Published on 13/01/2018 10:28:05 AM | Source: ICICI securities

Building Materials - Growth back in double digits albeit on a low base - ICICI sec

Posted in | #Expert Views #Real Estate Sector #Quarterly Result #ICICI Securities


We estimate building material companies under our coverage to report aggregate revenue growth of 14.1% YoY in Q3FY18. We believe the acceleration in revenue growth rate is largely attributable to low base due to demonetisation in the corresponding quarter of previous year. We expect double digit growth across the pipes, sanitaryware and plywood segments while ceramic tiles segment is likely to report single digit growth led by increased competitive intensity from the Morbi cluster. EBITDA margins for companies under our coverage are expected to remain flat YoY while improve 85bps sequentially largely led by margin improvement in pipes segment. We expect PAT growth for our coverage universe at 20% YoY with GRLM, MTLM and APTL leading the growth.

Key factors to watch out this quarter in the building material sector:

* Volume growth: a) Quantum of inventory refilling at dealers’ end in the substrate wood panel, tiles and sanitaryware industry, and b) acceleration of shift from unorganised to organised industry from mid-Nov (post the amendments in GST rate) in the wood panel and tiles space.

* Management commentary on price hikes: With the recent spurt in crude prices, input costs for some sectors like ceramic tiles and sanitaryware (higher gas prices), faucets (higher brass prices), wood panel (higher resin prices), and PVC pipes (higher polymer prices) would have surged. Management commentary on the probability of passing on these input costs would be a key monitorable.

Key monitorable for each building material category in Q3FY18:

a) Wood panel sector: 1) Traction in plywood volumes post GST rate amendment, 2) GST transition in MDF sector, and 3) increase in competitive intensity in North India post commencement of CPBI’s MDF unit in Hoshiarpur leading to pressure on MDF prices and margins.

b) Tiles companies: 1) Innovation and branding aggression, 2) increase in competitive intensity particularly from Morbi branded players and higher gas prices leading to pressure on margins, 3) traction in ultra large format tiles/slabs.

c) Sanitaryware sector: 1) Increase in gas prices leading to pressure on margins, and 2) higher brass prices leading to pressure on faucet margins.

d) Pipes companies: 1) Increase in PVC prices during the quarter, 2) competitive intensity in the CPVC pipes segment.

Quarterly summary

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