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Mixed bag

Tiles subdued; Plumbing to witness robust growth

In Q3FY24, expect demand for building material products to trail expectations despite the festive season. Except for the pipes segment, other segments may post weaker-than-expected demand. Contrary to expectations of a recovery during the festival and marriage seasons, demand for paints remained weak in Q3. In the plumbing segment, demand for plastic pipes was robust due to uptick in the Real Estate market. The tiles segment continued to witness muted demand. In the wood panel segment, plywood may maintain stable demand, while MDF and Particle Board may see an increase led by improving capacity utilisation. We anticipate an improvement in demand for tiles and wood panels in FY25, as such demand follows demand for pipes

Plastic pipes and wood panels to drive volume growth

Expect Elara Building Material universe to report a revenue growth of 7.9% YoY in Q3FY24E (four-year CAGR 14.2%), led by 14.1% growth in plastic pipe plays and 11.5% growth in the wood panel segment. Paint and Tiles companies may underperform with 6.3% and 5.6% YoY growth respectively. In the paints sector, we estimate double-digit volume expansion which lower than earlier expectation, primarily driven by BRGR and APNT. KNPL may achieve mid-single digit volume growth.

For plastic pipes, ASTRA and SI may see double-digit volume growth despite a high base. But the impact on realization/sales growth may be slight due to lower PVC prices. In the tiles category, expect mid-single digit volume growth for both KJC and SOMC, aligning with Q2 performance. In the wood panel segment, CPBI is poised for robust, double-digit volume growth in both MDF and Particle Board segments. Plywood and laminates are expected to achieve mid-single digit and close to doubledigit volume growth, respectively.

Strong margin expansion expected in Q3

For Q3FY24E, we estimate Elara Building Material universe to see gross margin expansion of 420bps YoY and EBITDA margin gain of 300bps YoY but led by soft input prices of crude oil derivatives, PVC prices, timber prices and fuel prices. We expect Elara Building Material universe to post an EBITDA growth of 29.2% YoY (four-year CAGR of 14.6%).

Paint companies may spearhead EBITDA margin growth, trailed by tiles and plastic pipes. EBITDA margin for the Wood Panel segment may slightly drop, primarily due to elevated overhead expenses resulting from capacity increase. Our preferred picks within Elara Building Materials universe are Century Plyboards, Astral and Kajaria Ceramics. We are pessimistic on the Paint sector due to the potential disruption caused by the entry of a major player, affecting existing participants.