of 31 March, 2023 to Rs.135 Lakhs as of 31 March, 2024.

Margins

The Companys EBITDA margin improved by 66 basis points, from 6.0% in 2022-23 to 6.7% in 2023-24. Similarly, the net profit margin also by 40 basis points, from 3.7% in 2022-23 to 4.1% in 2023-24.

Key Numbers

Particulars	2023-24	2022-23
^ Debtors Cycle (days)	45	39
Inventory Cycle (days)	28	33
Interest Coverage Ratio (x)	19.38	16.61
Current Ratio (x)	1.01	1.19
EBITDA/Turnover (%)	6.7	6.0
Debt-Equity Ratio (x)	0.02	0.22
Net Profit Margin (%)	4.1	3.7
Return on Net Worth (%)	13.8	12.1
Book Value Per Share (T)	176.37	184.40
Earnings Per Share (T)	24.64	21.21

Consolidated Financial Overview

In 2023-24, the Companys revenues from operations experienced a growth of 4.6%, amounting to Rs.2,59,135 Lakhs, compared to Rs.2,47,851 Lakhs in the year 2022-23. Other income of the Company, which was Rs.1,061 Lakhs, contributed 0.4% to the total revenues, indicating the Companys focus on its core business operations.

The Companys total expenses increased by 2.5% from Rs.2,39,802 Lakhs in 2022-23 to Rs.2,45,711 Lakhs in 2023-24, which was aligned with the Companys growth. Material costs (including purchases of traded goods) which constituted 44.1% of the Companys revenues, decreased by 3.2% from Rs.1,18,012 Lakhs in 2022-23 to Rs.1,14,185 Lakhs in 2023-24. The Companys employees expenses, accounting for 12.5% of the revenues, increased by 7.7% from Rs.30,115 Lakhs in 2022-23 to Rs.32,437 Lakhs in 2023-24. Additionally, the Companys power and fuel costs reduced by 19.4% from Rs.64,707 Lakhs in the 2022-23 to Rs.52,187 Lakhs in 2023-24.

Analysis of the Balance Sheet

Sources of Funds

As of year ending on 31 March, 2024, the Companys capital employed decreased from Rs.1,40,724 Lakhs in 2022-23 to Rs.1,19,693 Lakhs in 2023-24. Additionally, the Companys net worth decreased from Rs.78,697 Lakhs to Rs.72,014 Lakhs in the same period, mainly due to buyback of equity shares.

The Companys long-term debt increased marginally by 0.3% to Rs.18,567 Lakhs on 31 March, 2024. The long-term debt-equity ratio reached 0.26 x in 2023-24. Additionally, the Companys finance cost increased by 15.1%, from Rs.4,036 Lakhs to Rs.4,646 Lakhs in 2023-24.

Applications of Funds

The Companys gross block (including CWIP) increased by 7.6% from Rs.1,35,954 Lakhs as of 31 March, 2023, to Rs.1,46,352 Lakhs as of 31 March, 2024, due to investments in production capabilities. Additionally, the depreciation and amortization increased by 6.9% from Rs.6,785 Lakhs in the year 2023-23 to Rs.7,251 Lakhs in 2023-24.

Working Capital Management

As of 31 March, 2024, the Companys current assets reduced by 8. 7% to Rs.82,145 Lakhs from Rs.89,941 Lakhs in the previous year. Further, the inventory levels of the Company, which include raw materials, work-in-progress, and finished goods reduced by 11.5% from Rs. 39,148 Lakhs to Rs.34,658 Lakhs in 2023-24. The inventory turnover cycle reduced to 49 days in 2023-24 from 58 days in 2022-23. However, the Companys debtors turnover cycle increased from 40 days to 48 days, with a total of Rs.33,722 Lakhs in 2023-24 compared to Rs.26,831 Lakhs in 2022-23.

