Building Materials Q2 Results Preview - Margin Expected To Improve, Healthy PAT: Prabhudas Lilladher

Prabhudas Lilladher Report

Building Material companies under our coverage universe are expected to report moderate volume growth. However, we anticipate robust volume expansion in the plastic pipe sector, while the tiles and wood panel sectors are likely to experience lower growth.

We expect companies to register sales growth of 4.7% YoY, given correction in raw material prices which mainly impacted plastic pipe segment realisations and de-growth in wood panel companies.

With sequential stable raw material prices and correction in power and fuel expenses, we expect margins to go back to normal level (plus 580 basis points YoY) along with Ebitda/profit after tax growth of 78.6%/87.5% YoY (on lower base), excluding Finolex Industries Ltd.., Ebitda/profit after tax growth of 27.2%/28.0% YoY. We remain positive on the sector considering.

1. buoyancy in real estate market (despite interest rate hike),

2. Government focus of housing, sanitation and infrastructure,

3. improvement in agri. segment with normalisation in raw material prices,

4. pick up in export, and

5. increase in branded/large players market share.

We prefer plastic pipe companies with robust volume growth, our top pick is Supreme Industries Ltd. considering revenue/Ebitda/PAT compounded annual growth rate of 15.1%/21.9%/21.6% over FY23-26.

Considering buoyancy in real estate, tiles demand with lag in real estate cycle will benefit Kajaria Ceramics Ltd. being leader in sector. We continue to like Greenpanel Industries Ltd., given its.

1. leading position in domestic MDF segment,

2. strong growth prospects in domestic MDF demand,

3. planned capacity increase of 35% over FY23-25 and

4. extensive distribution network.

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