Sonam's margin guidance contradicted itself within the same call
Revenue grew 64% but PAT margin compressed to 4.3%. Management first promised year-on-year margin improvement, then said it might not grow in percentage terms.
What's new
- FY26 revenue hit ₹171 cr, up 64.2% YoY, but PAT grew only 15.6%.
- EBITDA margin fell to 8.8% and PAT margin compressed to 4.3% despite the revenue surge.
- FY27 revenue guidance is 25-30% growth, anchored to pre-ordered raw materials and a current order book.
Themes from the call
Margins
Raw material cost inflation is the primary margin driver, and management admitted it has no company-specific cost-reduction plan to offset it.
Premiumization
Sonam is shifting from sub-₹3,000 clocks to the ₹3,000-6,000 range to chase higher contribution margins as consumer purchasing power rises.
Geopolitics
Iraq orders are completed and ready to ship, but are held due to the Middle East crisis and high freight costs. The revenue timing is unquantified.
Guidance watch
- FY27 revenue growth guided at 25-30% from a ₹171 cr base, implying ₹214-222 cr.
- Margin improvement promised only in absolute terms; percentage-basis expansion was explicitly declined.
- Management refused to guide on FY27 PAT growth rate or EBITDA margin percentage range.
Risk flags
- The 64% revenue growth produced only 15.6% PAT growth, showing scaling is not translating to profitability.
- Iraq export orders are completed but stuck, with no timeline for clearance or revenue recognition.
- Online channel trials on Amazon and Flipkart are underway but limited by wall clock fragility and return rates.
Key quotes
-
"The margin will improve year-on-year... it might not increase in percentage terms, but the absolute margin will increase."
— Sonam management -
"Raw material cost increases cited as pervasive sector-wide pressure with no company-specific mitigation through productivity or cost reduction disclosed."
— Tijori analysis
The brief
Sonam's June earnings call was a study in hedging. Revenue grew 64% to ₹171 cr, which is strong for a consumer durables maker. But the profit story is the opposite. PAT grew just 15.6%, and margins compressed hard. The EBITDA margin was 8.8%, and the PAT margin fell to 4.3%. The reason is raw material cost inflation, which management called a sector-wide problem. It has no company-specific fix.
Then came the guidance. The CEO first promised margins would 'certainly' improve year-on-year. Minutes later he said the improvement might not show up in percentage terms. The honest read is that Sonam expects absolute profit to rise because revenue will grow 25-30%, but the margin ratio itself is flat or falling. That's not a margin improvement story. It's a volume story.
The company is pushing into premium products, moving from sub-₹3,000 clocks to the ₹3,000-6,000 range. The theory is that higher contribution margins will offset input cost inflation. The data doesn't support it yet. The premium shift is early, and the margin is still compressing.
The other headwind is Iraq. Sonam's primary export market is stuck. Orders are finished, but the geopolitical crisis and high freight costs have halted shipments. The revenue impact is unquantified, but it's a real risk to the 25-30% growth guidance. Management called the disruption 'temporary' but offered no timeline.
Sonam has plenty of capacity at 50-60% utilization, so scaling isn't the problem. Every extra rupee of revenue is producing fewer paise of profit. That's not what the market hears when it hears 'margin improvement'.
Sonam's margin improvement story is really a volume story dressed in better language.