Building Materials Sector Check - Strong Recovery In Agri Pipes; Wood Panels, Tiles In Soft Lane: Systematix

Systematix Research Report

Pipes reported strongest volumes (up 64% YoY, 30% QoQ) within the building materials space in Q3 FY23, spurred by agri segment, as higher PVC prices (since Dec-22) caused channels to restock (after three years of flattish volumes).

Inventory losses in Oct and Nov (due to sharp correction in PVC prices) and an inferior mix (agri segment) had led to limited margin recovery QoQ.

With PVC prices heading north, we expect the volume trend to stay robust (on channels maintaining high stocks) and margins to expand (on inventory gains and liquidation of high-cost stock).

Subdued domestic demand and margin pressure in all segments resulted in a weak Q3 for the wood panel segment (revenue/Ebitda/profit after tax down 6%/9%/14% QoQ). Rising wood prices continued to suppress plywood margins.

Subdued demand of tiles (volumes/ revenues flattish QoQ, in line) and inflated gas prices (softened QoQ though) kept margins (flattish QoQ) of key tiles players, Kajaria Ceramics Ltd. and Somany Ceramics Ltd. under check.

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