Building Material Q2 Results Preview - Moderate Volume Growth With Margin Contraction: PL Capital

PL Capital Report

Building material companies under our coverage universe are expected to report moderate revenue growth due to weak demand and higher base, along with contraction in margins due to inventory loss in plastic pipe companies and higher timber prices in the woodpanel segment.

Plastic pipe sector is anticipated to see moderate volume growth of 8.9% YoY. Further, tiles and bathware sectors are likely to experience lower growth due to weak demand and increased competitive intensity.

We expect coverage companies to register sales growth of 2.2% YoY, given correction in Finolex Industries Ltd., Cera Sanitaryware and Greenpanel revenue, while Astral and Century Plyboards are likely to outperform.

Driven by inventory loss in the plastic pipe segment & higher timer prices in woodpanel segment, we anticipate margin to contract by +140 bps YoY, and Ebitda and PAT to decline by 7.8% and 11.8%, respectively for coverage companies.

We prefer plastic pipe companies with expected regulatory change towards PVC resin import (increase in anti dumping duty on China, Japan, USA etc. import), which will benefit large organized players like Astral and Supreme Industries and also expected heathy volume growth.

Our top pick is Astral, which is likely to clock revenue/Ebitda/PAT CAGR of 19.6%/21.3%/26.3% over FY24-27E and trading at 46 times FY27E earnings (five-year average, one-year-forward PE of 62 times).

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