Q3 result preview: Building material companies expected to post strong volume growth with margin improvement

With the booming real estate market in India, building material companies are expected to see strong performance in terms of volumes and margin growth during the third quarter of fiscal year 2023-2024.

Even after a higher base, building material companies are likely to report moderate to strong volume growth, while a decline in raw material prices would aid margin expansion in Q3FY24.

Brokerage firm Prahudas Lilladher anticipates healthy volume growth of around 12% year-on-year (YoY) in the plastic pipe sector, while tiles and bathware sectors are estimated to experience lower growth of 5-7% YoY. 

It expects companies to register sales growth of 5.8% YoY, given correction in realizations in the plastic pipe segment. With correction in RM prices and fuel expenses, it expects margins to improve 190 bps YoY along with EBITDA and PAT growth of 21.1% and 28.9% YoY.

Also Read: Q3 result preview: IT firms expected to post muted revenue, subdued profit amid weak demand

“We remain positive on the sector considering buoyancy in the real estate market; government’s focus on housing, sanitation and infrastructure; improvement in agriculture segment with normalization in raw material prices; pick-up in exports and increase in branded or large players market share.

Plastic Pipe Sector

In Q3FY24, the plastic pipe sector is expected to report EBITDA margin expansion of 230 bps YoY to 14.7% with sequential stability in raw material prices. Sales volume is expected to grow by 11.8%YoY on a higher base. 

According to the brokerage firm, demand continues to be healthy mainly in the plumbing segment even after a seasonally weak quarter. 

Supreme Industries and Astral are expected to deliver strong volume growth of 16% and 17% YoY in the Pipe & Fittings segment on a higher base of the previous year same quarter. 

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Tiles & Bathware

In the Tiles & Bathware segment, Prabhudas Lilladher expects Kajaria Ceramics to report revenue growth of 6.9% YoY mainly with lower tiles volume growth of 7.3% YoY. EBITDA margin is expected to improve to 16.0% on account of reduction in fuel expenses, gas prices & use of alternate fuel. 

Cera Sanitaryware is expected to witness revenue growth of 4.1% YoY due to moderate growth in Faucets and Sanitary business, expected to grow by 8% and 4% YoY. The company is expected to report an operating margin of 16.4%, flat YoY, with PAT growth of 5.0% YoY. 

The brokerage has reduced Cera Sanitaryware’s earning estimates for FY24 by 3.7% to factor slowdown in growth in Q3FY24.

Also Read: Weak rural demand to dent FMCG sector volumes in Q3FY24, says Nuvama; United Breweries, Nestle to be outliers

Woodpanel

The woodpanel sector is anticipated to experience pick up in MDF volume and timber prices are expected to be soft with normalization in its availability. We expect MDF volume growth of 18.1% and 7.9% for Century Plyboards and Greenpanel Industries and plywood volume growth of 10.0% and -7.7%, said the brokerage firm.

PAT growth for these two companies in Q3FY24 is estimated at 20.7% and 31.6% YoY respectively. 

The brokerage house prefers Woodpanel companies on account of stabilization in timber prices, possible reduction in MDF imports aided by implementation of BIS norms, domestic MDF realization maintained despite capacity increase and healthy volume growth of 15-20% in MDF.

Its top pick is Greenpanel Industries given Revenue, EBITDA and PAT CAGR of 15.4%, 26.1% and 28.9% over FY24-26. Considering buoyancy in real estate, tiles demand with lag in real estate cycle will benefit Kajaria Ceramics, it said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.