Building Material Q3 Results Preview - Tepid Quarter Likely: ICICI Securities

ICICI Securities Report

Building material companies under our coverage are expected to report a tepid quarter (Q3 FY23) YoY with both revenue and Ebitda being subdued across segments due to high base.

Volume growth across sectors (barring pipe segment) is likely to be tepid YoY/QoQ due to high base and softness in demand as inflationary pressures remained high.

In Q3, tile companies under our coverage (Kajaria Ceramics Ltd., Somany Ceramics Ltd.) are expected to witness volume growth of (down 0.6)%/up 1.4% YoY on a high base (three-year compound annual growth rate of 7.7%/5.9%) with operating margins improving QoQ (up 191 bps/+110 bps) led by the easing of gas cost.

In plywood segment, we expect volume growth of 3.8% to 8.9% YoY (three-year CAGR: 4.1% to 11.9%) with operating margins declining QoQ on continued raw material cost pressures.

In MDF, we expect margins to be under pressure due to higher raw material cost and tepid volume growth on account of a significant pick-up in imports (due to weak global demand, lower ocean freight rate and higher container availability).

For pipe companies, we estimate volume to grow by 18-32% YoY (three-year CAGR: 2.3% to 9.1%) as pvc prices stabilised in Q3 (closer to its 10-year average).

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