Margins

The Companys EBITDA margin improved by 216 basis points, from 7.7% in 2022-23 to 9.8% in 2023-24. Similarly, the net profit margin also by 86 basis points, from 2.9% in 2022-23 to 3.8% in 2023-24.

Key Numbers

Particulars	2023-24	2022-23
^ Debtors Cycle (days)	48	40
Inventory Cycle (days)	49	58
Interest Coverage Ratio (x)	4.12	3.35
Current Ratio (x)	0.98	1.11
EBITDA/Turnover (%)	9.8	7.7
Debt-Equity Ratio (x)	0.47	0.62
Net Profit Margin (%)	3.8	2.9
Return on Net Worth (%)	12.9	9.8
Book Value Per Share (Rs.)	175.63	185.28
Earnings Per Share (Rs.)	23.00	16.83

Human Resource

In todays fiercely competitive business environment, Somany Ceramics demonstrates a deep appreciation for the pivotal role played by its human resources in driving success. Understanding that employees are fundamental for any organization, Somany Ceramics has taken a comprehensive approach to fortify its workforce. By embracing best practices and implementing Standard Operating Procedures (SOPs) across various functions, the Company ensures uniform efficiency and consistency among team members, thereby optimizing overall performance.

However, Somany Ceramics does not rest on its laurels; it actively pursues innovation to future-proof its human resources. Recognizing the paramount importance of employee skill development, the Company has pioneered the industry by introducing a state-of- the-art e-learning platform. This dynamic tool not only empowers employees to stay abreast of evolving market dynamics and consumer expectations but also fosters a culture of curiosity and continuous learning within the organization.

The recognition received from the Confederation of Indian Industry (Cll) for Significant Excellence in HR Practices serves as a testament to Somany Ceramics unwavering commitment to nurturing its employees and cultivating a workplace culture centered on innovation, inclusivity, and empowerment. Furthermore, in its pursuit of excellence, Somany Ceramics has leveraged technology to streamline its HR processes. The development and implementation of a sophisticated cloud-based software have revolutionized HR management, automating critical areas, reducing manual intervention, and enhancing overall process efficiency.

As of 31 March, 2024, the Company had 1,953 workforce on its payroll.

Audit Discipline

Somany Ceramics showcases a committed dedication to a comprehensive and robust risk management framework, reinforced by a meticulously crafted internal control system. This hallmark of the Companys corporate ethos rejects a profound commitment to excellence and forward-thinking.

At the core of this formidable risk management strategy lies the establishment of a highly skilled internal audit committee, comprising distinguished Independent Directors. Operating with utmost diligence, this committee upholds transparency and rigorously safeguards the organization against potential manipulation. It diligently presents its findings to the Board on a quarterly basis, empowering stakeholders to make well-informed decisions in the dynamic realm of risks.

In addition to this structure, Somany Ceramics conducts weekly executive committee meetings, where visionary leaders collaborate seamlessly, devising innovative strategies to proactively address emerging risks. This collective ingenuity enables the Company to anticipate challenges, pre-empt threats, and navigate complexities with unparalleled insight. The committees dedication extends to addressing compliance issues, reinforcing the Companys operational resilience.

Rejecting a corporate ethos steeped in innovation, Somany Ceramics understands that risk management goes beyond mere compliance— it serves as an integral pillar supporting a robust and sustainable business model. This commitment to ethics, responsible governance, and prudent decision-making is ingrained in the organizations DNA.

By harnessing the collective expertise of its visionary minds, Somany Ceramics cultivates a strong bond with stakeholders, fostering trust and transparency. The Companys emphasis on accountability earns admiration and respect from the industry.

The section comprises statements that indicate the Companys aims, projections, expectations, and estimations. These statements may be considered forward-looking according to securities laws and regulations, and there is a possibility that the actual results may differ significantly from what is expressed or implied. Various factors such as economic conditions affecting supply and demand, ffuctuations in raw material costs, alterations in Government rules and tax laws, economic developments, and other unanticipated factors could severely affect the Companys operations.