Fourth quarter results outlook: Pipes will outperform other building materials segments
In the January-March quarter, plastic pipe manufacturers are expected to outperform peers in other categories within the building materials sector in terms of volumes and margins. Strong demand from key segments within the pipe category is expected to help pipe companies achieve double-digit growth in the quarter. By comparison, categories like tile, bathware and wood panels can report mid- to high-single-digit growth rates and face multiple demand headwinds.
Citing channel controls, Systematix Research suggests that demand for most construction material categories would remain weak in the March quarter 2023-24 (Q4FY24) given inflation-led weakness in consumer sentiment. However, the brokerage’s Ashish Poddar and Mahek Shah expect the pipes segment to maintain its momentum and report robust volume growth of 12 to 25 percent year-on-year, driven by key sectors of plumbing, infrastructure and agriculture.
Tiles and wood panels players, on the other hand, saw weak demand in the quarter and major listed players are expected to post growth of 5 to 9 percent. Commenting on tile companies, Axis Securities said a disruption in international trade through the Red Sea led to a five-fold increase in container costs and a doubling of transit time, delaying tile exports.
This shifts production from export-oriented units to the domestic market (and puts pressure on prices). Venkatesh Balasubramaniam and Shubham Aggarwal of the brokerage pointed out that domestic demand for the tile sector remained weak. The analysts expect Kajaria Ceramics to achieve volume growth of 7 percent year-on-year, along with a decline in realization. Kajaria Ceramics and Somany Ceramics are expected to report low volume growth of 3-4 percent, while softer gas costs could keep margins high.
Plywood demand in Q4 2024 is likely to remain similar to December quarter (Q3). According to BoB Capital Markets, the wood panel sector saw an operating profit contraction of 4.5 percent for the sixth consecutive quarter in the third quarter due to a dull demand environment and margin stress due to high import pressure in medium density fiberboard (MDF) chipboard. and higher lumber prices.
The wood panels seen in the fourth quarter would be affected by a rise in wood prices, higher imports and intense competitive pressure, especially from regional players. According to analysts led by Amit Purohit of Elara Securities, the expansion of BIS standard implementation for MDF and chipboard will hurt the industry in the short term. “Moreover, an influx of cheap MDF imports has affected the realization of the domestic segment. We expect demand for tiles and wood panels to improve in the second half of FY25, following the trend in pipes.”
While Greenply’s MDF volume and realization are expected to remain flat year-over-year, this could increase for Century and Greenply. The sector could see a price correction of up to 4 percent this quarter. Elara Securities’ preferred picks are Astral and Century Plyboards.
Even as other companies struggle, the pipe sector’s performance is expected to be led by Supreme Industries and Astral, which could see their volumes rise by 20 to 25 percent. Prince Pipes and Finolex Industries are expected to underperform the market leaders, with growth of 12 to 15 percent. Pipeline companies are optimistic about continued volume growth and healthy margins in the coming quarters amid a low and stable PVC price, says Systematix Research. The preferred choices in building materials are Stylam Industries in wood panels and Carysil in tiles and bathware. It has a hold rating for all players in the plastic pipe segment.
First print: April 21, 2024 | 9:51 PM IST